dod financial management regulation volume 15,...

DoD Financial Management Regulation Volume 15, Chapter 7

CHAPTER 07

PRICING

0701 INTRODUCTION

070101. Objectives. The objective of this chap-ter is to establish policies and procedures thatshall ensure that DoD Components uniformlyand consistently apply pricing principles andmethodologies that recoup current period costsand a reasonable contribution to sunk invest-ment costs. Sunk investment costs representhistorical decisions to expend R&D funds todevelop new equipment or to purchase assets orfacilities. Although the original investmentdecision was based entirely on DoD require-ments, FMS customers benefit from the invest-ment decision when they purchase relatedequipment, or use of the assets and facilities isnecessary in order to provide ordered services orto deliver ordered materiel. Questions concern-ing Chapter 7 should be referred to DoD DeputyComptroller (Management Systems).

070102. Responsibilities. DoD Componentsselling materiel or services under authority ofthe AECA [reference (a)] shall:

A. Ensure that materiels and servicesprovided to FMS customers are priced in accor-dance with the policies established in this chap-ter.

B. Make reasonable effort to ensurethat price estimates provided to FMS customersare a reasonable approximation of the final price.However, the fact that an estimate is not consis-tent with the final cost accumulation does notnegate the requirement to establish a final price(actual cost) in accordance with this chapter.

C. Establish a single selling price forany item sold, unless DSAA has authorizedprovision of more detailed cost information to anFMS customer. When appropriate, the itemprice shall include the additive charge for nonre-curring RDT&E and production costs, recurringprocurement support efforts, transportation costswhen the DTS is approved and used, etc.

D. Present prices of defense articlesand services to FMS customers in the format ofFMS Letters of Offer and Acceptance and, ingeneral, use the LOA unless a waiver is obtainedfrom the Director, DSAA, to use a suitablesubstitute instrument. Any substitute instrumentshould contain the same cost elements as thoseidentified on the LOA. The administrative sur-charge percentage prescribed in this chapter issubject to change without prior approval of thecustomer; therefore, the percentage (for example,3 percent) should not be indicated on the LOA.

E. Cite directly the FMS Trust Fund(97-11X8242) on contractual documents for newprocurements initiated as a result of FMS orders,unless the provisions of paragraph 010402 apply.In the event it is necessary to accomplish newprocurement on a reimbursable basis, the procur-ing DoD Component shall obtain obligationalauthority from the FMS Trust Fund. Payment tocontractors for the FMS portion of contracts maynot exceed the amount of cash deposited by theFMS customer in the FMS Trust Fund in advanceof the payment.

F. The direct cite procedures set forthin subparagraph E., above, shall be used whenmajor items are procured for FMS customers,unless an exception has been granted by theComptroller, DoD.

G. For other than Defense BusinessOperations Fund materiel, ensure that transpor-tation of materiel sold to FMS customers isaccomplished through the use of collect commer-cial bills of lading to the maximum possibleextent. When transportation is accomplishedthrough the use of Government Bills of Lading(GBLs) including Defense Business OperationsFund materiel, the GBL shall be annotated toshow that Section 10721 of the Interstate Com-merce Act of 1887 [reference (m)] is not applica-ble and that normal commercial rates shall bebilled to the U.S. Government for the shipment.

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H. Assign a case manager to eachactive FMS case. This case manager shall beresponsible for the total financial and logisticalaspects of a case. This includes ensuring thatprescribed pricing policies are followed and thatdelivery transactions have been processed toSAAC. The case manager’s authority to directshall be commensurate with these responsibili-ties. The case manager shall be located at anational inventory control point or commandhaving the primary responsibility for implement-ing the case. Refer to Chapter 7 of DOD5105.38-M [reference (e)] for additional discus-sion on case management responsibilities.

I. Price sales to the Special DefenseAcquisition Fund (SDAF) in accordance with theprovisions of this chapter with the exception ofthe charge for nonrecurring costs. Activitiesreporting the sale of SDAF assets to SAAC willapply nonrecurring recoupment costs to the FMSprice charged to the SDAF at the time of sale toa foreign purchaser (see Section 717)

J. Those situations in which the USG"buys back" items from foreign nations initiallysold under FMS programs are not consideredFMS transactions. Once items are sold, any "buyback" is outside of the FMS program and mustbe conducted in accordance with procurementrules involving the obligation of DOD appropria-tions. Monies due as a result of such procure-ment may be paid by the DOD paying office intothe Trust Fund in accordance with the foreigncountry’s instructions.

070103. Estimating Prices for a Letter of Offerand Acceptance

A. The pricing policy of this chapterspecifies how costs are to be determined at thetime the FMS customer is billed. This policy alsoprovides an indication of how a price estimate isto be developed for the Letter of Offer andAcceptance. An essential difference between thebilled price and the estimated price on an offeris the degree of firmness associated with each.On the FMS Billing Statement (DD Form 645),the price, particularly at that point in time inwhich actual costs are known and reported toSAAC, should be firm and exact (the exceptionbeing "E" (Estimated) price code transactions).

The billed cost (except when a rounded dollarindicator code is utilized) is detailed in dollarsand cents. On the LOA, it is to be a reasonableapproximation of the amount which will ulti-mately be billed, with OSD inflation indices andother factors considered. Typically the analystmust make certain assumptions in order to de-velop an estimated price. Amounts to be placedon the LOA will be rounded to the next dollar.Cases are written as either defined order, blanketorder, or Cooperative Logistics Supply SupportAgreement (CLSSA). Pricing for each requiresspecial treatment. Moreover, a case may involvelines which are defined order or blanket orderwhile CLSSA cases have no other lines.

1. Defined Order. Cases forspecified items, services, or training usually arewritten with regard to systems which the U.S.forces are procuring or have procured. Agenciesinvolved in procuring these systems should haveavailable estimates of the expected costs. Theseestimates may be used as the basis for develop-ing the FMS price, but must be validated forconfiguration and for delivery. Applicableadditives detailed in other sections of this chap-ter must be applied. When a price estimate mustbe inflated for delivery of a weapon systemseveral years in the future, use OSD publishedinflation indices. If other factors apply, thosefactors must be documented in case files andjustified for Comptroller, Department of Defenseapproval when submitting Letters of Offer to theDefense Security Assistance Agency for countersignature. When developing an estimate forweapon systems in different configurations thanthose for which service estimates are available, itis advisable to try to obtain contractor estimatesat the contract level required to identify thedifference. See "Military Standard 881A WorkBreakdown Structures for Defense MaterielItems" for the definition of these levels.

2. Blanket Order. Thesedollar-value cases (or lines incorporated insystem sales cases) are written for a category ofmateriel or services with no definitive listing ofitems or quantities. For hardware support items,the price developed may be based on either acomputer listing of specific parts, or a percentageof the cost of the major system to be supported.In other instances, the price on the LOA may

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Volume 15, Chapter 7 DoD Financial Management Regulation

simply be a dollar-value line to enable the cus-tomer to requisition such items as publications.In this latter case, the amount written into theoffer will be dependent on the estimated activityin the country’s program. In developing a pricefor LOA purposes where a blanket order isinvolved, the source of supply may not beknown. In this case, certain assumptions mustbe made. For example, in writing a blanketorder case for spare parts for an aircraft, anagency may have to assume that all items willcome from stock and each item will be less than$10,000. Except for stock fund/Defense BusinessOperations Fund items, this may allow theanalyst to apply the full packing, crating, andhandling, and transportation charges (NOTE:These two charges are already included in thestandard price for stock fund/Defense BusinessOperations Fund items). However, at the time ofthe billing for delivery of an item charged to thecase, the appropriate surcharge will be appliedin accordance with Chapter 8. Those agenciesthat have developed an ordering history forcertain countries or weapon systems may be ableto develop a ratio of items from procurementand items from stock which enables a moreprecise application of surcharges for the estimate.When developing a price for items to be deliv-ered beyond the period for which pricing data isavailable, it will again be necessary to applyinflation factors as in defined order cases. Oneexception to consider is that once the inflateditem price is developed, then apply the FMSreplacement surcharge for annual procurementappropriation items to insure that the estimateforesees all additives.

3. Cooperative Logistics SupplySupport Arrangement cases may be priced as insubparagraph B. See Section 707 of this Volumefor specific guidance.

B. Individuals involved in preparingLOAs must keep in mind how performance or arequest for reimbursement is going to be report-ed to SAAC following acceptance of the offer bythe FMS customer. The implementing agencymust be able to determine the cost to be billedbased on the provisions of this chapter. Thistask can be particularly difficult when more thanone activity is involved in fulfilling the require-ments of a line or Record Serial Number (RSN)

of a case. The activity preparing the deliverytransactions must be aware of all of the coststhey are to report and also the costs that will beadded by SAAC in accordance with paragraph080501 of this Volume. Cases involving itemswhich must be shipped to one or more activitiesbefore final shipment to the FMS customer canrequire several delivery transactions in order toaccount for all costs. Cases involving majorprocurements may result in a large volume ofprogress payments being submitted. These arenecessary to ensure that the cost balances areadequate to cover costs as they are incurred.The tables in this chapter and Chapter 8 illustrat-ing these reports must be studied care-fully toinsure all costs are correctly reported.

070104. Legal Background

A. General. Section 1 of the AECA[reference (a)] provides that sales are approvedonly when they will further the security objec-tives of the United States and the purpose andprinciples of the United Nations Charter.

B. Pricing Requirements

1. Price of Services and Stock.Section 21(a) of the AECA [reference (a)] pro-vides that a foreign country or internationalorganization pay in U.S. dollars:

a. In the case of a defensearticle not intended to be replaced at the time asales agreement is entered into, not less than theactual value thereof.

b. In the case of a defensearticle intended to be replaced at the time a salesagreement is entered into, the estimated cost ofreplacement of such article, including the con-tract or production costs less any depreciation inthe value of such article.

c. In the case of a sale of adefense service, the full cost to the United StatesGovernment of furnishing such service, unlessthe service is training provided under the termsin subparagraph 3.a. below in which case, onlythe additional costs that are incurred in furnish-ing such assistance are to be recovered.

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2. Charges Applicable to Servic-es, Stocks, and New Procurements. Section 21(e)of the AECA provides that the selling price shallinclude appropriate charges for:

a. Administrative services,calculated on an average percentage basis torecover the full estimated costs (excluding un-funded civilian retirement costs, military salariesand a pro-rata share of fixed base operationscosts) of administration of sales made under theAct to all purchasers of such articles and servic-es.

b. A proportionate amountof any nonrecurring costs of research, develop-ment and production of major defense equip-ment, except of equipment wholly paid for eitherfrom U.S. military assistance funds, Section503(a)(3) of the Foreign Assistance Act of 1961,or from U.S. credit funds made available on anon-repayable basis under Section 23 of this Act.

c. The recovery of ordinaryinventory losses associated with the sale ofdefense articles that are being stored at theexpense of the purchaser of such articles.

3. Training Price Exceptions toSection 21(e). Under certain conditions less thanthe full cost of training may be charged:

a. In the case of training soldto a purchaser who is scheduled to receiveInternational Military Education and Training(IMET) during the same fiscal year in which thesale of training is made, only those additionalcosts that are incurred by the United StatesGovernment in furnishing the training shall becharged.

b. Section 21(g) of the AECA[reference (a)] authorizes the President to enterinto North Atlantic Treaty Organization stan-dardization agreements in carrying out Section814 of the Act of October 7, 1975, (P. L. 94-106),and to enter into similar agreements with Japan,Australia, New Zealand, and with other coun-tries which are major non-NATO allies for thecooperative furnishing of training on a bilateraland multilateral basis, if the financial principlesof such agreements are based on reciprocity.

Such agreements shall include reimbursement forall direct costs but may exclude reimbursementfor indirect costs, administrative surcharges, andcosts of billeting of trainees (except to the extentthat members of the United States Armed Forcesoccupying comparable accommodations arecharged for such accommodations by the UnitedStates). Each such agreement shall be transmit-ted promptly to the Speaker of the House ofRepresentatives and the Committees on Appro-priations, Armed Services and Foreign Relationsof the Senate.

4. Price of New Procurement.Section 22(a) of the AECA [reference (a)] requireseligible countries or international organizationsto pay the full amount of the contract and anydamages and costs that may accrue due to thecancellation of such contracts when the U.S.Government enters a contract for a new procure-ment on their behalf. Payment to the USG bythe foreign country or international organizationis to be in U.S. dollars.

5. Interest. Section 21(d) and22(a) of the AECA [reference (a)] require thatinterest be charged on any net amount by whicha country or international organization is inarrears under all of its outstanding unliquidateddependable undertakings considered collectively.The interest charged shall be at a rate not lessthan a rate determined by the Secretary of theTreasury taking into consideration the currentaverage market yield on outstanding short-termobligations of the United States as of the last dayof the month preceding the net arrearage andshall be computed from the date of net arrear-age.

6. Price of Design and Construc-tion Services. Section 29 of the AECA [reference(a)] requires foreign countries or internationalorganizations to pay the full cost of design andconstruction services and any damages and coststhat may accrue due to the cancellation of suchcontracts when the U.S. Government enters intoa contract for design and construction serviceson their behalf.

C. Cost Recoupment Waivers andExclusions

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1. Waiver of Nonrecurring CostRecoupment Charges. Section 21(e)(2) of theAECA [reference (a)] provides the President mayreduce or waive the charge or charges whichwould otherwise be considered appropriateunder paragraph 070104.C.2 for particular salesthat would, if made, significantly advance Unit-ed States Government interest in North AtlanticTreaty Organization standardization with theArmed Forces of Japan, Australia, or New Zea-land, in furtherance of the mutual defense trea-ties between the United States and those coun-tries, or foreign procurement in the United Statesunder coproduction agreements. This authorityhas been delegated to the Director, DefenseSecurity Assistance Agency (DSAA).

2. Special Waiver Authority forNATO E-3A. 10 U.S.C. 2350e [reference (n)]provides that the Secretary of Defense, in carry-ing out the Multilateral Memorandum of Under-standing (MMOU) between NATO Ministers ofDefense on the NATO E-3A Cooperative Pro-gramme, signed by the Secretary of Defense onDecember 6, 1978, the MOU for operation andsupport of the NATO Airborne Early Warningand Control Force singed by the US Ambassadorto NATO on September 26, 1984; the addendumto the MMOU dated December 7, 1990; and anyfollow-on support agreement to the NATO E-3ACooperative Programme may waive reimburse-ment for:

a. Personnel cost applicableto services performed by personnel other thanpersonnel employed in the Airborne Warningand Control System (AWACS) program officefor:

(1) Auditing

(2) Quality assurance

(3) Codification

(4) Inspection

(5) Contract administra-tion

(6) Acceptance testing

(7) Certification services

(8) Planning, program-ming, management services

b. Any surcharge for ad-ministrative services otherwise chargeable. Thelaw also authorizes the Secretary to assumecontingent liability for:

(1) Any program lossesresulting from the gross negligence of any con-tracting offices of the United States.

(2) Identifiable taxes,customs duties, and other charges levied withinthe United States on the program.

