C11.6.1.
Definition and Purpose.
Under
AECA, section 61 (22 U.S.C. 2796),
the President may lease DoD defense articles to eligible foreign countries or international organizations for a period not to exceed 5 years and a specified period of time required to complete major refurbishment work prior to delivery. The President has delegated this authority to the Secretary of Defense who has redelegated authority to the Director of DSCA. There must be compelling foreign policy and national security reasons for providing such articles on a lease basis, and the articles must not be needed for public use at the time. Leases may provide defense articles for testing, to allow the USG to respond to an urgent foreign requirement, or for other purposes as approved by the DSCA Director. Table C11.T10. summarizes legal references pertinent to the leases.
Table C11.T10. Lease Legislation Summary
C11.6.2.
Who Can Lease Defense Articles?
Defense articles may be leased to a country or international organization if that country and/or organization is eligible for Foreign Military Sales (FMS) purchases. See
Table C4.T2.
for a list of eligible countries and/or organizations.
C11.6.3.
What Can Be Leased?
The President may lease defense articles from DoD stock to eligible foreign countries or international organizations if there are compelling foreign policy and national security reasons for providing such articles on a lease basis rather than as a sale; the articles are not needed for the time for public use; and the effects of the lease on the national technology and industrial base are considered, particularly the extent, if any, to which the lease reduces the opportunity of U.S. manufacturers to sell new equipment to the lessee.
C11.6.3.1.
Naval Vessel Leases.
Naval vessel leases are subject to additional requirements contained in
10 U.S.C. 7307,
which requires specific statutory authorization for the lease of naval vessels in excess of 3000 tons or less than 20 years of age, and Congressional notification for other naval vessels.
AECA, Subchapter VI
requirements also apply to naval vessel leases unless the separate legislation expressly provides otherwise.
C11.6.4.
Counternarcotics Aircraft.
The
Foreign Assistance Act (FAA), section 484 (22 U.S.C.2291c),
requires aircraft made available to a foreign country primarily for narcotics-related purposes shall be provided on a lease or loan basis, rather than by sale or grant, unless to do so is determined contrary to the national interest and Congress is so notified. It further requires that if Foreign Military Financing (FMF) is used to finance the leasing of aircraft the entire cost of any such lease (including any renewals) shall be an initial, onetime payment of the amount which would be the sales price for the aircraft if they were sold via FMS.
C11.6.5.
Lease Preparation and Format.
Leases are prepared using the Defense Security Assistance Management System (DSAMS). Implementing Agencies (IAs) are responsible for preparing leases in accordance with this manual.
C11.6.6.
Lease Duration.
The lease shall provide that the USG may terminate the lease at any time during the lease period and require the immediate return of the defense article(s). Leases may be written for a maximum of five years and a specified period of time required to complete major refurbishment work prior to delivery. Leases may include multiple items with different lease duration periods. The shortest lease period is one month; the longest 60 months and a specified period of time required to complete major refurbishment of the leased articles to be performed prior to their delivery of the leased articles. Leases of less than five years may be extended via an Amendment, but the total period under a specific lease may not exceed five years plus the time needed for major refurbishment work. The lease period begins on the date shown at the beginning of the lease, provided that any initial deposit has been paid, unless the period is otherwise specified within the terms and conditions. If the purchaser signs the lease after the proposed starting date, the lease must be amended to show the actual lease start date and any payment adjustments necessary to the payment schedule (Schedule A).
C11.6.6.1.
Lease Format.
The lease format, including sample data and preparation instructions, is provided in Figures
C11.F5.
through
C11.F9.
This format may not be altered unless special circumstances require an exception authorized by DSCA (Programs and Strategy Directorates). Additional provisions may be added to a lease when appropriate and with concurrence of DSCA (Programs, Strategy Directorates, and Office of General Counsel (OGC)).
C11.6.6.2.
Lease Identification.
The IA assigns a unique designator to each lease in DSAMS. The lease designator is composed of the FMS Customer Code, the IA code, and a 3-position code assigned by the IA. The lease designator is included on each lease page, including schedules, appendices, and accompanying documents. FMS cases associated with leases must reference the lease designator(s).
C11.6.7.
Lease Pricing.
C11.6.7.1.
Rental Payment.
The lessee must agree to pay in U.S. dollars all costs incurred by the USG in leasing articles, including reimbursement for depreciation of articles while leased. The rental payment is calculated in accordance with
DoD Financial Management Regulations (FMR) 7000.14-R, Volume 15, Chapter 7.
