U.S. Defense companies have two main avenues for selling on the international market: Direct Commercial Sales (DCS) and Foreign Military Sales (FMS).
This chart explains the main differences between Foreign Military Sales (FMS) and Direct Commercial Sales (DCS). Both are viable options for U.S. defense companies seeking to do business overseas.
Foreign Military Sales
Direct Commercial Sales
|Nature of Relationship||The US DOD will negotiate with the Customer on behalf of the Vendor.||Customer negotiates directly with the Vendor.|
|United States Government Involvement||The US DOD assumes contracting risk and is responsible for ensuring that the Vendor meets cost, schedule, and performance requirements. The US DOD guarantees payment by the Customer.||U.S. Government (USG) is not involved in the transaction, and does not act on behalf of the Customer or Vendor should complications arise.|
|Export Licenses||This is a government-to-government transfer, so the export process is managed the US DOD. No involvement by the Vendor is required.||The Vendor must obtain export approval from the U.S. State Department. The Vendor is responsible for submitting a completed DSP-83.|
|Congress notification||Any required notifications to Congress are jointly sponsored by the US DOD and the State Department.||Congress must be notified by the State Department of a decision to issue an export license if the sale includes significant defense equipment valued at $14 million or more. (Basically, both DCS and FMS require the same type of notification)|
|Contract Issues||US DOD procures the defense articles under the same contractual provisions used for all DOD procurement. The Customer pays an additional 3.5% of the total price to cover the contracting and administrative services provided by US DOD.||The Vendor negotiates with the Customer. The Customer assumes management responsibility. These activities represent overhead management costs to the Customer. The size and skill of the Customer contracting staff may be a limiting factor during procurement.|
|Cash Flow Requirements||The initial deposit required is usually somewhat lower than commercial contract down payments. This facilitates payment by the Customer.||Direct commercial contracts generally require a relatively large down payment, payable at the time of contract signature. This may create difficulties for the Customer.|
|Availability of Foreign Military Financing Program (FMF) Funding||U.S. financial assistance, through the Foreign Military Financing Program (FMF) may be available to the Customer. If FMF funds are available, they must be processed through FMS (except for the ten countries granted an exception).||If the Customer wishes to use FMF funding, DCS is not an option. Ten countries are granted an exception that allows them to use FMF funding to pay for DCS contracts: Israel, Egypt, Jordan, Morocco, Tunisia, Turkey, Portugal, Pakistan, Yemen, and Greece.|
Notes and abbreviations:
- U.S. DOD – U.S. DOD refers to any U.S. military office. There are various DOD offices involved in the FMS process.
- Vendor – the Vendor refers to the U.S. defense company seeking to sell their product overseas.
- Customer – the Customer refers to the Foreign Government purchaser of the U.S. defense products.
Read More about FMS on LMDefense:
- Foreign Military Sales Sole Source Requirements Updated
- Foreign Military Sales Admin Fee Decreases to 3.5%; Small Case Fee Eliminated
- Growth in Foreign Military Sales — Fluke or Long-Term Trend?