(3) The United States’share of unfunded termination liability. Theauthority contained in section 2350e currentlyexpires on September 30, 1993. DoD will contin-ue to seek extension of that authority in accor-dance with the provisions of the MMOU.

3. Waiver of Contract Adminis-tration Services (CAS). Section 21(h) of theAECA [reference (a)] provides that the Presidentis authorized to provide (without charge) qualityassurance, inspection, contract administrationservices, and contract audit defense services inconnection with:

a. The placement or admin-istration of any contract or subcontract for de-fense articles, defense services, or design andconstruction services entered into after October29, 1979, by, or under the AECA [reference (a)]on behalf of, a foreign government which is amember of NATO, if such government providessuch services in accordance with an agreementon a reciprocal basis, without charge, to theUnited States Government.

b. The placement or admin-istration of any contract or subcontract for de-fense articles, defense services, or design andconstruction services pursuant to the NATOInfrastructure Program in accordance with anagreement under which the foreign governmentsparticipating in such a program provide suchservices, without charge, in connection withsimilar contracts or subcontracts.

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c. In carrying out theobjectives of subsection 21(h) cataloging data andcataloging services may be provided to NATO orto a member government of NATO, if NATO orthe member government provides such serviceswithout charge to the United States on a recipro-cal basis.

d. The authority set forth in(a) and (b) to negotiate and conclude such agree-ments has been delegated to the Assistant Secre-tary of Defense (Acquisition & Logistics).

e. When a waiver has beenapproved, the cost of contract administration insupport of the applicable effort shall be fundedby a DoD appropriation. Billings for such actualcosts shall not be submitted against the FMSTrust Fund.

f. Countries with waiversare listed in DoD 5105.38-M, Security AssistanceManagement Manual (SAMM)[reference (e)],Figure 1301-1.

4. Special Waiver Authority forNATO Cooperative Projects.

a. Section 27 of the AECA[reference (a)] provides that the President mayreduce or waive the charge or charges in connec-tion with cooperative projects or agreementsentered into under the authority of that section.The charges that may be reduced or waived arethose that are otherwise considered appropriateunder section 21(e) of the Act (see paragraph070104.B.2. "Charges Applicable to Services,Stocks, and New Procurements", above) inconnection with sales of defense articles andservices from stocks or new procurements whenthe other participants agree to waive or reducesuch charges.

b. Waiver authority of thePresident under section 27 has been delegated tothe Director, DSAA.

c. Administrative surcharg-es shall not be increased on other sales madeunder the AECA [reference (a)] in order tocompensate for any cost waivers which aregranted pursuant to Section 27 of the Act. Funds

received pursuant to such other sales shall not beavailable to reimburse the costs incurred by theUnited States Government for which waiver orreduction is approved by the President underSection 27 of the Act.

5. Waiver of Cost of Military Payand Entitlements for Defense Services Funded bythe Military Assistance Program (MAP) orNon-Repayable FMS Credit.

a. Section 503(a) of the FAA[reference (a)] of 1961, as amended, provides forelimination of the cost of military pay andentitlements if the sales case for defense services(including training) or for design and construc-tion services is totally financed by the MilitaryAssistance Program (MAP) or by non-repayableFMS credit.

b. Services provided underSections 21, 22, or 29 of the AECA [reference (a)]shall be priced to exclude military pay andentitlements (including retired pay accrual) onlyfor those cases citing MAP funds and/or FMSCredit (Non-repayable) as the exclusive methodof funding on the LOA. This pricing applieswhen services are performed regardless of thedate of the LOA. For MAP, the pricing appliesto services provided after September 30, 1985; fornon-repayable credit, the pricing applies toservices provided after September 30, 1989.DSAA will commit MAP funds and non-repay-able credits on all service cases that cite suchfunding prior to release to the country. Anysubsequent amendment/modification serving toreduce the MAP or non-repayable credit fundingbelow 100 percent shall require repricing to addmilitary pay and entitlements to the entire case.

6. Exchange of Training andRelated Support. Section 30.A. of the AECA[reference (a)] empowers the President to pro-vide training and related support to military andcivilian defense personnel of a friendly foreigncountry or an international organization. Suchtraining and related support is specifically to beprovided by a Secretary of a Military Depart-ment and only when the recipient foreign coun-try or international organization agrees, pursuantto an agreement or other arrangement, to pro-

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vide comparable training and related support ona reciprocal basis to personnel under the jurisdic-tion of the Secretary providing the training. Thereciprocal training must be provided within areasonable period of time which may not bemore than one year. If such training is notprovided, then the country or internationalorganization receiving such training shall berequired to reimburse the United States for thefull costs of the training and related supportprovided by the United States.

7. Special Authorities. In con-nection with the administration of the EuropeanAir Defense Agreements, the Secretary of De-fense is authorized under Section 132 of theInternation Security and Development Coopera-tion Act of 1985 [reference (a)] to (1) waive anysurcharge for administrative services otherwisechargeable under Section 21(e)(1)(A) of theAECA [reference (a)], and (2) waive any chargenot otherwise waived for services associatedwith contract administration for the sale underthe Act of Patriot air defense missile fire units tothe Federal Republic of Germany (FRG) contem-plated in the agreements.

8. Fair Pricing. Under sections21 and 43 of the Arms Export Control Act,charges for non-recurring costs are not requiredfor foreign military sales cases wholly fundedwith MAP or non-repayable FMS credits. Inaddition, asset use charges are no longer applica-ble to FMS transactions. In addition, militarysalaries and unfunded costs of civilian retirementand other benefits are not included in the FMSadministrative account. However, when suchexpenses are included in, or are a part of, thestandard prices charged for goods and servicesfurnished by working capital funds, a separateprice shall not be established for sales from, orservices furnished by, working capital funds inconnection with FMS cases and the standardprice shall be charged as is the case with allother sales and services furnished by workingcapital funds.

D. Payment Terms

1. Sales from Stock of DefenseArticles and Services. Payment shall be made inadvance, or if the President determines it to be

in the national interest, upon delivery of thedefense article or rendering of the defense ser-vice. The authority to determine that paymentupon delivery is in the national interest has beendelegated to the Director, DSAA. If billings aremade at delivery, they shall be due and payableupon receipt. Interest shall be charged on anynet amount due and payable which is not paidwithin 60 days. The period may be extended to120 days if a determination is made that emer-gency requirements of the purchaser for acquisi-tion of defense articles or defense services exceedthe ready availability to the purchaser of fundssufficient to pay in full for them within the 60day period. If this is done, the determinationmust be submitted to the Congress along with aspecial emergency request for the authorizationand appropriation of additional funds to financesuch purchases.

2. Sales of New ProcurementItems and Construction Services. Payment shallbe made in advance of the need to meet contractpayments required by the contract and anycharges and costs that may occur from thecancellation of a contract.

3. Authorization and Appropria-tion of Emergency Funds. The President mayissue letters of offer which provide for billingupon delivery of the defense article or renderingof the defense service and for payment within120 days after the date of billing. This authoritymay be exercised, however, only if the Presidentalso determines that the emergency requirementsof the purchaser for acquisition of such defensearticles and services exceed the ready availabilityto the purchaser of funds sufficient to makepayments on a dependable undertaking basisand submits both determinations to the Congresstogether with a special emergency request forauthorization and appropriation of additionalfunds to finance such purchases under the Act.

4. Special Instructions Applica-ble to Section 23 (Credit Sales) and Section 24(Guaranties) of the AECA [reference (a)]

a. Section 23 of the Actprovides the authority to finance sales of defensearticles and defense services to friendly countriesand international organizations, subject to the

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availability of appropriations for such purpose.The authority is a method for financing thepayment terms set forth in 1 and 2 above. Thecustomer must repay principal used within 12years after the delivery of applicable articles orthe rendering of the service. The interestcharged shall be at a rate determined by thePresident, except that it may not be less than 5per cent. Currently, such interest on any unpaidbalance is paid at a rate equivalent to the currentaverage interest rate, as of the last day of themonth preceding the financing of such procure-ment, that the United States Government payson outstanding marketable obligations of compa-rable maturity.

b. Section 24 of the Actprovides the President may guarantee loansmade by any individual, corporation, partner-ship, or other juridical entity doing business inthe United States (excluding United States Gov-ernment agencies other than the Federal Financ-ing Bank) to finance FMS purchases or directcommercial purchases by friendly countries andinternational organizations. Funds previouslyobligated under Section 24(c) constitute a singlereserve for the payment of claims under suchguaranties. A fee of 1/4 of 1 percent is chargedon each loan guaranteed.

070105. Crediting of Earned Reimbursements

A. General. DoD appropriation/fund accounts or Miscellaneous Receipts Account3041, "Recoveries Under the Foreign MilitarySales Program," are entitled to reimbursementwhen DoD services or inventory items are soldunder Section 21. An entitlement to reimburse-ment also results from Section 22 procurementactions if direct cite procedures for financingapplicable contracts are not used. The generalrule applicable to the sale of DoD services is thatthe financing account current at the time ofperformance is credited with applicable budgetauthority and subsequent cash collections. Whenitems are sold from inventory, the financingaccount current at the time items are droppedfrom inventory is credited with applicable bud-get authority and subsequent cash collections.When appropriation/fund accounts are used tofinance FMS procurements, the account currentat the time the order is accepted is credited with

budget authority and subsequent cash collec-tions.

B. Elements. The various cost ele-ments which may be involved in performance ofan FMS order and the accounts which are to becredited are shown in Table 701-1.

C. Special Defense Acquisition Fund

1. The International Security andDevelopment Cooperation Act of 1981 enactedon December 29, 1981, [reference (a)] authorizesthe establishment of a Special Defense Acquisi-tion Fund (SDAF). The SDAF is capitalized bycollections that normally would be depositedinto Miscellaneous Receipts Account 3041. De-posits may consist of:

a. Collections made fromsales under letters of offer issued pursuant toSection 21(a)(1)(A) of the AECA [reference (a)]representing the actual value of defense articlesnot intended to be replaced in stock under theterms and conditions of section 114(c(2) of title10 United States Code, which provide for thedeposit of such collections provided that thedeposit does not cause the amount in the SDAFto exceed $1,070,000,000.

b. Collection from salesrepresenting the value of charges for the propor-tionate recoupment of nonrecurring research anddevelopment and production costs.

2. The SDAF has been assignedaccount symbol 11X4116. A monthly report ofdisbursing officer credits to 11X4116 shall beprovided to DSAA. Separate subheads shall beused under 11X4116 to identify the source of thecollections. The subheads that apply are asshown in Table 701-2.

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TABLE 701-1 COST ELEMENTS

Cost Element Account Credited

A. Services of military personnel:

(1) Composite standard military pay rate Military Personnel (MP) Appropriation

(2) Leave and holidays factor when Military Personnel (MP) Appropriationapplicable. See paragraph 070203.

(3) Personnel support costs Appropriation Operations and Maintenance (O&M)

(4) Retirement cost prior to 1 Oct 84 Miscellaneous Receipts Account 3041

B. Services of Civilian Personnel:

(1) Salary cost and wages O&M Appropriation; Research, Development,Test, and Evaluation (RDT&E) Appropriation;Industrial Fund (IF)/Defense Business OperationsFund, as applicable

(2) Leave and holidays factor when O&M, RDT&E, IF, as applicableapplicable. See para 070102

(3) DoD funded civilian retirement cost O&M, RDT&E, IF, as applicable

(4) Health and life insurance and other O&M, RDT&E, IF, as applicableemployee e.g., fringe benefits

(5) Civilian retirement cost not funded by Miscellaneous Receipts Account 3041DoD appropriations

C. Inventory Items:

(1) Nonexcess Procurement Funded item Financing procurement appropriationswhich requires replacement as applicable, current at the time items

dropped from inventory

(2) Nonexcess Procurement Funded item that Miscellaneous Receipts Account 3041 or Specialwill not be replaced within the obliga- Defense Acquisition Fund 11X4116.1, astion availability of current procurement applicable, see para. 070105.C.1.appropriations

(3) Excess and Nonexcess Stock Fund/Defense Defense Business Operations FundBusiness Operations Fund items

(4) Excess procurement funded principal Miscellaneous Receipts Account 3041 oritems 11X4116.2, as applicable, see para.

070105.C.1.

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TABLE 701-1 COST ELEMENTS (CONTINUED)

D. Nonrecurring cost recoupment charges Miscellaneous Receipts Account 3041 or(Collected as a result of Foreign 11X4116.3, as applicable, see para. 070105.C.1.Military Sales or direct commercialsales)

E. Transportation Financing appropriation/fund current atthe time transportation is provided

F. Logistics Support Charge MP, O&M, RDT&E, or Defense BusinessOperations Fund current at the timeservices are performed or MiscellaneousReceipt Account 3041, as applicable.

G. Royalty fee charges Miscellaneous Receipts Account 3041 or11X4116.3, as applicable, see para. 070105.C.1.

H. Charges for the use of DoD assets (includes Miscellaneous Receipts Account 3041 ordepreciation on purchased equipment) 11X4116, as applicable, see para.

070105.C.1. Depreciation which is includedin Industrial Fund (IF)/Defense BusinessOperations Fund shop rates shallbe retained by the IF/Defense BusinessOperations Fund

I. FMS contract costs financed by DoD Financing procurement appropriation orappropriation or fund accounts Defense Business Operations Fund as

applicable

J. TDY costs financed by appropriation or O&M and RDT&E appropriations cur-fund accounts rent at the time travel is performed, or

IF, as applicableK. Accessorial Surcharge:

(1) Packing, crating, and handling (PC&H) O&M appropriation current at the timeservices are performed, or IF, as applicable

(2) Transportation O&M appropriation current at the timetransportation is provided, or IF, asapplicable

L. FMS administrative surcharge (This is a MP, O&M, RDT&E, or IF current atcombination of cost elements A., B., and J.) the time services are performed or

Miscellaneous Receipts Account 3041,as applicable

M. Contract Administration Services (This is a MP, O&M, IF, or Miscellaneouscombination of cost elements A., B., and J.) Receipt Account 3041, as applicable

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TABLE 701-1 COST ELEMENTS (CONTINUED)

N. Interest charge resulting from late payment of Miscellaneous Receipts Account 3210,billings (DD Form 645, "Foreign Military Sales General Fund Proprietary Receipts,Billing Statement") for accrued expenditures Defense Military not otherwise classified

O. Mailing fee, storage and publications O&M or revolving fund, as applicable

P. Inventory losses Applicable procurement or revolving fund,as applicable

Note: DoD Components shall maintain internal records of the dollar amounts applicable to each categoryof collections deposited into Miscellaneous Receipts Account 3041. One decimal subaccount will berequired for each type of collection. For example 3041.3 might be used to designate dollar amountsapplicable to nonrecurring cost recoupment, including royalty fees, as a result of direct commercial sales.

TABLE 701-2 SPECIAL DEFENSE ACQUISITION FUND ACCOUNT SYMBOLS

Basic Symbol/Limit Source of Collections

11X4116.1XXX Nonexcess procurement funded items which will not bereplaced within the obligation availability of currentprocurement appropriations. (See paragraph 70105.C.1.a.,this Volume, which pertains.)