Rental payments do not include an administrative charge.
C11.6.7.2.
Exceptions.
Certain leases do not require reimbursement of depreciation or may be eligible for waiver of reimbursement. DSCA must authorize the exception prior to the IA’s notifying a potential lessee that a no-rent lease is available.
C11.6.7.2.1.
The requirement for reimbursement of depreciation and other costs incurred by the USG in leasing the articles does not apply to leases for the purposes of cooperative research or development, military exercises, or communications or electronics interface projects.
C11.6.7.2.2.
The President may waive reimbursement of depreciation for any defense article(s) that has passed three-quarters of its normal service life if he or she determines that to do so is important to the national security interests of the United States. This waiver authority has been delegated to the Director, DSCA, in accordance with the provisions of
DoD Directive 5105.65.
When requesting this waiver, the IA must provide DSCA (Programs Directorate) the following information:
A letter certifying that the items are beyond three-quarters (75 percent) of their service life,
A spreadsheet showing how replacement costs were calculated, a spreadsheet showing what the depreciation charges would normally be;
And, if applicable, a spreadsheet showing how partial depreciation charges were calculated and a copy of any prior or related waivers.
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C11.6.7.2.3.
The President may also waive reimbursement of depreciation in exchange for the lessee’s lease of defense articles to DoD on substantially reciprocal terms. In these cases, the President submits a detailed notification for each lease to the Committees on Foreign Affairs and on Appropriations of the House of Representatives, and to the Committees on Foreign Relations and Appropriations of the Senate. Unless Congress provides otherwise, this waiver authority may be exercised only once during the current fiscal year, and only with respect to one country.
C11.6.7.3.
Replacement of Lost and/or Damaged Items.
The lessee must agree to pay the costs of restoration or replacement if the articles are lost, damaged, or destroyed while leased. For lost or destroyed items, the customer is charged the replacement cost, adjusted for the depreciated value of the destroyed item, if the United States intends to replace the articles, or the actual article value (depreciated value of the most recent procurement cost of the article) if the United States does not intend to replace the articles. These charges may be recouped through amendment or modification of the annotated support case listed in the lease or establishment of a separate LOA.
C11.6.7.4.
Payment Schedules.
Schedule A of each lease identifies the replacement cost(s) of the item(s) being leased and the schedule for rental payment due to the USG. The payment schedule is established on a quarterly billing cycle compatible with the FMS billing cycle. If the quarterly cycle does not provide for payment prior to the effective date of the lease, an initial deposit is required to assure that payment is received in advance of the month in which a rental charge is incurred. Billings to the foreign lessee are based on this schedule of payments and are included on a separate
DD Form 645A
with the country’s quarterly FMS billing statement. The IA assures that payment schedules are updated for any extensions, delivery schedule changes, or other Amendments that may result in a change to the lease value or schedule of payments. DFAS deposits receipts from lease rental payments into the Miscellaneous Receipts Account 3041 (FMS Recoveries, DoD Lease Costs) in accordance with the
Treasury Financial Manual, Supplement to Volume 1.
C11.6.7.5.
Use of FMF or Military Assistance Program (MAP) Merger Funds.
When authorized by DSCA (Business Operations and Operations Directorates), FMF or MAP Merger funds may be used to fund LOAs for services associated with a lease, but the AECA does not allow their use for rental payments for leases made pursuant to
AECA, section 61 (22 U.S.C. 2796),
except for leases of aircraft for counternarcotics purposes pursuant to
FAA, section 484 (22 U.S.C.2291c).
In such instances, the total lease cost (including any renewals) is an initial, one-time payment of an amount equivalent to the aircraft price as if it were sold on an LOA. Questions regarding proper sources of funding for leases should be directed to DSCA (Business Operations Directorate).
C11.6.8.
Congressional Notification Requirements.
AECA, section 62(a) (22 U.S.C. 2796a)
requires written certification from the President to the Speaker of the House of Representatives, the Chairman of the Committee on Foreign Relations of the Senate, and the Chairman of the Committee on Armed Services of the Senate before entering into or renewing a lease agreement for a period of one year or longer.
