In celebration of the release of the 6th edition of the Government Contracts Compliance Handbook, we are excited to share six essential tips for ensuring compliance in government contracts in support of Foreign Military Sales (FMS). These tips are designed to help lawyers and executives working for U.S. federal government contractors navigate the complex landscape of FMS regulations. Our expertise in government contracts law positions us as a valuable resource for those seeking legal assistance in this area.
1. Understand the Statutory Basis and Mechanics of FMS Sales
Compliance with FMS regulations begins with understanding the statutory basis and mechanics of FMS sales. The Arms Export Control Act (AECA) governs FMS transactions, which can be conducted through government-to-government sales or direct commercial sales (DCS). The Defense Security Cooperation Agency (DSCA) manages FMS sales, and the process involves the U.S. government negotiating a Letter of Offer and Acceptance (LOA) with the foreign government.
Key Concepts:
- Familiarize yourself with the AECA and related regulations such as the International Traffic in Arms Regulations (ITAR) and the Federal Acquisition Regulation (FAR).
- Understand the different types of FMS case sales: Defined Order Cases, Blanket Order Cases, and Cooperative Logistics Supply Support Arrangements.
- Ensure compliance with the contract pricing principles established by FAR Part 15 and FAR Part 31.
2. Implement Robust Compliance Programs
A robust compliance program is essential for ensuring adherence to FMS regulations. This includes developing and distributing policies and procedures, conducting regular audits, and providing training to employees involved in FMS transactions. Companies should also establish a hotline for reporting suspected violations and maintain detailed records of compliance efforts.
Key Actions:
- Develop and distribute comprehensive compliance policies and procedures.
- Conduct periodic audits to ensure adherence to compliance protocols.
- Provide regular training sessions for employees on FMS regulations.
3. Navigate the Foreign Military Financing (FMF) Guidelines
The AECA authorizes the U.S. government to finance the procurement of defense articles, services, and training for eligible foreign countries through grants or direct or guaranteed loans, referred to as Foreign Military Financing (FMF). Compliance with FMF guidelines is crucial, as these transactions combine elements of FMS regulations or, for a limited number of countries, direct commercial contracts, with FMF regulations. The DSCA has issued specific guidelines for FMF Direct Commercial Contracts (FMF/DCC).
Key Actions:
- Ensure that defense articles purchased under FMF are manufactured and assembled in the United States, unless an Offshore Procurement (OSP) waiver has been issued.
- Disclose any offset costs included in DCCs to the DSCA.
- Maintain a cost accounting system to demonstrate that no contingent fees are financed by FMF.
4. Address Nonrecurring Costs Recoupment
The AECA requires the DOD to collect recoupment fees on sales of Major Defense Equipment (MDE) under the FMS program. These fees cover the proportionate amount of nonrecurring costs of research, development, and production. Waivers for recoupment charges may be requested if certain conditions are met.
Key Actions:
- Determine the recoupment charges applicable to your FMS transactions.
- Request waivers for recoupment charges when appropriate.
- Ensure compliance with the DOD Financial Management Regulation regarding recoupment.
5. Manage Restrictions on Agents and Representatives
Engaging agents and representatives in FMS transactions requires careful oversight to ensure compliance with the AECA and related regulations. Companies must ensure that agents are “bona fide” and that fees paid to agents do not exceed allowable limits.
Key Actions:
- Conduct background investigations on potential agents and representatives.
- Draft agency agreements that clearly define the scope of the agent’s authority and compliance obligations.
- Monitor the actions of agents and representatives to ensure adherence to compliance standards.
6. Stay Informed About Regulatory Changes
The regulatory landscape for FMS is constantly evolving. Companies must stay informed about changes in FMS regulations, FMF guidelines, and other relevant laws. This involves regularly reviewing updates from regulatory agencies, participating in industry forums, and consulting with legal experts.
Key Actions:
- Regularly review updates from the DSCA, DOD, and other regulatory agencies.
- Participate in industry forums and training sessions to stay current on regulatory changes.
- Consult with legal experts to ensure compliance with the latest regulations.
Navigating the complexities of Foreign Military Sales compliance requires a thorough understanding of statutory requirements, robust compliance programs, and vigilant oversight of agents and representatives. By following these six essential tips, U.S. federal government contractors can ensure compliance and mitigate the risks associated with FMS transactions. Our “Government Contracts Compliance Handbook” provides detailed guidance on these topics and more, positioning us as a knowledgeable and expert resource for government contractors seeking legal assistance.
#Essential #Tips #Foreign #Military #Sales #Compliance #Government #Contracts