11X4116.2XXX Excess stock fund/Defense Business Operations Fundand procurement funded items. (See paragraph 070105.C.1.a.,this Volume, which pertains.)

11X4116.3XXX Nonrecurring RDT&E and production charges, includingroyalty fees.

11X4116.7XXX Payments from FMS or MAP funds for sale of SDAF equityin contracts and inventories.

11X4116.8XXX Payments from MILDEP appropriations for SDAF itemstransferred to the MILDEP for temporary use and which arenot returned to SDAF.

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0702 PRICING OF PERSONNEL SERVICES

070201. General. Except for those costs whichmay be excluded from charges in certain caseswhich were discussed in preceding paragraphs,charges to the FMS program for DoD personnel,except for those assigned to DoD training instal-lations or performing contract administration,shall be computed in accordance with this sec-tion. This includes personnel costs recouped asdirect charges, that is, special managementservices, mobile training teams (MTTs), technicalassistance teams (TATs), or technical assistancefield teams (TAFTs). It also includes personnelcosts that are recouped indirectly through theadministrative surcharge. The calculation ofpersonnel costs shall include travel time, bothtemporary duty travel and permanent change ofstation, when the travel directly results fromperformance of an FMS case. The actual hoursof personnel supporting foreign commercialcontracts shall be accumulated and priced at thehourly FMS rates prescribed annually by theOffice of the Comptroller, DoD memorandum.This memorandum is usually issued in Octoberor November. When industr ia l lyfunded/Defense Business Operations Fundpersonnel are utilized other than at the industrialfund site, price civilian personnel using thecurrent annual salary and appropriate accelera-tion factors without overhead costs.

070202. Civilian Personnel. Services performedby DoD civilian personnel shall be priced atstandard pay rates in effect at the time theservices are performed. Tables in Appendix Ccontain the general schedule pay rates. Thestandard pay rates shall be accelerated to recoverthe funded cost of the U.S. Government’s contri-bution for civilian employee benefits, such asretirement, insurance and health plans, cashawards, and, where applicable, the U.S.Government’s share of social security taxes andleave and holidays. Acceleration factors arereviewed by the Office of the Comptroller, DoDand adjusted as appropriate through memoran-da. Factors in effect at the date of this publica-tion are listed on the pay tables at Appendix C.Civilian personnel costs shall be based on anaverage work week of 40 hours. The indicatedpercentages at the bottom of the tables (or thefactors in effect at the time of services, if not in

those tables inclusive time periods) shall be usedfor acceleration factors. The acceleration factorfor leave and holidays shall be applied onlywhen reimbursements are based on time actuallyworked, that is, when the foreign country doesnot otherwise pay for costs incurred during leaveor holiday periods. See paragraph 070104.C.8.for the impact of "Fair Pricing" legislation oncivilian personnel services in calculating chargesfor administrative services under section 21(e) ofthe Arms Export Control Act [reference (a)].Pricing is illustrated in Table 702-1.

070203. Military Personnel

A. Military personnel services shallbe priced using the composite standard pay ratescurrent at the time services are performed.Tables in Appendix C contain the annual payrates. Monthly, daily, or hourly rates can beobtained by multiplying the annual rate by theapplicable factors shown at the bottom of thetable.

B. Since fiscal year 1985, the annualcomposite standard military rates include thecost of retirement. However, these compositerates must be accelerated to recover the cost ofother benefits. Leave and holiday costs areadded when reimbursements are based on timeactually worked, such as when the foreigncountry does not otherwise pay for the personnelcosts incurred by the Department of Defenseduring leave and holiday periods. The additiveamounts for retirement, leave and holidays, andother benefits are expressed as percentages of thecomposite standard pay rate and are listed as theacceleration factors beneath the composite ratesin each table. Pricing computations are illustrat-ed in Tables 702-2, 702-3, and 702-4.

C. For FY 1980 and the prior fiscalyear, the composite standard rate shall also beincreased by the appropriate permanent changeof station (PCS) costs. PCS costs for these yearsare additive after any other increases for retire-ment, leave and holidays, and other benefits.

D. Beginning in FY 1981, PCS costsare included in the composite standard pay ratesin the appropriate tables in Appendix C and aresubject to the acceleration factors beneath the

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pay tables. In situations where military person-nel are required to make a PCS move to supportan FMS case, the PCS rate shall be deleted fromthe composite rate and the actual PCS costcharged to the case. In the latter situation, theactual PCS cost is not subject to acceleration.

E. FMS cases which are fullyfinanced with MAP funds and/or non-repayableFMS credits shall be priced to exclude the cost ofsalaries and entitlements of military members.This is effective in FY 86 for MAP-financed casesand in FY 90 for cases financed by non-repayablecredits. This exclusion applies only toabove-the-line costs and not to associated sur-charges, e.g., military salaries included in theadministrative surcharge, and the contract ad-ministration surcharge.

070204. Indigenous Personnel. Indigenouspersonnel services shall be priced at actual costsor at standard pay rates. Standard pay ratesshall not be used when known to be less thanactual costs. Both actual cost and the standardpay rate shall include an estimated amount tocover such benefits as sick leave, maternity leave,death, accident, unemployment, and retirement(separation) when such benefits are paid toindigenous employees or specifically required bythe laws of the foreign government.

070205. Travel and Living Allowances. Travel,per diem, living allowance payments, and otherentitlements to DoD personnel working on FMScases shall be identical to the payments andentitlements of DoD personnel working on directDoD mission assignments at similar locations.The FMS case shall be priced to include theamount paid to employees or centrally fundedthrough authorized DoD entitlement programs.

070206. Special Instructions Applicable toIndustrial Funds/Defense Business OperationsFunds. Industrial fund/Defense Business Opera-tions Fund facilities will charge applicable ap-proved non-DoD stabilized inventory rates andprices for services in support of FMS casesexcept where special rates may be applicable.

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TABLE 702-1 CIVILIAN PERSONNEL SERVICES PRICE COMPUTATION EXAMPLE

100 HOURS OF CIVILIAN EFFORT (GS-12)AT NAVY INSTALLATION IN JANUARY 1989

Direct Labor Hours 100

FY 89 Hourly Rate (Fourth Step) ($38,039/2087)1 $18.23

Direct Labor $1,823.00

Leave and Holiday Acceleration Factor (18%) 328.14

Subtotal $2,151.14=======

Unfunded Retirement Factor (14.7%)2 316.22Fringe Benefits Factor (15.8%)3 339.88

Pay Cost and Cost of Acceleration Factors $2,807.24

4% Asset Use Charge4 112.29

FMS Selling Price5 $2,919.53=======

____________________________________________

1 To compute the hourly pay rate for FY 84 and beyond, divide the general pay by 2087 hours.For prior years, use 2080 hours.

2 Credit the unfunded portion of civilian retirement to Miscellaneous Receipts Account3041.

3 The fringe benefits factor includes the employer’s share of retirement, health benefits, life insurance,etc.

4 Credit to Special Defense Acquisition Fund or Miscellaneous Receipts Account 3041 asappropriate. Note: Asset use was canceled November 30, 1989.

5 Administrative surcharge is additive to the selling price.

NOTES:

A. See Table 804-5 for billing.

B. For illustrative purposes the above example is based on costs and acceleration factors in effectfor FY 1989. Refer to Appendix C or current Comptroller, DoD guidance for costs and accelerationfactors to be used in the current year.

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TABLE 702-2 MILITARY PERSONNEL SERVICES PRICE COMPUTATION EXAMPLE

200 HOURS EFFORT BY NAVY MILITARY PERSONNEL (O-4 AND E-7)AT CUSTOMER LOCATION IN JUNE 1984

O-4 E-7 TOTAL

Direct Labor Hours 100 100

Hourly Composite Pay Rate (FY 1984)O-4 ($47,040/2080) 22.62E-7 ($27,948/2080) X_______ X 13.44

Composite Pay Cost $2,262.00 $1,344.00

Leave and Holidays1 18.0% 407.16 18.0% 241.92Subtotal $2,669.16 $1,585.92

======= =======Retirement1 33.0% 880.82 33.0% 523.35Other Personnel Cost1 8.0%2 213.53 23.0% 364.76Pay and Fringe Benefit Costs $3,763.51 $2,474.03 $6,237.54

=======4.0% Asset Use Charge3 -0-TDY Cost 2,000.00

FMS Selling Price4 $8,237.54=======

____________________________________________

1 Before September 9, 1983, the method of applying acceleration factors was to add all factorsand apply a single percentage to pay cost. Refer to Appendix C or current Comptroller, DoDguidance for costs and acceleration factors to be used in current year.

2 Credit to O&M or RDT&E, as applicable.

3 Asset Use Charge is not applicable because service does not involve use of DoD facilities.Note: Asset use was canceled November 30, 1989.

4 Administrative Surcharge is additive to the selling price.

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200 HOURS EFFORT BY NAVY MILITARY PERSONNEL (O-4 AND E-7)AT NAVY LOCATION4 IN JUNE 1984

O-4 E-7 TOTAL

Direct Labor Hours 100 100

Hourly Composite Pay Rate (FY 1984)O-4 ($47,040/2080) 22.62E-7 ($27,948/2080) X________ X 13.44

Composite Pay Cost $2,262.00 $1,344.00

Leave and Holidays1 18.0% 407.16 18.0% 241.92Subtotal $2,669.16 $1,585.92

======= =======Retirement1 33.0% 880.82 33.0% 523.35Other Personnel Cost1 8.0%2 213.53 23.0% 364.76Pay and Fringe Benefit Costs $3,763.51 $2,474.03

Temporary Duty (TDY) costs 200.00(includes per diem and transportation)Total Costs $3,763.51 $2,674.03 $6,437.54

4.0% Asset Use Charge3 257.50

FMS Selling Price $6,695.04=======

____________________________________________

1 Before September 9, 1983, the method of applying acceleration factors was to add all factorsand apply a single percentage to pay cost. Refer to Appendix C or current Comptroller, DoDguidance for costs and acceleration factors to be used in current year.


3 Credit to SDAF or Miscellaneous Receipts Account as appropriate. Note: Asset use wascanceled November 30, 1989.

4 For purposes of charging asset use, the service location may be a CONUS/overseas USG-owned activity. Asset use applies to both personnel services and associated TDY costs inthis example.

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1 YEAR OF ARMY MILITARY PERSONNEL (O-4 AND E-7) TOFMS CUSTOMER INSTALLATION (ALL PCS IN FY 86)

O-4 E-7 TOTAL

Yearly Composite Pay Rate1 $66,137.00 37,241.00(FY1986)

Applicable Acceleration Factors2

Other Personnel Cost3 6.0% 18.0%

Cost of Acceleration Factors 3,968.22 6,703.38(less PCS Factor) (2,928.00) (1,065.00)

1,040.22 5,638.38Actual PCS to Installation -

Round Trip Transportationof Member and Family 10,000.00 10,000.00

Round Trip Movement ofHousehold goods 5,000.00 5,000.00

Living Allowances 6,000.00 6,000.00

FMS Selling Price4 $88,177.22 $63,879.38 $152,056.60=========

____________________________________________

1 Beginning in FY 1981, PCS costs were included in the composite standard pay rate and mustbe deleted when actual PCS costs are applied. Beginning in FY 1985 military retirement wasincluded in the composite pay rate.

2 Refer to Appendix C or current Comptroller, DoD guidance for costs and acceleration factors to beused in current year.


4 Administrative Surcharge is additive to selling price.

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0703 CASH SALES OF DEFENSE ARTICLESISSUED FROM STOCK

070301. General. Section 21 of the AECA[reference (a)] authorizes the sale of defensearticles from stock to eligible foreign govern-ments and international organizations. Thesesales include all sale of items from DoD invento-ries, whether delivered from storage or fromprocurements that were initiated to maintainadequate DoD inventory levels. Procurementsspecifically for FMS requirements (excludingcooperative logistics supply support arrange-ments) may not be considered a sale from stock.Procurements initiated to replace stocks soldfrom DoD inventories are not FMS newprocurements.

070302. Sale Price of Nonexcess Materiel

A. Nonexcess defense articles areassets within the approved force acquisitionobjective and approved force retention stock ofall DoD Components as defined in DoD Direc-tive 4100.37 [reference (o)]. Also included in thenonexcess category are articles procured inanticipation of military assistance or sales re-quirements as a result of cooperative logisticssupply support arrangements, or pursuant to amilitary assistance or sales order. The sellingprice shall be determined when (1) a requisitionis edited for shipment by the shipping activity,or (2) the Letter of Offer is prepared, if a firmprice is determined in accordance with theprovisions of paragraph 070303.

B. Sale of Defense Business Opera-tions Fund Items

1. The selling price of DefenseBusiness Operations Fund issues to FMS custom-ers shall be the current Defense Business Opera-tions Fund price. Shipments from inventory tonon-Cooperative Logistics Supply SupportArrangement (non-CLSSA) customers and toCLSSA customers where requisitions are re-ceived in advance of achieved inventory stocklevels shall be made only when on-hand service-able inventories of the items being sold areabove the item’s reorder point on the day theitem is dropped from inventory, except as indi-cated below (see Table 703-1).

2. The inventory manager withfirst level supervisor coordination may approvethe issue of stocks below the reorder point tonon-CLSSA customers when directed by theDirector, DSAA, or when he or she determinesthat there will not be an unacceptable impact onU.S. forces or CLSSA customers.

a. If issuance was directedby DSAA and would impact adversely U.S.Armed Forces or CLSSA customers, the ICP shallidentify the need for diversion and provideimpact data through appropriate DoD Compo-nent channels to the Director, DSAA. DoD5105.38-M, Paragraph 60003.E [reference (e)] pro-vides additional details on processing suchimpact statements.

b. If it is imperative thatstock be replaced through acceleratedprocurements and normal pricing policies willnot adequately recoup replacement costs, anexception to DoD pricing policies shall be re-quested from Comptroller, DoD. Section 719 ofthis Volume provides guidance on exceptionrequests. Normally, the exception would be toeither add a replacement factor or delay finalpricing until the contract for replacement itemsis financially complete.

3. Each Defense Business Opera-tions Fund organization shall review annuallythe items under it’s control to determine if silveror other reclaimed precious metals were provid-ed to the contractor as government-furnishedmateriel (GFM). A special FMS pricing tableshall be established for those items that containreclaimed precious metals. The price in the FMSpricing table shall be increased annually toreflect the June 30 market price of the preciousmetal. For example, if an item contains 10ounces of reclaimed silver and the market priceof silver on June 30 increased by $6.00, then theitem’s selling price shall be increased by $60.00

4. If a customer returns a repa-rable Defense Business Operations Fund item forrepair or replacement, overhaul service shall bepriced in accordance with paragraph 070802.Under no conditions shall the customer be

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granted a credit for this carcass which is to beapplied against the selling price determined insubparagraph B.1, above. Credit would repre-sent U.S. procurement of FMS customer-ownedassets, and such procurements cannot be min-gled with the FMS program.

