Special billing arrangements

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1. Two official bills

Foreign Military Sales (FMS) has two official forms of billing, under the Security Assistance Management Manual (SAMM) (SAMM C9.10.2). One is the quarterly DD Form 645 billing statement issued by the Defense Finance and Accounting Service (DFAS). The other is the special bill letter issued by the Defense Security Cooperation Agency (DSCA) under a special billing arrangement. Where an arrangement exists, the special bill letter supersedes the DD Form 645 and is the official claim for payment. How the standard quarterly statement works is covered in payment schedules and billing.

The arrangement exists to improve cash management for eligible partners (SAMM C9.10.2). It does so by projecting cash needs more accurately, including the reserves for termination liability agreed in the Letter of Offer and Acceptance (LOA). The manual defines four standard elements. Working capital is the partner’s current cash balance not tied to a projected expenditure, including the termination liability reserve. A special reserve may be added for special requirements such as high-value programs, a baseline reserve covers spending until the special bill is paid, and a working fund covers spending after that.

2. Who can have one

Partners eligible for dependable undertaking (DU) are considered if they have a strong record of consistent and timely payment (SAMM C9.10.2.1). Under a Defense Department directive, the DSCA Director has authority to set up arrangements, and has delegated it to the DSCA Chief Financial Officer (SAMM C9.10.2.2).

An eligible partner asks DSCA’s Principal Director for Business Operations (SAMM C9.10.2.3). DSCA’s regional financial division negotiates the arrangement. It coordinates the draft with the general counsel, the relevant regional execution division and its own directorate, and then presents it for approval. Every arrangement must state how often billing happens: monthly, quarterly or semi-annually, as the two sides agree (SAMM C9.10.2.3.1). The DU test itself is covered in terms of sale and the dependable undertaking.

3. The special bill letter

Once an arrangement is in place, DSCA sends the partner a special bill letter on the dates and at the frequency the arrangement sets (SAMM C9.10.2.4). The amount due in the letter replaces the amount due and payable column of the DD Form 645. The manual’s worked example nets working capital against the special reserves, the working fund and the baseline reserve to arrive at the amount due for the period.

Each offer billed this way carries a standard statement, which DSCA’s case writing division adds (SAMM C9.10.2.4.1). It explains that the payment schedule on the offer is the Defense Department’s best estimate of its cash needs, and that the purchaser has agreed to a special billing arrangement. It says the amount on the letter supersedes the amount on the DD Form 645 and is what the purchaser is obligated to pay. The statement ends that the amount due is "an official claim of the United States Government and is incorporated into this LOA for purposes of enforcement and claims" (SAMM C9.10.2.4.1). Its purpose is to make sure every party knows the official billing method for each offer (SAMM C9.10.2.4.1.1).

The case system records which partners use the arrangement on its country reference report, and changes are fed to DSCA’s systems team by country finance directors (SAMM C9.10.2.4.2). DSCA’s regional financial division reviews offers to make sure the statement is included where needed.

4. The payment schedule still matters

The arrangement does not replace an accurate payment schedule on the offer (SAMM C9.10.2). Schedules are not adjusted to match what the special bills ask for. The manual stresses that the schedule on the basic offer is essential for the partner’s own budgeting, and must be as accurate as possible. When the schedule no longer reflects a case’s financial needs, the implementing agency should prepare a modification to update it.

That duty applies whatever the billing method (SAMM C9.10.2.5.3). Implementing agencies must keep schedules accurate through annual reviews, and by reviewing and updating them each time a case is amended or modified.

5. Who runs it

DSCA’s business operations office is primarily responsible for setting up arrangements, and its regional financial divisions manage the special bills at country level (SAMM C9.10.2.5). The regional division calculates every special bill letter under the arrangement and answers questions about it (SAMM C9.10.2.5.1). DFAS’s security cooperation accounting directorate supplies the supporting documents for the calculations, as agreed with the division (SAMM C9.10.2.5.2).

6. Leaving by choice

A partner that wants to leave must give DSCA at least 30 days’ notice (SAMM C9.10.2.6.1). Within 10 business days of the notice, the regional division sends a final special bill letter for the amount due until the next DD Form 645 is available. The letter tells the partner when to start using the DD Form 645 again. The amount is based on calculated cash needs up to the next DD Form 645 due date, and must be paid in full by the letter’s due date and before the next statement is generated.

DSCA may end an arrangement on the same terms (SAMM C9.10.2.6.2). It gives at least 30 days’ notice and sends the final letter within 10 business days of that notice, and the partner must again pay in full before the next statement.

The manual walks through an example (SAMM C9.10.2.6.1). A partner pays its April special bill of $12 million after giving notice. The final letter then asks for the third-quarter statement amount of $45 million less that $12 million, so $33 million. The fourth-quarter statement of $65 million is reduced by both payments, leaving $20 million to pay to DFAS in June. If a partner cannot pay the final letter, overdue amounts become ordinary arrears subject to interest once a structured repayment fails (SAMM C9.10.2.6.3.2). In a repayment plan the full termination liability reserve has to be included in the up-front payments, because that reserve cannot be used to pay bills (SAMM C9.10.2.6.3).

Key terms

Special billing arrangement	An agreement letting DSCA bill a partner on projected cash needs instead of the quarterly statement.
Special bill letter	DSCA’s bill under the arrangement, which supersedes the DD Form 645.
Working capital	The partner’s cash balance not tied to a projected expenditure.
Baseline reserve	The amount needed for spending until the special bill payment arrives.
Final special bill letter	The last bill after notice to end an arrangement, covering cash needs until the next statement.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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