SPEAKERS BUDGET PREPARATION BUSINESS MEASURES CONTRACTING EXPORT CONTROLS PRICING INFORMATION TECHNOLOGY INTERAGENCY RELATIONSHIPS NEW FMS ENVIRONMENT PANEL POLICY DEVELOPMENT AND IMPLEMENTATION TRAINING CONFERENCE CONCLUSION ACTIONS
Panelists: Andrew Burt, Canadian Embassy
Valerie Brown, Program Analyst, Defense Contract Management Agency
Mike Mutty, Procurement Analyst, OUSD/AT&L, Defense Procurement, Foreign Contracting
Dominique Myers, F-16 Contracting Officer
Dirk Robinson, F-18 Contracting Officer
Moderator: Mr. Keith Webster, Director, Program Support Directorate
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| Michael Mutty, Dirk Robinson, Valerie Brown, Andrew Burt, Dominique Myers |
Purpose: To address DoD's policy on obtaining cost and pricing data when foreign governments conduct a competition to select a major weapon system; the role of the contracting officer in case development; providing improved pricing visibility to FMS customers; a customer's perspective regarding FMS vice DCS; the role that the Defense Contract Management Agency plays in administering DoD contracts that include FMS requirements; lessons learned regarding FMS purchases of both F-16 and F-18 aircraft; customer participation in contracting and offsets.
Mike Mutty, a specialist in foreign contracting policy, emphasized the need to get contracting officers involved in case development very early in the process. He explained that it is a common practice in Europe for customers to get unlimited data rights for black boxes, a requirement that can cause misunderstandings when dealing with U.S. contractors. He discussed several of the FMS reinvention initiatives relating to providing more information, including cost and pricing data, to the foreign customer during the contracting process. We need to develop realistic expectations up-front with what we can/cannot do during case development. Customers want unlimited data rights-US law precludes providing unlimited data rights. If everyone knows these conditions from the beginning, we can come up with realistic rules of engagement and eliminate surprises during the execution phase of the program. Regarding requirement for industry's submission of cost and pricing data, a July 99 Defense Procurement policy memo stated that competitions should determine the cost paid; therefore, the USG would not require the cost data normally required for single source contracts. Pricing transparency in contracting is a tough issue with many competing interests. Countries need to have better idea so the can justify potential purchases to their Parliaments. Industry has to submit to the U.S. Contracting Officer incredibly detailed information and does not want unauthorized disclosure of this data. The Defense Policy Advisory Committee on Trade (DPACT) met last January and this issue was part of the agenda. Dr. Hamre, then DepSecDef, and Dr.Gansler, USD(AT&L), directed that a working group be formed to work out the issues. This working group has met three times with the Foreign Procurement Group, Industry, Contracting Officers, policy personnel, and FMS community, and is on the right path toward resolving the issue in a manner that will accommodate everyone's interests as much as possible.
Dirk Robinson pointed out that the U.S. must address the varying needs of countries during the case development process. Countries want different degrees of participation in negotiations. For example, his office has worked with Australian representatives in a "limited observer" status. Industry is sensitive to cost versus pricing data. His office is asking contractors to provide certified price-based proposals.
Valerie Brown, who very recently assumed her position at DCMA, reviewed the Defense Logistics Agency's (DLA) role in supporting FMS. The Defense Contract Management Command (DCMC) was created in 1990 under DLA in order to present a single face to the defense industry, to develop uniform policies, to upgrade the performance of the contract administration services workforce, and to reduce costs of operation. In March 2000, the new Defense Contracting Management Agency was formed from DCMC. DCMA administers 325,000 contracts valued at $852 billion at 900 separate locations worldwide. DCMA's goal is to deliver great customer service. DCMA provides contract administration services (CAS) for contracts supporting foreign military sales, direct commercial sales, and foreign military financing (FMF) cases. CAS are financed through a 1.5 percent surcharge on all articles and services procured on contract. CAS provided through these kinds of contracts represent about 13 percent of the overall DCMA budget. Contractors selling defense articles through direct commercial sales contracts may request and pay for CAS from DCMA. The agency also provides audit services for FMF-funded commercial purchases, and has recently established an international and federal business office.