5. As an invested participant, aCLSSA customer may return a fully serviceablereparable item to the Defense Business Opera-tions Fund for credit, when the item is withinthe approved acquisition objective (AAO), pro-viding the requirements of paragraph 070102.J.are met. The credit will only be issued after theitem is received at the depot. Funds creditedmay be paid by the DoD paying office into theTrust Fund in accordance with the foreigncustomer’s instruction.

C. Sale of Investment (ProcurementFunded) Items. As indicated previously, whenan item is sold from the stocks of the Depart-ment and that item is not intended to be re-placed, except for amounts which may be credit-ed to the Special Defense Acquisition Fund, theamounts received as payment for that item fromthe FMS customer are required to be depositedinto the miscellaneous receipts of the Treasuryunder the provisions of 10 U.S.C. 114(c)(2).Therefore, in the case of such sales, it is neces-sary to decide whether an item will be replacedor not. An item may be replaced either "in kind"or with an improved model of the item sold.Thus, the sale of a C-130B and the replacementof that aircraft with a C-130B would be an "in-kind" replacement. The replacement of theaircraft with a C-130E would be a replacementwith an improved model. Both of the caseswould be a replacement. On the other hand, thesale of a C-130B and the substitution of a totallydifferent kind of aircraft would not be a replace-ment. Similarly, the purchase of an upgradingor modification kit, would not be a replacement,even though the upgrade or modification wouldresult in an end-item similar to ones beingacquired or that could be acquired. For instance,the procurement from the proceeds of the sale ofan M-1 Tank in the inventory of a modificationkit to an M-1 Tank currently in the inventory toupgrade an existing M-1 to an M-1A Tank wouldnot be a replacement even though the procure

ment of a new M-1A tank to replace the M-1sold would be a replacement.

1. Investment Item Not to beReplaced. When an item is not to be replaced,the price of the item is not less than the actualvalue of the article. Except as provided insubparagraph b., this price is determined asfollows:

a. When a determination ismade that a procurement funded item will notbe replaced, the price of the item shall be themost recent actual procurement cost of the"series" and "model" being sold, plus the cost ofany modifications or improvements incorporatedafter production. Reductions to the sale pricemay be made when there is an actual differencein utility or desirability among units of issue ofan item due to age or condition. The cost of thelast major overhaul or outfitting accomplishedbefore the sale date is added to the calculatedprice and is not reduced for age or condition.The overhaul costs will be pro-rated over theinterval between the last actual overhaul and thenext scheduled overhaul. If a future overhaul isnot scheduled, the cost of the last overhaul willbe prorated over the normal average intervalbetween overhauls. If an overhaul schedule isnot available, the most appropriate time span forthat series and model should be used. In thecase where actual costs are not available for thelast overhaul, a reasonable estimate from thefacility normally performing overhauls for thetype of item to be sold may be used. In the casewhere a maintenance schedule has not beenestablished, a period of at least five years shouldbe used. An illustration of price computation isat Table 703-2. A request for waiver of theoverhaul cost may be submitted to Comptroller,DoD, Accounting Policy, with a copy to theComptroller, DSAA.

b. In the case of a navalvessel that is 20 or more years old, and 3,000tons or less, section 21(a)(2) of the AECA [refer-ence (a)] provides that the actual value is notless than the greater of the scrap value or the fairvalue (including conversion costs) as determinedby the Secretary of Defense.

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2. Investment Item to be Re-placed. When a determination is made that anitem is to be replaced, the price of the item is tobe the estimated cost of the replacement, includ-ing the contract or production costs of the articleless any depreciation in the value of the article.This price is determined as follows:

a. Determine the normaluseful peacetime life of the item or equipment tobe sold.

b. Determine the percentageof useful life remaining on the item.

c. Apply the percentagedeveloped in paragraph C.2.b., above, to theestimated (or actual) cost of the replacementitem. The resultant amount is the base cost to beused in the sale price calculation. Under nocondition shall the sale price be lower than thescrap value plus the cost of the last major over-haul or outfitting accomplished within 24months before the sale.

d. Examples of price com-putations are shown at Tables 703-3 and 703-4.

3. When a determination ismade under subparagraph C.2, above, the FMSselling price on the Letter of Offer to the Pur-chaser shall be the best estimate available.However, once the item is dropped from inven-tory, a final bill shall be assessed the purchaserutilizing the best pricing information available ifactual replacement procurement cost is notknown. This shall be the final cost to the pur-chaser regardless of the actual cost of finalreplacement procurement. Inventory managersmust realize that this prescribed pricing method-ology may not result in a one for one replace-ment. If exact quantities are needed in inventoryin order to maintain readiness, then the invento-ry manager must recommend FMS procurementand not approve a shipment out of stock.

D. Sale of Ammunition. The sellingprice of an ammunition item shall be the currentstandard price and any applicable nonrecurringcost recoupment charge for the item beingshipped to the customer.

070303. Quotation of Firm Prices

A. DoD Components are authorizedto quote firm prices for items to be sold fromstock and for in-house services to be furnished,pursuant to Section 21 of the AECA [reference(a)]. Such prices are not subject to further ad-justment, provided the purchasing nation acceptsthe LOA before the expiration date. A firm pricemay be quoted only for:

1. An actual or estimated re-placement price for a procurement funded enditem, including ammunition, or major items to besold from inventory as authorized in paragraph070302.C.2, provided the price is based on bud-getary data or contractor quotation.

2. A price for a procurementfunded or major item developed under provi-sions of paragraph 070302.C.1. and 070304.

3. Training tuition rates (onlyfor current year).

B. The objective of quoting firmprices is to minimize difficulties that might ariseshould prices undergo several revisions, due tobudgetary decisions made subsequent to countryacceptance of Letters of Offer. Firm prices maybe quoted only after careful and coordinateddevelopment of such pricing data. Letters ofOffer (other than for training) which specify firmpricing must be coordinated, at a minimum withthe Military Comptrollers, DSAA, and the Officeof the Comptroller, DoD.

C. All Letters of Offer authorized tobe on a firm price basis shall include a notewhich specifies that pricing data presented arefirm (except for changes authorized in paragraph071006) and will not be changed, provided thecountry accepts the Letter of Offer before itsexpiration date.

070304. Excess Materiel

A. Excess equipment shall be sold inan "as is" condition. Excess defense articles areassets in excess of the approved force acquisitionobjective and approved force retention stock ofall DoD Components (see paragraph 070302 for

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additional discussion). The cost of repairing,rehabilitating, or modifying such articles shall becomputed in accordance with paragraph 070802.The selling price of excess materiel, exclusive ofrepair or modification costs, shall be the highestof (1) its market value (which includes nonrecur-ring costs as computed in paragraph 070305) ashardware, or (2) its scrap value plus nonrecur-ring costs and the last major overhaul costsincurred (the overhaul costs will be pro-ratedover the interval between the last actual over-haul and the next scheduled overhaul. If afuture overhaul is not scheduled, the cost of thelast overhaul will be pro-rated over the normalaverage interval between overhauls. In the casewhere actual costs are not available for the lastoverhaul, a reasonable estimate from the facilitynormally performing overhauls for the type ofitem to be sold may be used. In the case wherea maintenance schedule has not been established,a period of at least five years should be used.An example of computing these costs is illustrat-ed at Table 703-5), or (3) its fair value (plusnonrecurring and pro-rated major overhaulcosts) computed using the fair value rates con-tained in this subsection. A request for waiverof the overhaul cost may be submitted to theOffice of the Comptroller, DoD (AccountingPolicy), with a copy to the Comptroller, DSAA.Fair value rates are applied to the establishedinventory price and follow:

Percent of InventoryFederal Condition Code Price of Materiel(See DoD 4160.21-M [reference (p)]for specific definitions)

A-1 (serviceable, unused - good) 50

A-4 (serviceable, used - good) 40

A-2, A-5, B-1, C-1, D-1, B-4, C-4, D-4 30(serviceable with qualification,materiel is either unused in faircondition; if used, in good condition).

B-2, C-2, D-2, B-5, C-5, D-5, D-7, E-7, 20F-7, G-7 (serviceable with qualification,if unused in fair condition; if used, ingood condition). (Also includes unservice-able items that are in good condition butrequire minor repairs.)

A-3, B-3, C-3, D-3, A-6, B-6, C-6, H-7, 10F-8 (serviceable, in poor condition;unserviceable, in poor condition; orunserviceable because item requiresminor repairs).

D-8, H-8, D-9, H-9, F-9, F-X, G-X, 5H-X (unserviceable, requiring majorrepairs).

B. Illustrations of price computationsare at Table 703-6, 703-7, and 703-8.

C. When accountability for excessitems has been transferred to "Property Dispos-al," the provisions of DoD Instruction 7310.1[reference (q)] shall apply. This Instructionprovides specific guidance in the disposition ofamounts realized from the sale of such equip-ment.

D. A request for exception to estab-lished pricing policy of excess material forForeign Military Sales will be submitted to theDoD Comptroller for approval with a copy tothe Defense Security Assistance Agency. Therequest must address the following:

1. Whether the item has beenscreened for potential sale to customers andwhether there is any existing customer interest atthe price determined in accordance with theestablished pricing policy;

2. Whether the alternativeproposed price is equal to or greater than thescrap value plus the established recoupmentcharge for DoD’s nonrecurring costs;

3. Whether demilitarization costswill be incurred by the DoD if the item is soldand, if so, the estimated amount of such demili-tarization costs;

4. What the price to repair theitem would be and its relationship, as a percent-age, to the original acquisition cost of the item;and

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5. Whether the proposed salehas any other economic or political benefit to theDoD and/or the United States Government.

070305. Charges for Nonrecurring Cost

A. Non-USG purchasers shall pay afair price, determined in accordance with DoDDirective 2140.2 [reference (r)], for the values ofthe DoD nonrecurring investment in the devel-opment and production of Major Defense Equip-ment, as required by law, unless a nonrecurringcost (NC) recoupment charge waiver has beenapproved by the DoD official designated inSection E of DoD Directive 2140.2. The policy inDoD Directive 2140.2 applies to Major DefenseEquipment developed with U.S. Governmentfunds. For FMS, an NC recoupment charge isapplicable to all MDE. Major Defense Equip-ment is any item of Significant Military Equip-ment (SME) listed on the United States Muni-tions List having a DoD nonrecurring Research,Development, Test and Evaluation (RDT&E) costaccumulation of $50 million or a total DoDproduction cost of more than $200 million.

B. For determining the pro rata shareof NC to be recouped, a cost pool methodologyis used. The NC recoupment charge computa-tion (nonrecurring RDT&E and nonrecurringproduction cost pools divided by benefitingunits) are submitted to the Director, DSAA, forapproval. The NC recoupment computationshall be supported with the MDE calculationworksheet illustrated at Table 703-9. A summaryreport on each MDE item shall be provided toDSAA following the report format at Table 703-10. The Director, DSAA, will review each DoDComponent’s calculations and publish the chargein the SAMM [reference (e)].

C. Each DoD Component shall estab-lish a system to accumulate cost pools, recognizewhen a cost pool meets recoupment thresholdsand calculate an NC recoupment charge foritems releasable to foreign countries and interna-tional organizations when FMS sales are antici-pated. The NC recoupment charge shall bebased upon information recorded in DoD ac-counting records or DoD budget justificationdocuments. Cost estimates may be used todetermine the NC expected to be incurred in

periods not covered by budget justificationdocuments.

D. The costs to be included in the nonre-curring RDT&E investment cost pool shall bedetermined on the budget and accounting classi-fications established for research, development,test and evaluation appropriations in DoD7110.1-M [reference (d)]. Paragraph 516.2 ofreference (d) establishes the following researchand development (R&D) categories:

1. Research 6.1. Includes allefforts of scientific study and experimentationdirected toward increasing knowledge andunderstanding in those fields of the physical,engineering, environmental, and life sciencesrelated to long term national security needs. Itprovides fundamental knowledge required forthe solution of military problems. It forms a partof the base for (a) subsequent exploratory andadvanced development in DoD-related technolo-gies and (b) new and improved military func-tional capabilities in areas such as communica-tions, detection, tracking, surveillance, propul-sion, mobility, guidance and control, navigation,energy conversion, material and structures, andpersonnel support.

2. Exploratory Development 6.2.Includes all efforts directed toward the solutionof specific military problems, short of majordevelopment projects. This type of effort mayvary from fairly fundamental applied research toquite sophisticated "breadboard" hardware,study, programming, and planning efforts. Itwould thus include studies, investigations, andminor development effort. The dominant charac-teristic of this category of effort is that it ispointed toward specific military problem areaswith a view toward developing and evaluatingthe feasibility and practicability of proposedsolutions and determining their parameters.Program control of the exploratory developmentelement shall be exercised normally at a generallevel of effort.

3. Advanced Development 6.3.Includes all efforts directed toward projects thathave moved into the development of hardwarefor tests. The prime result of this type of effortis proof of design concept, rather than the devel-

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opment of hardware for service use. Projects inthis category have a potential military applica-tion.

4. Engineering Development 6.4.Includes all projects in full-scale engineeringdevelopment for service use that have not yetreceived approval for production or had produc-tion funds included in the DoD budget submis-sion for the present budget or subsequent fiscalyear. This area is characterized by major lineitem projects, and program control shall beexercised by review of individual projects.

5. Management and Support 6.5.Includes research and development effortsdirected toward support of installations oroperations required for general research anddevelopment use. Included would be test rangesand maintenance of test aircraft and ships, andstudies and analyses in support of the R&Dprogram. Cost of laboratory personnel, eitherin-house or contract-operated, would be assignedto appropriate projects or as a line item in theresearch, exploratory development, or advanceddevelopment program areas, as appropriate.Military construction costs directly related to amajor development program shall be included inthe appropriate element.

6. Operational System Develop-ment. Includes those projects still in full-scaleengineering development that have receivedapproval for production through the DefenseSystems Acquisition Review Council (DSARC) orother action, or production funds have beenincluded in the DoD budget submission for thepresent budget or subsequent fiscal year. Allitems in this area are major line item projectsthat appear as RDT&E costs of weapon systemelements in other programs. Program controlshall be exercised by reviewing projects individ-ually. The costs incurred for nonrecurring R&Din the first two budget and accounting classifica-tions (6.1 and 6.2) may not be included in thenonrecurring RDT&E cost pool. The advanceddevelopment (6.3) budget and accounting classi-fications is sometimes further broken down into6.3A and 6.3B. Although both types of effort area "proof-of-design" concept rather than the devel-opment of hardware for service use, the 6.3Aclassification is tied strictly to research efforts

that involve the production of breadboards orbrassboards to model all or part of a design.The 6.3B classification may be applied to projectsto produce a prototype which, although notsuitable for fielding, is closer to representation ofan end item for military application. Therefore,costs incurred for nonrecurring R&D in classifi-cation 6.3A may not be included in the nonre-curring RDT&E cost pool. However, costs inclassification 6.3B and the remaining R&D classi-fications are subject to recoupment and shall beincluded in the nonrecurring R&D cost poolsupon which the pro rata charge is calculated.