AECA Section 62(c) (22 U.S.C. 2796a)
requires that the certification must be transmitted not less than 15 calendar days before agreements with NATO, NATO member countries, Australia, Japan, the Republic of Korea, Israel, or New Zealand and not less than 30-calendar days before agreements with all other countries or organizations. The certification includes the country or international organization to which the defense article is to be leased; the type, quantity, and value (in terms of replacement cost) of the defense article to be leased; the terms and duration of the lease; and the justification for the lease, including an explanation of why the defense article is being leased rather than sold.
AECA, section 62(b) (22 U.S.C. 2796a)
authorizes waiver of the Congressional Notification for leases if the President states in his or her certification that an emergency exists that requires the lease be entered into immediately in the interest of U.S. national security. The certification must include a detailed justification with a description of the emergency circumstances and a discussion of the national security interests involved. This authority is reserved by the President and has not been delegated to the Secretary of Defense. In the event of such an emergency, DSCA (Programs Directorate) provides instructions to the IA.
C11.6.9.
Lease Process.
Table C11.T11. summarizes the lease process.
Table C11.T11. Lease Process
| Step |
Action |
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1
Purchaser Request for Lease
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An eligible foreign country or international organization identifies a requirement and submits an LOR to the respective IA with a courtesy copy to DSCA (Programs Directorate).
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2
Responses to Lease Requests
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The IA determines whether a lease is a viable option and whether the items are needed for public use during the proposed lease period. DSCA (Programs Directorate) should be consulted at this time.
With DSCA (Programs Directorate) approval, the IA responds to the country/organization stating whether the equipment is available and whether a lease is an available option. No actual offer may be made until the appropriate approvals/notifications are complete.
If the IA recommends application of an exception to a customer’s reimbursing depreciation costs, the IA must provide justification and receive authorization from DSCA (Programs Directorate) before advising the customer of the exception.
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3
IA Prepares Lease
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The IA prepares lease documents in DSAMS in accordance with Figures
C11.F5.
through
C11.F9.
The lease package consists of: the lease agreement with all terms/conditions and payment schedule (Schedule A), the determination of compelling foreign policy and national security interests and that the articles are not for the time needed for public use, a statement as to why a lease is preferable to a sale, a forwarding memorandum, and a draft Congressional Notification if the duration of the proposed lease exceeds one year.
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4
IA Coordinates the Lease
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The IA coordinates the lease package internally. The IA must screen all lease items for articles controlled under the Missile Technology Control Regime (MCTR).
See Chapter 3.
After the IA has reviewed/coordinated on the lease package, it enters the “MILSGN” milestone into DSAMS. This milestone changes the lease status to “Proposed.”
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5
IA Submits Lease Package to DSCA
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For leases that are less than one year in duration, the IA submits the lease determination and forwarding cover memorandum to DSCA (Programs Directorate) electronically for countersignature. For leases that are one year or longer in duration, the IA submits the lease, determination, Congressional Notification certification, and forwarding cover memorandum to DSCA (Programs Directorate) electronically for countersignature.
If not submitted electronically, lease packages for countersignature may be submitted to:
Lease Program Manager (PGM/BPC)
Defense Security Cooperation Agency
201 12th Street South, Suite 203
Arlington, VA 22202-5408
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6
DSCA Coordinates Lease Package
|
DSCA (Programs Directorate) coordinates the lease package within DSCA and with OSD (Regional Offices) and the DoS.
If the lease is for less than one year in duration, go to Step #8.
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7
DSCA Prepares Congressional Notification
|
DSCA (Programs Directorate) prepares the notification to Congress required by
AECA, section 62(a) (22 U.S.C. 2796a).
All documents are coordinated with OSD (Regional Offices), DoS, and DSCA before the Director, DSCA, signs the notifications. If a lease requires Congressional Notification, an advance draft copy of the unsigned lease may be provided to the customer when the Congressional Notification has been delivered to Congress.
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8
DSCA Signs the Lease Determination and Countersigns the Lease
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Upon completion of coordination, and the Congressional Notification period if required, DSCA (Programs Directorate) submits the lease determination to the Director, DSCA, for signature. After signature, DSCA enters the “DCSGN” milestone in DSAMS. This milestone automatically sets the lease status to “Offered” and posts “DSCA Approved” and the date of the DCSGN milestone in the countersignature block. DSCA provides a copy of the signed Determination to the IA.
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9
IA Sends Lease to Customer
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Upon receipt of the “DCSGN” milestone, the IA signs the lease document and sends it to the customer for review/signature.
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10
Customer Acceptance
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The customer signs the lease and sends any required initial deposit to DFAS Indianapolis. If the purchaser signs the lease after the proposed starting date, the lease must be amended to show the actual lease start date and any payment adjustments necessary on the Schedule A.
