Foreign Military Financing
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The Arms Export Control Act provides the president with authority to transfer U.S. defense articles and services (including those related to construction) to friendly countries and allies. Under the Foreign Military Sales (FMS) program, the Department of Defense (DOD) procures the goods or services from the U.S. contractor on behalf of the foreign government recipient. Under the Foreign Military Financing (FMF) program, DOD provides grants — principally to Israel and Egypt — for the purchase of U.S. goods and services.

We have nearly 25 years of experience with both of these programs. In fact, we litigated and won the case that established the U.S. government's liability for U.S. contractor claims under FMS contracts: Federal Electric Corp., ASBCA No. 24002, 82-2 BCA ¶ 15,862, aff'd 2 FPD ¶ 9 (Fed. Cir. 1983).

Although FMS contracts are accordingly now considered virtually the same as any other DOD contract, some differences remain. We continue to counsel clients regularly in connection with agent fees, offset arrangements and costs, and other unique circumstances presented by FMS arrangements. For example, we successfully litigated a claim against the Air Force to recover coproduction costs incurred as a result of Turkey's direction to use an Egyptian subcontractor. Lockheed Martin Tactical Aircraft Systems, ASBCA Nos. 49530, 50057, 00-1 BCA ¶ 30,852.

Although limited to a handful of countries, the FMF program presents significant challenges to U.S. companies whose commercial contracts are financed under it. Instead of regulations, this program operates under a set of guidelines that are enforced through a "certification and agreement" each contractor must execute for the Defense Security Cooperation Agency (DSCA).

These policies are fraught with ambiguities, but since the United States is not a party to the underlying commercial contract, it often looks to the Civil False Claims Act to enforce them. We have extensive experience with each version of these guidelines, originally established in 1984, and with the DSCA officials who formulated them.

While the sensitivity of many matters precludes identification of specific representations, we have counseled and litigated dozens of matters involving some of the most troublesome areas:

  • Undisclosed non-U.S. content
  • Payment of contingent fees (including to employees)
  • Improper use of advance payments
  • In-country support costs