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The Letter of Offer and Acceptance (LOA)

As mentioned earlier, the LOA is the government-to-government agreement that identifies the defense articles and services the USG proposes to sell to your country to meet the requirements identified in your LOR.

The Implementing Agency with responsibility for the item requested by your country will prepare the LOA. There are three basic types of FMS cases. The type used depends on what is being sold:

  1. Defined Order: This type of FMS case is for defense articles and/or services that are specified in your LOR and stated explicitly in the LOA. A Defined Order FMS case would most likely be used for purchasing major end items, such as trucks, and for weapon system sales. When discussing Defined Order FMS cases, the USG will further distinguish between those that are relatively simple to execute because they are for standard items, such as 5-ton trucks, and those that are complex and involve purchaser-unique considerations, such as fighter aircraft.

  2. Blanket Order: Used to purchase a specific category of items or services at a set dollar value ceiling with no definitive listing of the exact items or quantities desired. This type would most likely be used for follow-on support items such as spare and repair parts. Normally a blanket order case is used for follow-on support and training for a major item or weapon system following the initial support period of a Defined Order FMS case. A Blanket Order case remains open as long as it has funds against it. The case can be extended simply by requesting an Amendment to add funding.

  3. Cooperative Logistics Supply Support Arrangement (CLSSA): Permits your country to participate in the U.S. supply system so that you can draw frequently used parts and other supplies from U.S. stocks based on demand rates the way that U.S. military units do. Each CLSSA consists of two separate FMS cases, one for the U.S. to purchase and sustain the spare and repair parts, and one that the FMS customer uses to order parts and replenish the stocks. CLSSA increases the probability of spare parts being available for issue from U.S. stock.

You can find more information on the types of FMS cases at SAMM Section C5.4.3.

Two FMS Information Technology Systems You Should Know About

  1. The Defense Security Assistance Management System (DSAMS). DSAMS is a DoD standard system used to develop and track the progress of FMS cases. It contains detailed information on FMS case development and implementation. DSAMS contains information on every FMS case and on any amendments or modifications to each case. The Implementing Agency inputs case information into DSAMS and DSAMS produces LOAs for USG and partner nation approval and signature. DSAMS tracks the progress of an FMS case’s life - from development to execution, to closure - through the use of milestones. DSAMS is for U.S. government use only, but it feeds information to another information technology system - the Security Cooperation Information Portal - that provides access to FMS customers.

  2. The Security Cooperation Information Portal (SCIP). SCIP provides visibility of your country’s FMS case(s) to authorized users, anywhere in the world, using any common web browser. SCIP data is automatically drawn from DSAMS, MILDEP computer systems, and other financial and logistic systems and consolidated for use within SCIP. You can even track delivery through an Enhanced Freight Tracking System (EFTS) feature. SCIP can produce either standard automated reports or unique reports you design yourself. DSCA limits access to SCIP to designated USG employees and to representatives of FMS purchaser countries. U.S. access is controlled through our government Common Access Card (CAC). Non-USG access is controlled through electronic USB “tokens” we distribute to non-USG SCIP users. We further limit access such that USG employees can view information related only to countries for which they are responsible, and foreign representatives can view information related only to their own country.

    If you would like instructions for establishing a SCIP account, see Appendix 1: How to establish a SCIP account. From within SCIP, you can access information on an FMS case from the time an LOR is first received and logged into the MILDEP computer system and track it through the case development and execution process.

LOA Preparation Time

The time required to prepare LOAs varies with the complexity of the sale and the clarity of the information provided in the LOR. Processing time for LOAs and Amendments is measured from the time the LOR is received at the Implementing Agency until the time the LOA is offered to you, the purchaser. When the Implementing Agency receives your country’s LOR, it establishes an Anticipated Offer Date (AOD) and enters it into DSAMS, which then feeds the information into SCIP, where you can view it. The Implementing Agency must develop the LOA and provide it to your country for signature by the AOD. The AOD standard by which Implementing Agencies are held is:

  • 30 days for Blanket Order LOAs, CLSSAs, and training LOAs.

  • 30 days for Defined Order LOAs.

  • 90 days for Defined Order LOAs and associated Amendments that are considered “purchaser-unique”. The Implementing Agency may determine an FMS case will be “purchaser-unique” if it meets one or more of the following criteria:

    • A first-time purchase of a defense article or service by an FMS purchaser

    • A first-time FMS purchase by a specific country or international organization with limited experience or knowledge of FMS processes/procedures

    • The case requires engineering, system integration, or special acquisition

    • The requested use of the system is different from its use by U.S. military forces (e.g., Navy ship missile to be fired from an Army or foreign country helicopter)

    • Detailed release/disclosure coordination is required

    • Complex pricing effort is required

    • Extraordinary coordination required inside or outside the Implementing Agency

    • Other (requires an explanation be entered into DSAMS)

Thus, the maximum processing time between an Implementing Agency’s receipt of your LOR and release of the LOA or Amendment for your country’s signature should normally be no more than 90 days if the proposed sale does not require significant technology release and is below Congressional notification thresholds.

