DSCA recently announced two major changes to its administration of Foreign Military Sales (FMS): The administrative fee will decrease to 3.5% from 3.8% and there is no longer a Small-Case Management Line (SCML).
These changes stem from the fact that FMS sales have grown dramatically in recent years. Remember that FMS must be a zero-sum program – meaning that the U.S. DoD may not expend funds to administer it, nor make a profit. With the recent growth in FMS sales, it appears that DSCA is more than covering its administrative costs and now needs to lower the fee.
This is great news for FMS customers (foreign governments), since it will decrease the price they pay to procure U.S. defense products. FMS already offers great prices to foreign governments, since the DOD negotiates bulk pricing for customers the same way it does with its own procurement. The reduced fee will make FMS even more affordable.
The biggest benefit here is the elimination of the Small Case Management Line (SCML). Until now, all cases under $400,000 were charged a flat admin fee of $15,000. (For small cases, in addition to the 3.8% fee, an extra line was added to the FMS case with a value of $15,000 minus the 3.8% fee.) Essentially, the minimum administrative processing fee for an FMS case was $15,000. This meant that small orders – sniper rifles for Special Forces, imagery systems for emergency response teams, boarding equipment for Coast Guard’s VBSS teams, for example– were either extremely costly under FMS, or not economically feasible at all. Now the SCML has been eliminated and the admin fee has been reduced, so customers will pay only the flat 3.5% administrative fee on any FMS case. Need $100,000 worth of spare parts? The USG admin fee will run you only $3,500. This is quite a break from the previous $15,000.
The last major beneficiary of this change? Those small to medium U.S. defense companies that are well-positioned in the U.S. defense market and want to go international using Foreign Military Sales. Companies that make relatively inexpensive systems or accessories used to face a major barrier in the small case management line. It’s difficult to pitch your equipment to a foreign government as an economical option if there’s an added fee for small cases. Now, more U.S. defense companies have the opportunity to break into the FMS market without the need for a massive order.
Will your company benefit from these changes in FMS? What impact do you anticipate?