Andrew Burt of the Canadian Embassy provided a customer's perspective. From his viewpoint, "not all that much," has changed in the way FMS has been conducted over the past twenty years. He explained that customers must look at the business case aspects of each proposed sale. Because the new realities of the global economy put the U.S. in competition with other providers, the proposed LOA must provide "irrefutable evidence of value for money." Most of the arms sales from the U.S. to Canada are conducted as direct commercial sales. Canada views FMS as a "premium service" that must be justified and defended to the politicians as the best approach. Canada wants greater disclosure and greater participation on behalf of customer countries, and greater acceptance of customer involvement from U.S. industry. Andrew Burt concluded his remarks with a request for a FMS system that is "better, faster, and cheaper."
Dominique Myers, chief of the foreign contracting directorate for the F-16 program office, opened her remarks by stating that F-16s are flying in 22 countries. She described a situation where the customer country held the competition to choose a contractor, but the F-16 contracting team in support of this FMS contract had to be increased from 17 to 25 contracting specialists because the customer and contractor did not provide enough detail up front to the government. The resulting configuration changes have created an overwhelming workload. In cases like this where the customer conducts the source selection and passes on the results to the U.S. government, more rigor must be required in the process. Issues of scope are involved, because the necessary level of detail is not being provided, and U.S. contracting officers don't have the data and tools they need to manage the contracts properly. Ms. Myers emphasized that no one size fits all for FMS reform initiatives, and that all contracts should not be fixed price. She also suggested that in the case of offsets, a Memorandum of Understanding should be established between the contractor and customer country in order to describe the specific requirements of the offset arrangement.
During open discussion, the problem was raised of having to wait until all contract lines are reconciled before an FMS case can be closed. Mike Mutty explained that an announcement went into the Federal Register with a proposed rule stating that line items may be closed on an individual basis. This would enable FMS cases to be closed faster. A memorandum to this effect was signed out by Mr. Dave Oliver and may be found on the OUSD website.
A suggestion from industry was for the FMS customer to sit down with the government and work out the details of what he wants to negotiate with the contractor, then provides the USG with a letter that absolves the USG and allows the FMS customer to negotiate only that portion directly with the contractor. The USG would be in an observer status. The sale could be termed a "foreign sale" rather than "FMS". The customer could be given the option and make the decision which way he wants to go. The customer viewpoint on this was that the customer wants to use the good experience the US contracting office has, and wants to participate in USG buys so he can get good buys. The customer does not know as much about what is going on with the contracts as the Contracting Officer. Looking for something in-between----have a "team" that would allow the customer to participate, and all participate in the decisions so know exactly what is going on.
From the customer perspective, the customer receives more detailed information in a direct commercial sale than he receives in an FMS sale.
A question was raised of whether or not the customer would be allowed to see the terms and conditions of the US contract. Answer: Normally, the contract would have to be redacted to take pricing out, but the conditions should be provided to the country. If not, the option is to obtain a copy via the FOIA process.
Under current conditions, Contracting Officers have a difficult time fulfilling their duties of determining whether or not offset costs are fair and reasonable, and find themselves in the middle of an arrangement that is supposed to be between the foreign purchaser and the U.S. contractor(s). Per industry, offset costs can be provided as a snapshot in time, but are moving targets and hard to pin down.
USG contract management services to support direct commercial sales may be obtained by setting up an FMS case that provides these services at an hourly rate. This may be done using either blanket order or defined contract requirements.
What was agreed to:
SPEAKERS BUDGET PREPARATION BUSINESS MEASURES CONTRACTING EXPORT CONTROLS PRICING INFORMATION TECHNOLOGY INTERAGENCY RELATIONSHIPS NEW FMS ENVIRONMENT PANEL POLICY DEVELOPMENT AND IMPLEMENTATION TRAINING CONFERENCE CONCLUSION ACTIONS