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11
Lease Implementation
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The IA assures that DFAS has received the initial deposit (if required). After receipt of the deposit the lease is implemented. DFAS receives DSAMS Management Flags when a lease moves to “Offered” status and “Implemented” status.
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12
Lease Execution
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The IA or DSCA (Programs Directorate) may require a certificate of delivery (Figure C11.F10.) when a leased item(s) is provided to the lessee. The IA is responsible for tracking and monitoring the lease to ensure conditions of the lease agreement are followed. These responsibilities include (but are not limited to):
Maintaining a record of all items including associated tools, ground support equipment, and other materiel to be recovered at the end of the lease
Ensuring monitoring of the defense articles during the period of the lease
Advising DSCA (Programs Directorate) of non-compliance by the lessee
Ensuring that the appropriate rental payment schedule is maintained
Ensuring that all related costs are recovered
Reporting the status of each lease on a quarterly basis
Ensuring that prior to lease expiration the lease is either being prepared properly for closure, extended via Amendment, or if it has reached the 60-month limit, renewed in the form of a new lease
Ensuring that the leased materiel is returned by the lessee
Ensuring proper disposition of the defense article(s) upon expiration or termination of the lease and restoration to its original condition in accordance with the terms of the lease
DFAS Indianapolis is responsible for collecting rental payments and delivery reporting.
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13
Lease Closure
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The IA will enter the delivery and equipment return dates in DSAMS. When all required data has been entered, DSAMS automatically notifies DFAS Indianapolis that the lease is ready for closure. DFAS Indianapolis will reconcile the financial information and close the lease in Defense Integrated Financial System (DIFS), which will then automatically close the lease in DSAMS.
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C11.6.10.
Lease Renewal.
Leases may be renewed. The same procedures as those outlined in Section C11.6.8. for new leases apply.
C11.6.11.
Lease Terminations.
Any proposal by the USG to terminate a lease before its expiration date must be coordinated with DSCA.
C11.6.12.
Lease Amendments.
Lease Amendments (Figure C11.F11.) may be used to extend or change existing leases. Such changes may include variations or updates to payment schedules, Schedule A items, or periods of performance; however, a Lease Amendment may not be used to add new or additional items to the Schedule A with an effective date different from the effective date of the lease. An increase in scope in this way requires a new lease. Each Amendment includes the original lease designator and undergoes the same staffing process as the original lease. If a lease for less than one year is amended so that the total period of the original lease and the Amendment(s) equals or exceeds one year, the Amendment must be notified to the Congress before it can be offered. As with original leases, the IA submits the draft lease Amendment, Congressional Notification certification if required, and a forwarding cover memorandum to DSCA (Programs Directorate) electronically for coordination and countersignature.
C11.6.13.
Lease Reporting Requirements.
Each IA is responsible for updating the status of each lease under its cognizance via DSAMS. The update is made by posting the “Action Taken on Lease” (comment code “ACT”) in the “Lease Text/Comments” field of the “Lease” tab of the “Lease Detail.” Additionally, the IA must verify the accuracy of payments and notify DFAS of any financial issues when updating its leases in DSAMS. Not later than 30 days after the end of each quarter, the IA electronically notifies DSCA (Programs Directorate) that its leases have been updated. DSCA then generates a report for each IA in DSAMS.
C11.6.14.
LOAs for Services Associated with a Lease.
LOAs are not used for the lease of defense articles. However, an LOA can be used for costs incurred by the USG incident to the lease including, but not limited to: restoration and/or replacement as a result of damage, loss or destruction; packing, crating, handling, and transportation (PCH&T); and the sale of associated articles and services, including refurbishment of the defense article(s) required prior to, during, or after the lease period. These costs are not to be included in the lease and the lease shall not remain open (valid) past the expiration date of the associated LOA. The associated LOA designator is included in General Provision 12 and Schedule A of the lease. Also, a note on the LOA
(See Appendix 6)
identifies the associated lease designator.
Figure C11.F5. Lease Forwarding Memorandum
Figure C11.F6. Sample Lease
Figure C11.F7. Lease Determination
Figure C11.F8. Congressional Notification Information Memorandum
Figure C11.F9. AECA, Section 62(a) Report to Congress
Figure C11.F10. Certificate of Delivery
Figure C11.F11. Sample Lease Amendment
Page Updated 06-15-2012