E. All applicable NC efforts, includ-ing in-house or multiple contractors shall beincluded in the NC cost pool. In other words,the source of the NC effort to develop a productis not relevant to the calculation of the NCrecoupment charge. The costs of improvementprograms that are designed to continuouslyimprove the safety, reliability, availability, andmaintainability of an end item or major compo-nent over the projected life of the item will beshared equitably by all users of the item. Nor-mally, each user will pay a share of the totalannual cost through a Component ImprovementProgram (CIP) or comparable program. Allusers are expected to participate in such a pro-gram. The cost sharing calculation will beestablished at the time the NC cost pool isestablished and the NC recoupment charge isapproved. First, the total life of the item will beprojected, then the point in time when half of allprojected deliveries to non-DoD customers willoccur will be estimated. Using actual cost dataand data from historical files for similar CIP orcomparable programs, the total U.S. investmentcosts over the life of the program will be estimat-ed. The amount of U.S. investment projected tobe incurred up to the previously determinedpoint of half of the deliveries to non-DoD cus-tomers will be included in the weapon systemNC cost pool. The annual cost of operating theCIP or comparable program will be shared inproportion to the number of items in the posses-sion of each user. This will ensure that theremaining costs of operating the CIP or compara-ble program will be shared equally by all usersof the item.

176


F. The costs to be included in thenonrecurring production cost pool are thosefinanced by, or to be financed in the future by,procurement or operations and maintenanceappropriations that benefit current and futureproduction runs. DoD Directive 2140.2 [refer-ence (r)] provides that the pool shall capturesuch costs as preproduction, special tooling,special testing equipment, production engineer-ing, product improvement, destructive testingand product model production, and testing andevaluation. Other costs may be included if theybenefit both current and future production runs.Descriptions of the major categories of costs tobe accumulated in this nonrecurring cost poolare as follows:

1. Preproduction Cost refers tocost of such activities as tool manufacture andtryout (such as jigs, dies, and fixtures) and theimplementation of layout plans. Also, see item8, License Cost. A lump sum payment is part ofpreproduction cost.

2. Special Tooling Cost refers tothe costs of all jigs, dies, fixtures, molds, pat-terns, taps, gauges, other equipment and manu-facturing aids, and replacement thereof , that areof such a specialized nature that substantialmodifications or alternation of their use is limit-ed to the development of production of particu-lar supplies or parts thereof, or the performanceof particular services. The term includes allcomponents of such items, but does not include:(a) material; (b) special testing equipment, or (c)building and nonserviceable structures (exceptfoundations and similar improvements necessaryfor the installation of special tooling), general orspecial machine tools, or similar capital items.

3. Special Test Equipment Costrefers to the cost funded by procurement appro-priations for either single or multipurpose inte-grated test units engineered, designed, fabricat-ed, or modified to accomplish special purposetesting in the performance of the contract. Suchtesting units comprise electrical, electronic,hydraulic, pneumatic, mechanical, or other itemsor assemblies of equipment that are mechanical-ly, electrically, or electronically interconnected soas to become a new functional entity, causing theindividual item or items to become interdepen-

dent and essential in the performance of specialtest equipment procured with RDT&E appropria-tions.

4. Developmental ProductionEngineering Cost includes the cost of productdesign improvement intended to enhanceproducibility of an item; and examination ofavailable manufacturing processes to determinethe need for new techniques (and their develop-ment, if necessary); the optimum marshalling ofresources for efficient manufacturing (such asoptimum lot size, scheduling, production control,production line design and balancing and plantlayout); and tool design and detailed manufac-turing planning. Although a continuing activity,most of this effort is rightfully considered anonrecurring production cost.

5. Product Improvement issubdivided into six distinct types of effort: (a)safety; (b) cost reduction; (c) reliability, availabil-ity, and maintainability; (d) deficiency correc-tions; (e) compatibility standardization, andsimplification; and (f) new or improved opera-tional capability. Categories (a) through (e) areto be included in the end item nonrecurringproduction cost pool, even though a participat-ing product improvement program has beenestablished that pro rates annual cost of theprogram based upon worldwide asset position(both U.S. and foreign-owned end items). TheDoD cost of category (f) shall be recovered aspart of the selling price of a modification kit, ifthe kit is an MDE. Product improvement pro-grams may be accomplished by contractors as anengineering change proposal (ECP), modificationwork order (MWO), or an in-house project.

6. Destructive Testing is atechnique for performing tests on a component,assembly, or an end item. It involves the testingof an article beyond its design limits (and ulti-mately its destruction), or the actual consump-tion of the article to determine if it is performingto design specifications.

7. Pilot Model Testing includesthe following effort:

a. Qualification Testing is avery severe testing to determine if a product will

177


do what it is designed to do. It usually involvesthe testing of a product to the limits of its perfor-mance. It is often destructive and the test arti-cles are not intended to be used operationally.

b. First Article Testing Costis the cost of testing to evaluate a newmanufacturer’s ability to produce a specifieddesign (could be the new manufacturer’s designor that of another manufacturer). It is normallymore stringent and costly than routine accep-tance testing, but less stringent and costly (andless destructive) than qualification testing.

8. License Cost refers to the costof the license DoD shall obtain to allow competi-tive awards for production of an item when itsdesign is owned by a contractor. In effect, theDepartment of Defense buys the rights to allowother contractors to produce an item for DoDpurposes through the payment of royalties or alump sum fee. These royalties are customarilyon a per-item basis and should be charged asrecurring production costs. The lump sum fee isa nonrecurring production cost.

G. In computing nonrecurring costpools for items to be sold under FMS, nonrecur-ring costs for major components that are restrict-ed to U.S. Government use only shall not beincluded. For example, the costs of nucleardevices and features, countermeasure devicesand features, security devices (black boxes),carrier-peculiar adaptations, and special fuel tankdevices shall be excluded. Estimates may beused if accounting records do not identify associ-ated costs.

H. The number of items that shallinclude all known or projected DoD productionquantities shall be determined as follows.

1. The production quantities ofend items required by the Department of De-fense shall be obtained from either SelectedAcquisition Reports (SARs) or the Five YearDefense Program (FYDP), Procurement Annex.

2. The production quantities ofend items to be procured for foreign countries orinternational organizations under security assis-tance programs shall be obtained from DoD

Component security assistance plans.

3. The production quantities ofend items to be produced by contractor forcommercial sales may be obtained from thecontractor and validated by contracting officers.The contractor’s estimate shall be required onlyif the applicable commodity manager determinesthat a potential exists for significant commercialsales.

4. In the event end item data isnot available from any of these sources, thedeveloping command shall estimate the totalnumber of end items to be produced.

5. The production quantities ofsystems components that meet the investmentthreshold shall be derived from the number ofend items to be produced. For example, if 100aircraft shall be produced (including engines)and spare part support requires 150 engines, theproduction quantity of engines is 250.

I. In the event of a disagreement onthe production quantity and sales projections, theDirector, DSAA, shall make the final determina-tion, in coordination with the Office of theComptroller, DoD, and OUSD(A), as to theproduction estimates to be used for determiningthe NC recoupment charge.

J. The approved pro rata charge shallbe recouped, unless a waiver is authorized.When nonrecurring cost recoupment is applica-ble, the price in a Letter of Offer and Acceptanceshall provide for the specific recoupment charge.In instances where the initial rate has not yetbeen approved, DoD Components shall providefor an initial rate based on an estimation of thebest information available to the DoD Com-ponent. The LOA shall be modified to providefor the subsequently approved rate and only thatapproved rate is to be billed. When a recoup-ment charge is revised, the previous value isretained in the appendix for information. Subse-quent revisions to the pro rata charge shall beapplied to new LOAs and shall not be retroac-tive.

178


K. When the price is reduced becauseof age, condition, or supply status (excess), thesame percentage reduction shall be made to thepro rata share of nonrecurring costs.

L. DoD Directive 2140.2 [reference(r)] requires a biennial review of approved MDEcharges to determine if there has been a signifi-cant change in factors or assumptions used tocompute the currently approved recoupment fora model. A significant change occurs when (1)a new calculation shows a change of 30 percentof the current system NC charge for an MDEitem or (2) the NC unit charge increases ordecreases by $50,000 or more or (3) where thepotential for a $5 million change in recoupmentexists or (4) for ammunition items, the potentialexists for additional recoupment of over $100,000or more. A revision to the NC recoupment forMDE will not be applied retroactively to signedLOAs. Rather, the new charge applies to allsales following the date of approval.

M. When a model change occurs, theNC recoupment charge shall be recalculated.That portion of the NC which benefits only onemodel shall be allocated only to that model.That portion of the NC that benefits old and newmodels shall be prorated between cost poolsrelated to the old and new model items. Com-monality between old and new models may bedetermined either on the basis of the ratio of oldmodel parts in the new item or on some othercommon acceptable basis for allocation of costsbetween the models, i.e., engineering analysis ortechnology analysis, as appropriate. Samplecalculations are illustrated at table 703-13.

N. While a change may be submittedat any time by a DoD Component, it is manda-tory that a modification be submitted when asignificant change occurs.

O. Reporting Nonrecurring CostRecoupment Collections.

1. Funds collected for NCrecoupment charges shall be disposed of inaccordance with paragraph 070105 of this Vol-ume.

2. DoD Components shall

provide a quarterly report on the status ofnonrecurring cost collections. The format is atTable 703-12. The report shall be forwarded tothe DSAA Comptroller within 45 days followingthe close of each fiscal quarter, with a copyfurnished to the Defense Finance and AccountingService (DFAS-HQ/ARS). DoD Componentsshall maintain records of anticipated and actualnonrecurring cost collections for FMS cases andknown direct commercial sales (prior to October7, 1992). Data on direct commercial sales may beobtained from export licenses or from otherinformation provided by DSAA. Reports shouldbe in agreement with amounts deposited to theTreasury miscellaneous receipts account.

P. Waivers.

1. The Director, DSAA, is thewaiver approval authority and will state inwriting any approvals granted for waiversassociated with FMS. A notification of eachapproved waiver will be forwarded to theComptroller, DoD and to the concerned DoDComponent by the approving authority.

2. The decision on any waiverrequires the concurrence of the Director, DSAA;the Comptroller, DoD: and the USD(Acquisition).If an issue concerning the waiver request cannotbe resolved, the Director, DSAA, shall preparean action memorandum on the waiver request tothe Deputy Secretary of Defense for final deter-mination. The action memorandum to theDeputy Secretary of Defense shall be coordinatedwith the Director, DSAA, the Comptroller, DoD,and the USD(Acquisition).

Q. Articles delivered after November30, 1989 under FMS cases fully financed withMAP funds and/or nonrepayable FMS creditfunds shall be priced to exclude the NC charge.

R. The established NC recoupmentcharge shall be included in the FMS unit price.

S. The Director, Defense ContractAudit Agency, shall ensure that any evaluationof a contractor accounting system includes ananalysis of the internal controls established toensure compliance with the requirement to pay

179


NC recoupment charges for sales made prior toOctober 7, 1992. If DCAA audit work on a bidproposal, claim for incurred costs, etc., disclosescontractor noncompliance with the requirement

to pay an NC recoupment charge, an auditreport shall be issued promptly to the cognizantDoD contracting officer, with a copy of thereport submitted to the DFAS-HQ/ARS andDSAA(COMPT).

TABLE 703-1 PRICE COMPUTATION EXAMPLE NONEXCESSDEFENSE BUSINESS OPERATIONS FUND/ REPAIR PART FROM STOCK

Standard Price $500.00

FMS Selling Price $500.001,2

=======

____________________________________________

1 The Administrative Surcharge is additive to the selling price.

2 See Table 804-6 for billing.

180


TABLE 703-2 PRICE COMPUTATION EXAMPLE NONEXCESS PROCUREMENT FUNDED ITEMFROM STOCK NOT TO BE REPLACED

Standard Price $50,000.00

Pro-rated overhaul costs before sale date (see Table 703-10) 3,000.00Pro-rata nonrecurring charges 2,000.00

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

Calculation of reduction for age and condition:

Acquisition Price $50,000.00Adjustment for remaining service life (10-year life,

5 years expired ) (5/10) 50%

$25,000.001

Pro-rated overhaul costs before sale date (see Table 703-10) 3,000.002

Nonrecurring cost recoupment(50% of $2,000) 1,000.003

FMS Selling Price $29,000.003,4,5,6

____________________________________________

1 Credit $25,000 received for articles to Miscellaneous Receipts Account 3041.

2 Credit $3,000 previously incurred overhaul costs to the financing account.

3 Credit $1,000 to SDAF or Miscellaneous Receipts Account 3041, as applicable.

4 PCH and Administrative Surcharge are additive to the selling price.


6 Under no condition shall the sale price be lower than the scrap value plus the cost of the lastmajor overhaul or outfitting accomplished before the sale.

181


TABLE 703-3 PRICE COMPUTATION EXAMPLE NONEXCESS PROCUREMENT FUNDEDITEM FROM STOCK TO BE REPLACED


Pro rata nonrecurring charges 2,000.00

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

Calculation of Price:

Estimated contract price to replace item. $100,000.00Adjustment for used service life (10-year life,

5 years expired ) (5/10) 50%$50,000.00

Reimburse to current procurement account $50,000.00Pro rata nonrecurring charge (5/10) 50% of 2,000 1,000.001

FMS Selling Price $51,000.002,3,4

____________________________________________

1 Credit recovery for nonrecurring costs to SDAF or Miscellaneous Receipts Account 3041, asapplicable.

2 PCH and Administrative Surcharge are additive to the selling price



182


TABLE 703-4A PRICE COMPUTATION EXAMPLE NONEXCESS PROCUREMENT FUNDED ITEMSFROM STOCK TO BE REPLACED

Standard Price $1,300,000.00


*******************************

Calculation of Price

Estimated contract price to replace item. $2,700,000.00Adjustment for Depreciation (constant percentagemethod of depreciation - 12-1/2% per year thisexample)20 year life-average fleet age = 7 years1 39%

$1,053,000.00

Reimburse to current procurement account $1,053,000.00Pro rata nonrecurring charge (39% of $32,000) 12,480.002

FMS Selling Price $1,170,780.003,4

==========____________________________________________

1 Constant percentage method of Depreciation Rn = (1-d)n (see table 703-4B)Rn = 39% remaining useful life factor at the end of n years.d = 12.5 percentage useful life lost from the remaining value in each year.n = 7 age in years of the item.

Note: Residual value at the end of 20 years (normal service list) is 6.92%.

2 Credit recovery for nonrecurring costs to SDAF or Miscellaneous Receipts Account 3041, asapplicable.

3 PCH and Administrative Surcharge are additive to selling price.


183


TABLE 703-4B CONSTANT PERCENTAGE METHOD OF DEPRECIATION

Rn = (1-d)n

Rn = remaining useful life factor at the end if n years.

d = percentage useful life lost from the remaining value in each year.

n = age in years of the item.