An Implementing Agency must move quickly to provide you with an LOA within the time limits allowed. It must solicit any remaining information needed from your country, build a program that meets your operational, budgetary and timeline requirements and, often in coordination with commercial vendors, develop cost estimates for every item that makes up your overall program. This is why, at least for more complex purchases, it may be helpful for you to contact the Implementing Agency to discuss your potential purchase in detail before you submit your LOR.

What Happens After Your LOA is Prepared?

Once the FMS case has been written, it is reviewed by the originating Implementing Agency’s staff and DSCA staff to ensure it meets the requirements of your LOR and U.S. laws and regulations. After it has been approved by the Implementing Agency and DSCA, the LOA is submitted to the DOS for review and approval. It is then countersigned by DSCA, signed by the Implementing Agency, and transmitted to your country for review and signature by your approving authority.

What Will the LOA Look Like?

Much of the content of an LOA, especially the Standard Terms and Conditions, is dictated by U.S. law. A great deal of useful information about LOAs can be found in Chapter 5 of the SAMM. In particular:

  • Figure C5.F3. contains a sample LOA

  • Figure C5.F4. provides all of the Standard Terms and Conditions that accompany any LOA

  • Figure C5.F5. explains all of the information and codes contained in an LOA

LOA Sections

Your LOA will be made up of several sections. The first page will be an overview of the proposal and will include a space for the signatures of our USG representative and your government’s representative. It will provide a total cost estimate and will identify any initial deposit that might be required upon acceptance. The first page will also include the expiration date of the USG offer - or Offer Expiration Date (OED).

The next several pages of the LOA will describe in greater detail the material and services being offered and responsibilities for transportation and delivery of the items. Separate FMS “case lines” will be included on your LOA. Each line will cover a specific category of material or service. Most of the information is in plain text or monetary terms, but in several situations we use codes to convey information. The codes are explained in detail in the “Letter of Offer and Acceptance Information” provided with each FMS case.

A sample FMS case line might look like the following:

(1) (2) (3) (4) (5) (6) (7)
Itm
Nbr
Description / Condition Qty,
Unit of Issue
(a)
Unit
(b)
Total
SC/MOS/TA Ofr Rel
Cde
Del Trm
Cde
001 E3Z 23200014120143 (N) HMMWV M1113
Truck, Shelter Carrier with Desert Package, including CTIS, Sand Colored Paint (CARC 686)
20 EA $71,333.52 $1,426,671 P(18) TA5
NR
Y 4

The LOA will include a cost summary and an estimated payment schedule along with instructions on where to return the signed LOA and how to submit payments.

The LOA will include special notes - commonly referred to as “case notes” - to provide additional information unique to the FMS case.

The case notes will be followed by “Standard Terms and Conditions” - commonly referred to as “standard notes”. These are included with every FMS case we write. They are not unique to your particular country or FMS case.

LOA Pricing and Delivery Estimates

Dollar values and delivery schedules shown on the LOA are estimates based on the best available information at the time the LOA is prepared. During the life of the FMS case, the amounts billed to the FMS case will be the actual costs incurred by the USG. This may differ from the estimate included in the LOA.

  • Administrative Surcharge. DSCA adds a 3.5% fee to all FMS sales to cover costs associated with administering the FMS program, including facilities, information systems, and civilian employee salaries.

  • Contract Administration Services (CAS). The USG charges a separate 1.5% fee to cover quality assurance and inspection, contract audits, and related services conducted primarily by the U.S. DoD acquisition and logistics community.

  • Non-Recurring Research and Development (R&D) Costs. Your country may be charged a fee to pay a pro-rata share of the non-recurring research and development costs incurred by the U.S. government in the development of the weapon system being purchased.

  • Other Potential Fees. All potential fees are discussed in SAMM Section C9.5. Waivers to fees are covered in SAMM Section C9.6.

Payment Schedule

The LOA will include an estimated payment schedule identifying when each of your payments is due. The schedule consists of two financial categories: (1) your initial deposit, and (2) future estimated quarterly billing amounts. Your initial deposit is for the costs anticipated to be incurred from FMS case acceptance until your first quarterly FMS billing statement is provided and monies collected. If the FMS case is written as “cash with acceptance,” the initial deposit will be for the entire FMS case value. Some of the factors used in computing your payment schedule include:

  • Progress Payments: Those payments made to contractors or DoD activities as work progresses under a contract.

  • Contractor Holdback: Amount earned by contractors or suppliers during the period but held back by the USG to ensure future performance of the contractor.

  • Termination Liability: That amount collected from you in advance to protect the USG if you decide to terminate a program before performance is complete.

Note: If your country has any unique payment schedule requirements due to its budget cycle or budget development process, you should discuss them with the Implementing Agency as early as possible and/or include those requirements in the LOR.