Waivers, exclusions and pricing exceptions

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1. A waiver is not an exception

The Financial Management Regulation separates two ideas that are easy to run together. "A cost recoupment waiver is the exercise of legal authority to partially or totally waive the recoupment of incurred costs" (FMR Vol. 15, Ch. 7, para. 13.0). An exception to pricing policy is different: it is approval of an alternative method of identifying the applicable costs (FMR Vol. 15, Ch. 7, para. 14.0). The regulation states twice that a waiver is not an exception.

The route to approval differs too. Requests for exceptions, and for waivers where the Defense Security Cooperation Agency (DSCA) is not the delegated waiver authority, go to the Comptroller’s office through the component’s senior financial manager and DSCA (FMR Vol. 15, Ch. 7, para. 14.0). DSCA sends its endorsement or objections, and the request must carry enough data for the merits to be judged. Waivers of nonrecurring cost recoupment under section 2761(e)(2) are delegated to the Director of DSCA, and requests are coordinated with three Under Secretary offices (FMR Vol. 15, Ch. 7, para. 13.1). The statutory grounds for that waiver are covered in what goes into the price, and what can be waived.

2. Contract administration waived by agreement

Section 2761(h) of title 22 lets quality assurance, inspection, contract administration, contract audit and cataloging be provided without charge (FMR Vol. 15, Ch. 7, para. 13.3.1). It depends on reciprocity. It covers contracts entered into after October 29, 1979 for NATO members, Australia, New Zealand, Japan, the Republic of Korea and Israel. The government concerned must provide the same services free to the United States under a reciprocal agreement (FMR Vol. 15, Ch. 7, para. 13.3.1.1). It also covers contracts under the NATO Security Investment Program on the same reciprocal basis (FMR Vol. 15, Ch. 7, para. 13.3.1.2).

Authority to negotiate those agreements sits with the Under Secretary for Acquisition and Sustainment, who sends DSCA a copy once one is approved (FMR Vol. 15, Ch. 7, para. 13.3.2). The waived costs do not disappear (FMR Vol. 15, Ch. 7, para. 13.3.3). They are funded by a Department appropriation, and no bills for them go against the trust fund. Each waiver applies only to new cases implemented on or after the agreement’s effective date.

3. Military pay left out of grant cases

Section 2311(a)(3) of title 22 permits military salaries to be excluded from certain grant cases. The exclusion does not cover the Coast Guard, and it applies where a case is wholly financed by Military Assistance Program (MAP) Merger funds or by non-repayable Foreign Military Financing (FMF) (FMR Vol. 15, Ch. 7, para. 13.5.1). The regulation extends the same pricing to Building Partner Capacity and foreign security forces cases funded by Defense or State Department appropriations (FMR Vol. 15, Ch. 7, para. 13.5.2). On those cases, services must be priced without military pay and entitlements, including retired pay accrual.

The exclusion turns on when services are performed, not the date of the agreement (FMR Vol. 15, Ch. 7, para. 13.5.2.1). It applies to services after September 30, 1985 for MAP Merger, and after September 30, 1989 for non-repayable FMF. If an amendment or modification takes the grant funding below 100 percent, the whole case must be repriced to add military pay back (FMR Vol. 15, Ch. 7, para. 13.5.2.2). No separate working capital fund price is set to strip out military pay on these cases (FMR Vol. 15, Ch. 7, para. 13.5.3).

4. Fair pricing

Under sections 2761 and 2792 of title 22, nonrecurring costs are not recouped on cases wholly funded by MAP Merger, non-repayable FMF, Building Partner Capacity or foreign security forces appropriations (FMR Vol. 15, Ch. 7, para. 13.8). Asset use charges have not been applied to sales transactions for delivery reports after December 1, 1989. Where such charges already sit inside standard prices or stabilized rates, no separate price is set. Military salaries and unfunded civilian retirement and other benefit costs are not included in the administrative account.

5. Program-specific waivers

Some waivers attach to a single program. For the NATO Airborne Warning and Control System, 10 U.S.C. 2350e lets the Secretary of Defense waive the cost of listed functions performed outside the Air Force program office (FMR Vol. 15, Ch. 7, para. 13.2). They include auditing, quality assurance, inspection, contract administration, acceptance testing and certification (FMR Vol. 15, Ch. 7, para. 13.2.1). The Secretary may also waive the administrative surcharge. The Secretary may also assume contingent liability for losses caused by the gross negligence of an American contracting officer. The same applies to taxes and duties levied in the United States on the program, and to the American share of unfunded termination liability (FMR Vol. 15, Ch. 7, para. 13.2.2 and FMR Vol. 15, Ch. 7, para. 13.2.3).

Under the European Air Defense Agreements, the Secretary may waive the administrative surcharge and remaining contract administration charges on the sale of Patriot fire units to the Federal Republic of Germany contemplated in those agreements (FMR Vol. 15, Ch. 7, para. 13.7). Charges on NATO cooperative projects may be reduced or waived under 22 U.S.C. 2767(e), with the President’s authority delegated to the Director of DSCA (FMR Vol. 15, Ch. 7, para. 13.4.2). That authority is described in cooperative projects under the Arms Export Control Act.

6. Exchanging unit training

Section 2770a of title 22 authorizes reciprocal unit exchanges of training and related support with a friendly country or international organization (FMR Vol. 15, Ch. 7, para. 13.6.1). It applies only to established military units, not to ad hoc units or individuals. The military department official who negotiates the agreement performs a price analysis (FMR Vol. 15, Ch. 7, para. 13.6.3.1). "If a pricing determination cannot be made, the training may not be performed and the related support may not be exchanged" (FMR Vol. 15, Ch. 7, para. 13.6.3.1).

An exchange needs a written determination that what each side gives has substantially comparable value, monetary and nonmonetary (FMR Vol. 15, Ch. 7, para. 13.6.4.1). If reciprocity is not achieved within 12 months from the start of training, payment is due in the currency of the supplying nation (FMR Vol. 15, Ch. 7, para. 13.6.4.2). Where the United States has not provided its side within 12 months, the exchange becomes a reimbursable transaction and an obligation is recorded (FMR Vol. 15, Ch. 7, para. 13.6.5.1). Where it has not received the other side, the exchange becomes an account receivable (FMR Vol. 15, Ch. 7, para. 13.6.5.2).

Key terms

Cost recoupment waiver	The use of legal authority to waive recovery of incurred costs, in part or in full.
Exception to pricing policy	Approval of an alternative method of identifying costs, sought from the Comptroller’s office.
Reciprocal agreement	An agreement under which contract administration and cataloging are provided free by both sides.
Fair pricing	The statutory rules that exclude certain costs from grant-funded cases.
Unit exchange	A reciprocal exchange of training and related support between established military units.

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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