Example below uses d=12.5%

n d Rn

1 .125 .8752 .125 .7656253 .125 .6699224 .125 .5861825 .125 .5129096 .125 .4487957 .125 .3926968 .125 .3436099 .125 .30065810 .125 .26307611 .125 .23019112 .125 .20141713 .125 .17624014 .125 .15421015 .125 .13493416 .125 .11806717 .125 .10330918 .125 .09039519 .125 .07909620 .125 .069209

184


TABLE 703-5 PRICE COMPUTATION OF OVERHAUL COSTS PREVIOUSLY INCURRED FOR APROCUREMENT FUNDED ITEM SOLD TO FOREIGN MILITARY SALES CUSTOMERS

Assume the following:

1. Aircraft A, tail number 26 is to be sold in May 1991. The last overhaul for that aircraftwas accomplished in August 1990 at a cost of $640,000.

2. The normal interval between overhauls for aircraft A is 60 months.

The price is computed using the following steps:

1. Determine the actual interval since the last overhaul in terms of months:

August 1990 to May 1991 equals 9 months.

2. Determine the percentage of overhaul costs applicable to the DoD by comparing the actualinterval since the last overhaul with the normal interval between overhauls.

Actual Interval = 9 months = 15%Normal Interval 60 months

3. Determine the amount of the costs to be charged to the customer by subtracting the resultingpercentages in step 2 from 100 percent and applying the result to the overhaul costs. If actualoverhaul costs are not known, a reasonable estimate should be obtained from the facilitynormally performing overhauls for the type of item that is to be sold.

100% -15% = 85% x $640,000 = $554,000

185


TABLE 703-6 PRICE COMPUTATION EXAMPLE EXCESS DEFENSE BUSINESSOPERATIONS FUND ITEM

NON-FMSO FMSO II

Standard Price $500.00 $500.00Adjustment for condition (A-1 and serviceable,unused, good condition - 50% reduction) 250.00 N/A

$250.00 $500.00

Reimburse to Defense Business OperationsFund Account 250.00 $500.00

FMS Selling Price $250.001 $500.001

____________________________________________


186


TABLE 703-7 PRICE COMPUTATION EXAMPLE EXCESS PROCUREMENT FUNDEDITEM FROM STOCK



Pro rata overhaul costs before sale date(see Table 703-10) 3,000.00

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

Condition - A-3 (serviceable, unused, poor) 10%

Standard Price x 10% 5,000.00

Pro rata nonrecurring charge x 10% 200.00

Pro rata overhaul costs before sale date 3,000.00

FMS Selling Price $8,200.001,2,3

=======

____________________________________________

1 The FMS selling price must be increased if the marketprice or the scrap value plus the nonrecurring cost recoupment charge and the prorated valueof the last major overhaul costs incurred are higher than the fair value FMS selling price.The market price is defined as a commercial catalog price or quoted price from a commercialvendor, if readily available. The fair value price is determined by the Federal ConditionCode.

2 Credit to SDAF or Miscellaneous Receipts Account 3041, as applicable.

3 PCH and Administrative Surcharge are additive to the selling price. Credit collections fornonrecurring costs to SDAF or Miscellaneous Receipts Account 3041, as applicable.

187


TABLE 703-8 PRICE COMPUTATION EXAMPLE SALE OF EXCESS SHIP

Value of ship where fair value computation isapplicable per para. 070304.A. Fair value is10% of original cost. $2,250,000.001

Nonrecurring cost recoupment charge(10% of established charge) 50,000.002

Pro-rated overhaul costs (See Table 703-10) 1,500,000.001

FMS Selling Price $3,800,000.003,4,5

==========

____________________________________________

1 Credit to Miscellaneous Receipts Account 3041.

2 Credit to SDAF or Miscellaneous Receipts Account 3041, as applicable.



5 If the item is sold at market value the entire proceeds will be deposited to MiscellaneousReceipts or SDAF as applicable as the sale of an item that does not require replacement.

188


TABLE 703-9 FORMAT FOR MDE CALCULATIONS

FO

RM

AT

FO

R M

DE

CA

LCU

LAT

ION

D

ate

Pre

pare

d

ITE

M D

ES

CR

IPT

ION

:

D

oD C

ompo

nent

Iden

tific

atio

n N

o.:

Pre

pare

r's N

ame,

Job

Ser

ies,

Gra

de

PA

RT

A -

NO

NR

EC

UR

RIN

G R

&D

INV

ES

TM

EN

T (

NU

ME

RA

TO

R)

R&

D P

roje

cts

Maj

or C

ompo

nent

sX

YZ

Tot

al

Air

Fra

me

$80,

000,

000

$80,

000,

000

Eng

ine

(JX

X)

$58,

000,

000

$58,

000,

000

Rad

ar$5

,000

,000

$5,0

00,0

00 A

vion

ics

$1,0

00,0

00$1

,000

,000

Und

istr

ibut

ed to

Com

pone

nt$2

0,00

0,00

0$2

0,00

0,00

0

T

otal

Air

Vec

hicl

e$1

64,0

00,0

00 P

AR

T B

- N

ON

RE

CU

RR

ING

RP

OD

UC

TIO

N IN

VE

ST

ME

NT

(N

UM

ER

AT

OR

)

A

F 1

537

Con

trac

tC

ontr

act

Maj

or C

ompo

nent

s1-

Sep

-91

XX

ZZ

Tot

al A

ir F

ram

e$5

,000

,000

$5,0

00,0

00 E

ngin

e (J

XX

)$7

,000

,000

$7,0

00,0

00 R

adar

$3,0

00,0

00$3

,000

,000

Avi

onic

s$5

,000

,000

$5,0

00,0

00U

ndis

trib

uted

to C

ompo

nent

$10,

000,

000

$10,

000,

000

Tot

al A

ir V

echi

cle

$30,

000,

000

PA

RT

C -

PR

OJE

CT

ED

UN

ITS

(D

EN

OM

INA

TO

R)

Sou

rce

Doc

umen

tsC

omm

erci

al

D

oD Q

uant

ities

MA

P/F

MS

Est

imat

e by

FY

DP

AD

P

5

Yea

r S

ecur

ityA

DP

Con

trac

ting

Pro

c. A

nnex

Pro

ject

311

Ass

ista

nce

Pla

nsP

roje

ct 3

11O

ffice

rT

otal

s A

ir F

ram

e1,

500

850

2,35

0 E

ngin

e (J

XX

)3,

050

2,50

02,

000

7,55

0 R

adar

2,70

095

010

03,

750

Avi

onic

s1,

500

850

2,35

0

Air

Veh

icle

1,50

075

02,

250

189


TABLE 703-9 FORMAT FOR MDE CALCULATIONS (CONTINUED)F

OR

MA

T F

OR

MD

E C

ALC

ULA

TIO

N

D

ate

Pre

pare

d

ITE

M D

ES

CR

IPT

ION

:

D

oD C

ompo

nent

Iden

tific

atio

n N

o.:

Pre

pare

r's N

ame,

Job

Ser

ies,

Gra

de

PA

RT

D -

CO

MP

ON

EN

T N

C

Pro

ject

edU

nit N

CM

ajor

Com

pone

nts

R&

DP

rodu

ctio

nT

otal

Uni

tsR

ecou

pmen

t Cha

rge

Air

Fra

me

$80,

000,

000

$5,0

00,0

00$8

5,00

0,00

02,

350

$36,

170

(1)

Eng

ine

(JX

X)

$58,

000,

000

$7,0

00,0

00$6

5,00

0,00

07,

550

8,60

9 (

1) R

adar

$5,0

00,0

00$3

,000

,000

$8,0

00,0

003,

750

2,

133'

Avi

onic

s$1

,000

,000

$5,0

00,0

00$6

,000

,000

2,35

0

2

,553

'U

ndis

trib

uted

to C

ompo

nent

$20,

000,

000

$10,

000,

000

$30,

000,

000

2,25

013

,334

(2)

PA

RT

E -

SY

ST

EM

NC

CH

AR

GE

T

otal

1. C

urre

nt D

evel

op C

osts

:

Air

Fra

me

(1 e

ach

syst

em)

$3

6,17

0

E

ngin

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eac

h sy

stem

)

17,2

18

R

adar

(1

each

sys

tem

)

2,13

3

A

vion

ics

(1 e

ach

syst

em)

2,55

3

Und

istr

ibut

ed to

Com

pone

nt (

allo

cate

d to

end

item

s)13

,334

2. G

FM

Dev

elop

men

t Cos

ts:

IS

S C

anno

n (2

eac

h sy

stem

)50

0

H

R X

Rad

io (

1 ea

ch s

yste

m)

250

XM

Bom

b S

ight

(1

each

sys

tem

)30

0

A

cces

s II

Sca

t (1

each

sys

tem

)70

0

TO

TA

L S

YS

TE

M C

HA

RG

E$7

3,15

8'(1

)

NO

TE

S:

(1)

Uni

t NC

rec

oupm

ent c

harg

e ca

lcul

atio

n fo

r M

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item

mus

t be

subm

itted

to D

SA

A fo

r re

view

and

app

rova

l.

(2)

Und

istr

ibut

ed s

yste

ms'

NC

is r

ecou

ped

on e

nd it

ems.

190


TABLE 703-10 MDE WORKSHEET FORMAT

D

AT

E P

RE

PA

RE

DD

OD

CO

MP

ON

EN

T

RE

CO

UP

ME

NT

OF

NO

NR

EC

UR

RIN

G C

OS

TS

ON

SA

LES

.Jul

y 19

86

Arm

y

OF

MD

E IT

EM

SA

S O

F D

AT

EN

AM

E A

ND

TE

LEP

HO

NE

NU

MB

ER

OF

CO

NT

AC

T P

OIN

T

.Jul

y 19

86

Joh

n D

oe

XX

X-X

XX

X

SE

CT

ION

A

(a)

(b)

(c)

(d)

(e)

NO

NR

EC

UR

RIN

G C

OS

TS

PR

OD

UC

TIO

N Q

UA

NT

ITY

R

EC

OM

ME

ND

ED

PR

O R

AT

AW

EA

PO

N S

YS

TE

M($

TH

OU

SA

ND

S)

U

NIT

CH

AR

GE

PR

EV

IOU

S U

NIT

OR

CO

MP

ON

EN

TR

DT

&E

PR

OD

UC

TIO

NT

OT

AL

AR

MY

MA

RIN

E/N

AV

YA

IR F

OR

CE

MA

P

F

MS

/DIR

EC

T S

ALE

TO

TA

L

RD

T&

E

P

RO

DU

CT

ION

TO

TA

LC

HA

RG

E

VE

HIC

LE30

020

050

010

000

010

000

2000

150K

100K

250K

NE

W IT

EM

S

EC

TIO

N B

P

RO

DU

CT

ION

QU

AN

TIT

IES

AC

TU

AL

PR

OJE

CT

ION

TO

TA

L

M

AP

0

D

IRE

CT

SA

LE0

FM

S10

0010

00

TO

TA

LS

191


TABLE 703-11 NONRECURRING COST CHARGES FOR MDE

Major Defense Equipment

InventoryControl EffectivePoint Description of Item NSN* Nonrecurring Charge Date

*NSN, if available.

192


TABLE 703-12 RECOUPMENT OF NONRECURRING COSTS ON SALESOR LICENSING OF U.S.G. ITEMS

RE

CO

UP

ME

NT

OF

NO

NR

EC

UR

RIN

G C

OS

TS

ON

SA

LES

OR

LIC

EN

SIN

G O

F U

.S.G

. IT

EM

S

Dep

artm

ent o

f the

Nav

y

(

$ T

hous

ands

)

Rep

ort P

repa

ratio

n D

ate:

10

Oct

92

R

epor

t Cut

off D

ate:

30

Sep

92

F

isca

lT

otal

Act

ual C

olle

ctio

nsC

ase

Y

ear

Del

iver

yA

ntic

ipat

edA

mou

nt C

olle

cted

Am

ount

Col

lect

edC

umul

ativ

eD

esig

nato

r(1)

Pur

chas

er(2

)Ite

mQ

uant

ityof

Sal

eD

ate(

3)N

C C

harg

e(4)

(5)

Thi

s Q

uart

erT

his

Fis

cal Y

ear

Col

lect

ions

(6)

Par

t 1.

Rec

over

ies

on U

SG

sal

es to

fore

ign

gove

rnm

ents

and

inte

rnat

iona

l org

aniz

atio

ns (

7).

AT

-P-A

AA

AU

ST

RA

LIA

MIS

SIL

E A

IM-7

C70

1990

943

$191

$27

$54

$137

BE

-P-L

AL

BE

LGIU

MG

UID

ED

BO

MB

4019

9193

3$2

47$1

9$6

2$1

55

Par

t 2.

Rec

over

ies

on c

omm

erci

al s

ales

to fo

reig

n go

vern

men

ts, i

nter

natio

nal o

rgan

izat

ions

, and

fore

ign

com

mer

cial

firm

s (7

)(8)

.A

B34

56IH

I HE

AV

Y/J

apan

T-7

00-G

E-4

0110

019

8995

3$2

,970

$89

$1,0

10$1

,841

SP

-P-0

01N

AV

AL

MA

TL

CM

D/S

pain

TF

-34

EN

G10

1992

924

$207

$21

$104

$166

P

art 3

. R

ecov

erie

s on

sal

es to

dom

estic

com

mer

cial

firm

s (7

)(8)

.U

SA

GE

N E

LEC

TR

ICT

-64

EN

GIN

ES

5019

9292

4$1

,929

$116

$386

$1,9

29C

HS

IKO

RS

KY

T-2

HE

LIC

OP

TE

R75

1990

943

$2,9

98$4

00$9

99$1

,999

Not

es:

(1)

App

licab

le to

US

G s

ales

to fo

reig

n go

vern

men

ts a

nd in

tern

atio

nal o

rgan

izat

ions

. F

or c

omm

erci

al d

irect

sal

es, u

se th

e lic

ense

num

ber.

For

dom

estic

sal

es, e

stab

lish

a "d

umm

y" c

ase

num

ber

for

cont

rol p

urpo

se.

(2)

Whe

n a

licen

se n

umbe

r or

"du

mm

y" c

ase

num

ber

is s

how

n in

the

case

des

igna

tor

colu

mn,

then

the

purc

hase

r

c

olum

n sh

ould

als

o re

flect

the

nam

e of

the

cont

ract

or w

ho is

liab

le fo

r th

e pa

ymen

t in

addi

tion

to th

e pu

rcha

ser

(cou

ntry

).(3

) F

or p

ropo

sed

or p

endi

ng d

irect

com

mer

cial

sal

es, p

lace

a "

P"

in th

is c

olum

n.(4

) W

hen

colle

ctio

n re

sults

from

the

use

of a

TD

P, p

lace

a (

T)

afte

r th

e an

ticip

ated

cha

rge.

(5)

Pla

ce a

n as

teris

k af

ter

char

ge w

hen

colle

ctio

n is

com

plet

ed.

(6)

Col

lect

ions

that

are

com

plet

ed d

urin

g th

e fis

cal y

ear

will

be

drop

ped

on th

e fir

st q

uart

erly

rep

ort o

f the

sub

sequ

ent f

isca

l yea

r.(7

) If

pay

men

t of a

NC

rec

oupm

ent c

harg

e is

with

held

or

othe

rwis

e no

t col

lect

ed, f

or a

ny r

easo

n, th

e en

try,

alo

ng

with

the

am

ount

of

the

NC

rec

oupm

ent

colle

ctio

n, s

hall

be r

epor

ted

and

foot

d to

indi

cate

the

rea

son.

