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MEMORANDUM FOR :
COMMANDER, UNITED STATES ARMY
SECURITY ASSISTANCE COMMAND
ATTN: AMSAC-SR-P
DEPARTMENT OF THE ARMY
SUBJECT :
Nonrecurring Costs for Improved Weapon Systems
REFERENCE :
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AMSAC-SR Memorandum, 3 Aug 98, same subject
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AMSTA-RM-EP (37) Memorandum to AMSAC-SR, 9 Jul 98, same subject
Your referenced memorandum requested clarification on the use of estimated nonrecurring recoupment cost (NRC) charges in foreign military sales (FMS) cases for improved weapon systems. As indicated in your memorandum, NRC charges are calculated in accordance with guidance found in DoD 7000.14-R, Volume 15. Paragraph 070305.M and Table 703-13 of this regulation provide specific information concerning recalculation of the charge when a model change (improved weapon system) occurs. The following additional information is provided:
There may be instances when an NRC charge is being developed at the same time that an LOA is being prepared to sell the item in question. If there is not enough time to complete the NRC approval process, and estimated amount for NRC should be included in the init price of the item on the LOA. The LOA should also include a note informing the customer that NRC charges on the applicable line are estimates only and advise that a modification will be done to adjust the price once the approved NRC value is known.
Military Departments must have some rationale for deriving an estimated NRC cost. A calculation that has been "proposed" but not yet staffed through all appropriate channels might be used as a reasonable estimate, assuming that the rationale is valid. In any case, the Military Department must ensure the rate used is ".. based on an estimation of the best information available..." as required by DoD 7000.14-R, Volume 15. While not the preferred method, a charge established for a previous model might also be considered appropriate as an estimate for later versions. We cannot say definitively that for an improved item the "best information available" will always be the previous version--as pointed out in your memorandum, there may be instances when the improved model differs significantly from the previous version and an NRC estimate using the amount established for the older version would not be accurate. In this instance, the Military Department should not use the previous amount, but should instead use more accurate available information to arrive at a reasonable estimate.
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During the life of an item, the NRC calculation should be reviewed for changes in production quantities, etc. If the review results in an estimated charge that meets the significant change criteria, the estimated charge would be submitted to DSCA for approval. When these recalculated amounts have been approved, the new rate should be applied to any new sales for the applicable item. Existing LOAs should not be changed to reflect the new rate since the approved rate in effect at the time of LOA acceptance is the amount that must be charged.
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This prohibition on retroactive changes to the NRC rate included on the FMS case should not be confused with revising an estimated rate to an actual approved rate. LOAs that are written using estimated NRC amounts must be modified to reflect the approved rate once it has been established.
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If NRC charges apply to a case but are inadvertently omitted from the unit price on an LOA, a modification must be processed to include the charges. This is not considered retroactive---a pricing mistake was made and must be corrected.
If you have questions or need additional information regarding NRC charges, please contact Beth Baker, DSCA/COMPT-FM, (703) 601-3737, or beth.baker@osd.pentaon.mil.
James A. McQuality
Comptroller
DISTRIBUTION :
Deputy Under Secretary of the Army
(International Affairs)
102 Army Pentagon
Washington DC 20310-0102
Deputy Under Secretary of the Air Force
(International Affairs)
I 080 Air Force Pentagon
Washington DC 20330-1080
Director, Navy International Programs Office
1111 Jefferson Davis Highway
Crystal Gateway North. Suite 701E
Arlington, Virginia 22202-4306
Director, Defense Logistics Agency
8725 John J. Kingman Rd., Ste 0119
Ft Belvoir, VA 22060-6221
Deputy Director for Security Assistance
Defense Finance and Accounting Service - Denver Center
Attn: DFAS-DE/I
6760 East Irvington Place
Denver, CO 80279-2000
Defense Security Assistance Agency - Denver Liaison Office
DSAA-DLO
6760 East Irvington Place
Denver, CO 80279-2000
Defense Institute of Security Assistance Management (DISAM)
2335 Seventh Street, Building 125
Wright-Patterson AFB, Ohio 45433-7803
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