If

, at

a s

ubse

quen

t

tim

e, t

here

is a

de

term

inat

ion,

or

othe

r de

term

inat

ion

by t

he O

ffic

e of

the

Com

ptro

ller,

DoD

, th

at t

he N

C r

ecou

pmen

t

c

harg

e w

ill n

ot b

e co

llect

ed, t

he e

ntry

sha

ll be

del

eted

from

the

first

qua

rter

ly r

epor

t of t

he s

ubse

quen

t fis

cal y

ear.

(8)

Rec

over

y no

t req

uire

d on

sal

es o

n or

afte

r da

te o

f thi

s D

irect

ive

for

item

s w

ith n

on-m

ilita

ry p

urpo

se.

193


TABLE 703-13 RECOUPMENT OF NONRECURRING CHARGES FOR MAJOR DEFENSEEQUIPMENT, NEW MODELS DERIVED FROM EXISTING MODELS

R

EC

OU

PM

EN

T O

F N

C C

HA

RG

ES

FO

R M

AJO

R D

EF

EN

SE

EQ

UIP

ME

NT

,

N

EW

MO

DE

LS D

ER

IVE

D F

RO

M E

XIS

TIN

G M

OD

ELS

EX

AM

PLE

1F

AC

TS

:S

tep

4:D

eter

min

e co

st p

ool o

f non

-com

mon

item

s re

late

d to

the

old

item

.1.

MO

DE

LC

OS

T P

OO

LQ

UA

NT

ITY

OLD

CH

AR

GE

A(O

LD)

$500

,000

,000

1,00

0$5

00,0

00a.

Old

Item

Cos

t Poo

l$5

00,0

00,0

00B

(NE

W)

$100

,000

,000

1,00

0 L

ess:

b.C

omm

on C

ost P

ool

$450

,000

,000

2.O

LD M

OD

EL

N

EW

MO

DE

LR

emai

nder

: O

ld it

em c

ost p

ool w

hich

doe

s 1,

000

Par

ts1,

200

Par

tsno

t con

tain

com

mon

ality

with

the

new

item

.$5

0,00

0,00

0

(N

OT

E:

900

part

s ar

e co

mm

on to

bot

h m

odel

s)S

tep

5:R

ecal

cula

te o

ld it

em N

C c

harg

e an

d de

term

ine

if ch

ange

dra

tes

shou

ld b

e su

bmitt

ed to

DS

AA

.S

tep

1:D

eter

min

e co

mm

onal

ity:

Com

mon

ality

is th

e pe

rcen

tage

of

Div

ided

by

the

part

s in

the

new

mod

el th

at a

re c

omm

on to

the

old

mod

el.

a.B

enef

iting

U

nits

CO

MM

ON

ALI

TY

900

'= 9

0%O

ld It

em C

ost P

ool

1,00

0

$50,

000,

000

1,00

0'=

$50

,000

Ste

p 2:

Det

erm

ine

the

amou

nt o

f the

old

item

cos

t poo

l whi

ch

b.C

omm

on C

ost P

ool

bene

fits

both

old

and

new

item

s.$4

50,0

00,0

0020

00'=

$22

5,00

0

$500

,000

,000

Old

Item

Cos

t Poo

l

R

ecal

cula

ted

char

ge fo

r ol

d ite

m:

' $

275,

000

90%

Com

mon

ality

$450

,000

,000

Com

mon

Cos

t Poo

lc.

Com

paris

on o

f pre

viou

s ol

d ite

m N

C c

harg

e w

ith r

ecal

ulat

ed N

Cch

arge

for

old

item

.S

tep

3:C

alcu

late

NC

cha

rge

for

new

item

.R

ecal

cula

ted

a.

B

enef

iting

O

ld It

em C

harg

eO

ld it

em C

harg

eC

omm

on C

ost P

ool

U

nits

$275

,000

div

ided

by

$500

,000

'= 5

5 pe

rcen

t, a

45pe

rcen

t dec

reas

e $4

50,0

00,0

00

div

ided

by

2,00

0'=

$22

5,00

0.00

and

$225

,000

NC

Uni

t Cha

rge

b.de

crea

se.

New

Item

Cos

t Poo

lS

tep

6:

Act

ion

Req

uire

d.w

hich

doe

s no

t con

tain

B

enef

iting

com

mon

ality

with

the

old

item

U

nits

a. S

ubm

it re

ques

t to

Dire

ctor

, DS

AA

for

cons

ider

atio

n of

cha

nge

of N

C r

ate

on o

ld it

em.

$100

,000

,000

d

ivid

ed b

y1,

000

'= $

100,

000.

00 b.

Pre

pare

DS

AA

pac

kage

bec

ause

the

chan

ge in

the

NC

rat

e in

Ste

p 5

U

NIT

CH

AR

GE

FO

R N

EW

MO

DE

L'

$32

5,00

0.00

Ste

p 5

exce

eds

30%

and

the

unit

char

ge d

ecre

ases

by

mor

e th

an $

50,0

00.

194


TABLE 703-13 RECOUPMENT OF NONRECURRING CHARGES FOR MAJOR DEFENSEEQUIPMENT, NEW MODELS DERIVED FROM EXISTING MODELS (CONTINUED)

R

EC

OU

PM

EN

T O

F N

C C

HA

RG

ES

FO

R M

AJO

R D

EF

EN

SE

EQ

UIP

ME

NT

,

N

EW

MO

DE

LS D

ER

IVE

D F

RO

M E

XIS

TIN

G M

OD

ELS

EX

AM

PLE

1 (

Con

tinue

d)S

tep

7:P

roof

: V

erify

that

cos

t poo

l has

bee

n fu

lly a

lloca

ted.

Ste

p 2:

Det

erm

ine

the

amou

nt o

f the

old

item

cos

t poo

l whi

ch

bene

fits

both

old

and

new

item

s.O

ld it

em

1,00

0 Q

TY

X $

275,

000

(Old

Item

Cha

rge)

=

$275

,000

,000

New

item

1,0

00 Q

TY

X $

325,

000

(New

Item

Cha

rge)

=$3

25,0

00,0

00$4

00,0

00,0

00 O

ld It

em C

ost P

ool

Tot

al$6

00,0

00,0

0060

% C

omm

onal

ity$2

40,0

00,0

00 C

omm

on C

ost P

ool

C

ost P

ool

Old

Item

$500

,000

,000

New

Item

$100

,000

,000

T

otal

$600

,000

,000

Ste

p 3:

Cal

cula

te N

C c

harg

e fo

r ne

w it

em.

Diff

eren

ce

-0

-a.

B

enef

iting

NO

TE

:T

he p

roof

is d

esig

ned

only

to s

how

that

cos

ts a

re e

venl

yC

omm

on C

ost P

ool

U

nits

dist

ribut

ed to

all

units

, and

the

fact

that

ther

e m

ay h

ave

been

pre

viou

sch

arge

s at

the

old

rate

is to

be

disr

egar

ded

for

purp

oses

of t

he$2

40,0

00,0

00

div

ided

by

3,50

0'=

$ 6

8,57

1.00

calc

ulat

ion.

b.

E

XA

MP

LE 2

New

Item

Cos

t Poo

lF

AC

TS

:w

hich

doe

s no

t con

tain

B

enef

iting

com

mon

ality

with

the

old

item

U

nits

1.M

OD

EL

CO

ST

PO

OL

QU

AN

TIT

YO

LD C

HA

RG

EA

(OLD

)$4

00,0

00,0

001,

000

$400

,000

$200

,000

,000

d

ivid

ed b

y2,

500

'= $

80,

000.

00B

(NE

W)

$200

,000

,000

2,50

0$6

00,0

00,0

0035

00

UN

IT C

HA

RG

E F

OR

NE

W M

OD

EL

' $

148,

571.

00

2.O

LD M

OD

EL

N

EW

MO

DE

L1,

000

Par

ts1,

200

Par

ts

NO

TE

:60

0 pa

rts

are

com

mon

to b

oth

mod

els.

Ste

p 4:

Det

erm

ine

cost

poo

l of n

on-c

omm

on it

ems

rela

ted

to th

eol

d ite

m.

a.O

ld It

em C

ost P

ool

$400

,000

,000

Ste

p 1:

Det

erm

ine

com

mon

ality

: C

omm

onal

ity is

the

perc

enta

ge o

f L

ess:

the

part

s in

the

new

mod

el th

at a

re c

omm

on to

the

old

mod

el.

b.C

omm

on C

ost P

ool

$240

,000

,000

Rem

aind

er:

Old

item

cos

t poo

l whi

ch d

oes

C

OM

MO

NA

LIT

Y60

0

'=

60%

not c

onta

in c

omm

onal

ity w

ith th

e ne

w it

em.

$160

,000

,000

1,00

0

195


TABLE 703-13 RECOUPMENT OF NONRECURRING CHARGES FOR MAJOR DEFENSEEQUIPMENT, NEW MODELS DERIVED FROM EXISTING MODELS (CONTINUED)

R

EC

OU

PM

EN

T O

F N

C C

HA

RG

ES

FO

R M

AJO

R D

EF

EN

SE

EQ

UIP

ME

NT

,

N

EW

MO

DE

LS D

ER

IVE

D F

RO

M E

XIS

TIN

G M

OD

ELS

EX

AM

PLE

2 (

Con

tinue

d)S

tep

5:R

ecal

cula

te o

ld it

em N

C c

harg

e an

d de

term

ine

if ch

ange

dN

OT

E:

The

pro

of is

des

igne

d on

ly to

sho

w th

at c

osts

are

eve

nly

rate

s sh

ould

be

subm

itted

to D

SA

A.

dist

ribut

ed to

all

units

, and

the

fact

that

ther

e m

ay h

ave

been

pre

viou

sD

ivid

ed b

ych

arge

s at

the

old

rate

is to

be

disr

egar

ded

for

purp

oses

of t

he

Ben

efiti

ng

calc

ulat

ion.

Uni

tsa.

Old

Item

Cos

t Poo

l

$160

,000

,000

1,00

0'=

$16

0,00

0

b.N

ew C

omm

on C

ost P

ool

$240

,000

,000

3500

'= $

6

8,57

1

Rec

alcu

late

d ch

arge

for

old

item

:'

$2

28,5

71

c. C

ompa

rison

of p

revi

ous

old

item

NC

cha

rge

with

rec

alul

ated

NC

cha

rge.

for

old

item

.R

ecal

cula

ted

Old

Item

Cha

rge

Old

item

Cha

rge

$228

,571

div

ided

by

$400

,000

'= 5

7 pe

rcen

t, a

43pe

rcen

t dec

reas

e an

d $1

71,4

29 N

CU

nit C

harg

e de

crea

se.

Ste

p 6:

A

ctio

n R

equi

red.

Pre

pare

DS

AA

pac

kage

bec

ause

the

chan

ge in

the

NC

rat

e in

Ste

p 5

Ste

p 5

exce

eds

30%

and

the

unit

char

ge d

ecre

ases

by

mor

e th

an $

50,0

00.

Ste

p 7:

Pro

of:

Ver

ify th

at c

ost p

ool h

as b

een

fully

allo

cate

d.

Old

item

1,

000

QT

Y X

$22

8,57

1 (O

ld It

em C

harg

e)

=$2

28,5

71,0

00N

ew it

em 1

,000

QT

Y X

$14

8,57

1 (N

ew It

em C

harg

e) =

$371

,430

,800

Tot

al$6

00,0

01,8

00R

ound

ed to

:T

otal

$600

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0704 CASH SALES OF DEFENSE ARTICLESFROM NEW PROCUREMENT FOR DIRECTDELIVERY AND PARTICIPATION IN NEWPRODUCTION

070401. General. Defense articles procured forcash sales to an eligible foreign government orinternational agency, pursuant to Section 22 ofthe AECA [reference (a)], for direct delivery shallbe priced to recover full contract cost to theDepartment of Defense, DoD recurring contractsupport costs, and applicable DoD surcharges.Revised costs may need to be reflected from timeto time in order to indicate increases due toescalation of labor and materials or to reflectother changes in production and procurementcosts. The purchaser shall be obligated to payany damages or costs that may accrue from thepurchaser’s cancellation of the contract. Theadministrative charge (see paragraph 070602)shall be added to the contract cost and includedin billings for incurred costs. An illustration ofthe price computation is at Table 704-1.

070402. Items to be Replaced by Later Produc-tion (Diversions). Sale of items from new pro-duction and procurement, when such items arediverted from Military Department deliveryschedules to be replaced by later production,shall be priced at current production cost orreplacement production cost, whichever is high-er.

070403. Cost Principles

A. In general, DoD articles shall bepriced on the basis of the same cost principles asare used in pricing DoD contracts covering itemsfor DoD use. However, recognition shall begiven to other reasonable and allocable con-tractor costs and risks to the extent permitted inthe Federal Acquisition Regulation (FAR) [refer-ence (g)].

B. Unless the provisions of Section22b of the AECA are involved, when insufficientfunds are available in the FMS Trust Fundaccount of a foreign government to meet currentcash requirements, DSAA shall initiate, throughthe responsible DoD Component, terminationsfor convenience or other adjustments to selected

contracts that will balance current cash require-ments with available funds. Special attention isdirected to Section 502 of this Volume. Thiscondition should not occur without notificationto the FMS Customer. Before terminating underthese conditions, the contracting officer shalldetermine whether or not the contractor iswilling to continue performance at his or herown risk. If the contractor is so willing, anappropriate contractual agreement shall bebilaterally signed so as to (a) limit thegovernment’s contractual liability to the availablefunds; (b) provide for appropriate passage oftitle to the FMS customer for any materiels orservices that have not been accepted but may becovered by progress payments, partial payments,or reimbursed costs; and (c) provide for anequitable adjustment in the event the terminationfor convenience is not issued in favor of contin-ued performance. When other forms of contrac-tual adjustments are used, they shall provide forequitable adjustment as appropriate and aspermitted by reference (g).

070404. Recovery of Nonrecurring RDT&E andNonrecurring Production Costs. The price shallinclude recovery of nonrecurring research anddevelopment test and evaluation, and nonrecur-ring production costs as specified in DoD Direc-tive 2140.2 [reference (r)]. Paragraph 070305contains further discussion of these costs.

070405. Recovery of Contract AdministrationServices Costs Incurred in Support of NewProcurements for FMS

A. General. The cost of contractadministration services functions as identified inthe FAR [reference (g)] and contract audit shallbe recovered through the application by theSAAC of a percentage surcharge to the deliverytransactions reflecting disbursements to contrac-tors for FMS procurements on which applicablecontract administration services have not beenwaived. This surcharge is subject to waiver inwhole or in part under Section 21(h) of theAECA [reference (a)](see paragraph 070104.C.3.of this Volume), and is waived in its entirety forthe NATO E3A Cooperative Program (see para-graph 070104.C.2.). A listing of waived pro-grams is included in Section 1301 and Table1301-1 of DoD 5105.38-M [reference (e)]. The

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surcharge shall be reviewed annually by theOffice of the Comptroller, DoD to determine if itshould be changed. The amounts collected as aresult of the application of the surcharge shall becredited to a surcharge account maintained bythe SAAC and used to reimburse DoD Compo-nents for contract administration services per-formed.

B. Responsibilities.

1. The Office of the Comptroller,DoD shall review annually the contract adminis-tration surcharge and revise as necessary.

2. The Security AssistanceAccounting Center (SAAC) shall:

a. Establish and maintainthe contract administration services account.

b. Maintain a list of FMScases for which complete or partial waivers ofthe contract administration costs have beengranted.

c. Apply the prescribedsurcharge, or the applicable portion in the caseof partial waivers, to reported disbursementsfrom delivery transactions received on or afterOctober 1, 1980, for all FMS cases that are notincluded on the waiver list (see subparagraphB.2.b., above) with delivery source codes BB, DA,DB, DC, DD, DE, DK and ED and price code N(see paragraph 080402).

d. Pay DoD Componentsfor billing of actual contract administrationservices costs.

e. Increase the amountbilled to FMS customers as a result of disburse-ment to contractors by the amount derived byapplying the surcharge percentage to thesedisbursements.

C. Prescribed Contract Administra-tion Services Surcharge.

1. The following surcharges areprescribed for SAAC application to disbursementwith reimbursable codes and delivery source

codes described in subparagraph B.2.c., above(NATO E-3A Program is exempt):

Quality Assurance and Inspection 0.5%Other Contract Administration Services 0.5%Contract Audit 0.5%Total 1.5%

2. If no waiver has been grantedpursuant to Section 21(h) of the AECA [reference(a)], SAAC shall apply the full 1.5 percent sur-charge. Waiver of the charges for either thequality assurance and inspection, contract ad-ministration services, or contract audit underSection 21(h) of reference (a) shall result in theSAAC application of the remaining surcharges.For example, if quality assurance, inspection, andcontract audit costs are waived, SAAC shallapply the 0.5 percent surcharge for "other con-tract administration services." SAAC shall usethe list referenced in paragraph B.2.b., above, asa basis for determining charges. Any cases noton this list shall be assessed the full amount ofthe surcharge. The waived contract administra-tion cost for FMS cases included on the list shallbe charged to DoD appropriations. SAAC shallreject billings from DoD Components for chargesthat have been waived.

070406. Recovery of Contract AdministrationServices Costs Incurred in Support of ForeignCountry Commercial Contracts. DoD support ofcommercial contracts awarded by foreign coun-tries and international organizations representsan FMS sale of services. The manhours expend-ed in support of these commercial contracts shallbe accumulated and billed at an FMS contractadministrative hourly labor rate published eachfiscal year by the Office of the Comptroller, DoD.The hourly rate shall include appropriate chargesfor TDY, use of DoD assets, and unfundedcivilian retirement costs. For further discussionon foreign country commercial contracts, seeSection 205 of this Volume.

070407. Recovery of Costs for Government-Furnished Materiel (GFM)

A. GFM provided from inventoryshall be billed to the FMS case as "work inprocess" when the GFM is shipped from a depotto a contractor (see Table 804-13). The billing

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price shall be the same as a direct sale to an FMScustomer, plus applicable accessorial costs. Thevarious categories of accessorial costs and themethod of calculating them are set forth inSection 705.

B. GFM provided from anothercontractor shall be billed to the FMS case as"work in process" when payments are made tothe contractor supplying the GFM. In the eventshipment is through a Government Bill of Lad-ing (GBL), the applicable transportation accesso-rial charge, as set forth in paragraph 070503,should also be billed as "work in process."Contracts with contractors providing GFMdirectly cite the FMS Trust Funds as the financ-ing source to the maximum extent possible.

C. When precious metals recoveredunder the precious metals recovery program areprovided as GFM to a contractor, the materielshall be valued at the market price on the date itis provided to the contractor. Market price shallbe determined from any authoritative publica-tion, such as The Wall Street Journal.

070408. Recovery of Other DoD-Funded Servic-es in Support of FMS Procurements

A. The cost of DoD-providedor-funded engineering services that are requiredto solve problems encountered during the pro-duction run shall be allocated to FMS customersbased upon the number of their items that are inthe production run.

B. If components are procured for anFMS customer and assembled by DoD personnel,assembly labor costs shall be assessed in accor-dance with paragraph 070802.

C. If a contractor is designated as thesource of supply for nonstandard items to beprocured for FMS customers, the contract pricefor applicable items will normally include theadditional cost incurred to research,and procurethe nonstandard items. Any reasonable methodof allocating these additional costs is acceptable.The test of the reasonableness of the contractor’scosting allocation would be acceptance of themethod by the Defense Contract Audit Agency.

070409. Special Considerations. Cost of devia-tions from U.S. Government configuration andspecial technical data desired by a foreign gov-ernment shall be included as a charge to theforeign governments.

0704010. Production by a Foreign Government.When a portion of the production quantity is tobe produced by the purchasing foreign govern-ment, costs shall be computed separately, inaccordance with cost methods established by theforeign government and accepted by the U.S.Government.

0704011. Recoupment of Interest Penalties Dueto "The Prompt Payment Act of 1982" [reference(s)]. Interest penalties incurred on FMSprocurements will be initially financed fromfunds of the paying activity. An analysis of FMSinterest payments will be prepared and submit-ted to the Security Assistance Accounting Center(DFAS-DE/IR (SAAC)) monthly and will identi-fy the country, case, contract number, and reasonfor late payment. See paragraph 021102 of thisVolume.

A. Any interest penalties incurredunder "The Prompt Payment Act of 1982" [refer-ence (s)] will be included in delivery transactionsto SAAC. See Table 804-19.

B. Within 50 days after the fiscal yearends, DoD Components shall submit to DSAA areport of Prompt Payment interest penaltieswhich have been included in deliverytransactions.

0704012. Contract Review. The DoD Compo-nents will make every effort to obtain the finalprice for contract provided items within 180 daysof reported delivery.

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TABLE 704-1 PRICE COMPUTATION EXAMPLE NEW PROCUREMENT

Contract Price (See paragraph 070401) $1,000,000.00

Pro Rata Share R&D1 ($2500 each X 20 items) 50,000.00

Contract Administration Services (1.5%) 15,000.00

Government-Furnished Equipment (GFE) 25,000.00

Packing, Crating, and Handling of GFE (3.5%)3 875.00

Transportation of GFE from Depot to Contractor Plant3 938.00

FMS Selling Price (20 items) $1,091,813.001,2

FMS Unit Selling Price $54,590.651,2

____________________________________________

1 Transportation of end item, if applicable, and administrative surcharges are additive to theselling price.

2 See Tables 804-10 through 804-14 for billing. Note that in the billing example, the extendedvalue shown in Table 804-10 does include the contract administrative services surcharge,applied by SAAC against contract payments.

3 PC&H and CONUS transportation are applicable if the GFE are purchased from procurement citingthe case funds. For the purpose of this example, the GFE ($25,000) are considered to be allprocurement-funded items with unit costs of less than $10,000. PC&H and Inland CONUSTransportation are not applicable if the GFE is shipped from inventory by the Defense BusinessOperations Fund, as the cost is included in the standard price of the item.

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0705 ACCESSORIAL COSTS

070501. General. Accessorial costs representcertain expenses incident to issues, sales, andtransfers of materiel which are not included inthe standard price or contract cost of materiel. Adescription of the various types of accessorialcosts which may be applicable to FMS shipmentsfollows:

A. Packing, Crating and Handling(PC&H) Costs. The costs incurred in DoDfacilities for labor, materials, or services inremoving requisitioned articles from storagelocations, preparing them for shipment from thestorage or distribution points, and processingnecessary materiel release confirmation docu-ments. The costs are incurred on all articles soldfrom stock to FMS customers. (Note: Notapplicable to delivery of stock fund/DefenseBusiness Operations Fund items reported afterOctober 1, 1990)

B. Transportation Costs. The cost ofDoD-provided or financed inland transportation(L1A)(land, air, inland and coastwise waterways)in the United States and outside the UnitedStates, and overseas transportation by vessel orair; includes parcel post (L1D) via surface or air.(Note: Inland CONUS (L1A) not applicable todelivery of stock fund/Defense Business Opera-tions Fund items reported after October 1, 1990;Parcel post (L1D) and commercial packagecarrier (L1E) charges are not applicable afterOctober 1, 1991).

C. Port Loading and UnloadingCosts. The cost of DoD-provided or financedlabor, materials or services for loading, unload-ing and handling at ports of embarkation ordebarkation. Transportation charges for the useof the DoD transportation system, as set forth inparagraph 070503 below, include applicableloading and unloading costs.

070502. Packing, Crating, and Handling. Stan-dard PC&H rates will be applied to the sellingprice of materiel sold from DoD inventories torecover the cost described in paragraph070501.A., above. The PC&H rate will not beassessed on DoD stock fund/Defense BusinessOperations Fund items delivered after October 1,

1990 since the costs for PC&H are included inthe standard stock fund/Defense Business Oper-ations Fund price. Additionally, PC&H will notbe assessed on articles shipped directly from themanufacturer since no in-house DoD labor,material, or services are involved. PrescribedPC&H rates are:

A. A PC&H rate of 3.5 percent will beadded to the selling price of materiel with a unitprice of $50,000 or less.

B. An additional charge will beadded equal to one percent of that portion of theselling price of materiel over $50,000.

C. Examples of PC&H price computa-tions follow:

1. Item with a unit price of$8,500:

$8,500 @ 3.5% = $297.50 PC&H charge

2. Item with a unit price of$62,000:

$50,000 @ 3.5% = $1,750.00$12,000 @ 1.0% = 120.00$62,000 $1,870.00

D. The PC&H charge for service/maintenance cases is applied to the unit cost ofthe item (or items) sold or serviced, not the costof the service. The rate in subparagraphs A andB above apply.

070503. Transportation. For other than DefenseBusiness Operations Fund materiel, transporta-tion of FMS materiel shall be on collect commer-cial bills of lading. When transportation shall beaccomplished through a GBL, the GBL shall beannotated to show that normal commercial rateswill be billed to the U.S. Government for theshipment. Section 10721 of the Interstate Com-merce Act of 1887 [reference (m)] is not applica-ble to FMS shipments, including "stock fund"items shipped from the Defense Business Opera-tions Fund.

A. DoD Components shall apply ratescontained in Table 705-1 to the selling price ofmateriel with a unit price of $10,000 or less to

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calculate the cost for billing customers for theuse of the DoD Transportation System. When anitem has a unit selling price over $10,000, theapplicable rate from Table 705-1 shall be appliedto the first $10,000 of the item’s unit cost and 25percent of the same rate to the remainder of theunit price, to estimate a price for the use of theDOD transportation system. For example, anitem priced at $50,000 with a delivery code toNewfoundland would require a transportationcharge of $3,249 ($10,000 at 16.25 percent and$40,000 at 4.06 percent).

B. Costs for the staging of materiel inCONUS DOD (non-Defense Business OperationsFund owned/operated) facilities are additions toDOD transportation system costs, and a 3 per-cent staging charge is applicable, if DSAA hasauthorized "below-the-line" recoupment ofstaging. Defense Business Operations Fundowned/operated facilities shall bill actual costsincurred as an "above-the-line" service. Normal-ly, the actual costs of staging shall be recoveredas part of an "above-the-line" service charge.Such charges shall not be duplicative of anyother accessorial cost. When nonexcess materielis provided from DOD storage points locatedoutside CONUS, the applicable rates (see Table705-1) shall be charged as a prepositioning cost.For example, if the materiel being sold is storedin Germany and costs $10,000 or less, a 14.25percent prepositioning charge would be applied.If transportation to the FMS customer is neces-sary, it normally shall be accomplished throughthe use of collect commercial bills of lading. IfDOD transportation is used to move articlesfrom an overseas storage location to a pointdesignated by the FMS customer, actual orestimated transportation costs shall be billed tothe FMS customer. In estimating the cost ofoverseas DOD transportation, a 3 percent factorshall be used for overseas land transportation, 1percent for overseas port loading, and 1 percentfor overseas port unloading. An actual dollaramount shall be determined by the supplyingDOD Component to recoup the cost of ocean orair transportation.

C. The use of estimated actual charg-es is authorized for certain items approved inadvance by OASD(C) and DSAA when theestablished percentages for use of the DTS are

significantly different from the estimated actualcharges. DSAA will establish and maintain alook-up table to reflect the estimated actualtransportation charges for the DTS shipment ofapproved items. Only items on this look-uptable qualify for the billing of estimated actualrates, unless approval is received from DSAAwith OSD(C) concurrence. See Section 805 ofthis Volume for detailed procedures.

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TABLE 705-1 STANDARD TRANSPORTATION PERCENTAGES

Percentages Used Percentages UsedWhen Shipped by When Shipped bythe Defense Other Than theBusiness Defense BusinessOperations Fund Operations Fund

1. Delivery Term Code 2

a. FOB Destination - inland origin to inland 0.00 3.75destination within CONUS/Canada (exceptNewfoundland and Labrador).

b. FOB destination- inland origin to inland 0.00 3.00 +destination in a foreign country other than delivery code 7Canada. charges if material

is to be replaced(see subparagraph070503.C.)

2. Delivery Term Code 4 - Recipient Country is responsible 0.00 0.00for the cost of CONUS transportation and subsequentarrangement for onward movement or when transpor-tation is provided as a case line such as high flightor special assignment airlift mission.

3. Delivery Term Codes 3 and 5 - DOD movement for FMS 0.00 3.75customer in CONUS/Canada (except Newfoundland andLabrador).

4. Delivery Term Code 6 - DOD movement from point oforigin to and including ocean transportation tooverseas port of discharge:

a. To Europe, Hawaii, Latin America (Central America 6.50 10.25and Caribbean Basin) and Mediterranean Ports

b. To Newfoundland, Labrador, Thule, Iceland, South 8.50 12.25America (East and West Coasts), Far East, Africanports (other than Mediterranean), and Near East

5. Delivery Term Code 7 - DOD movement from point oforigin to, and including, inland carrier deliveryto the specified inland location (includes overseasmovement of parcel shipments via the Military PostalService through APO/FPO channels):

a. To Europe, Hawaii, Latin America (Central America 10.50 14.25and Caribbean Basin) and Mediterranean Ports

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TABLE 705-1 STANDARD TRANSPORTATION PERCENTAGES (CONTINUED)

Percentages Used Percentages UsedWhen Shipped by When Shipped bythe Defense Other Than theBusiness Defense BusinessOperations Fund Operations Fund


6. Delivery Term Code 8 - DOD movement from point of 2.50 6.25to , and including, unloading, handling, and storageaboard vessel at port of exit

7. Delivery Term Code 9 - DOD movement from point of originto, and including, vessel discharge at the point ofdischarge:

a. To Europe, Hawaii, Latin America (Central America 7.50 11.25Caribbean Basin) and Mediterranean Ports


Note: At the time of preparation of the LOA if it isknown and authorized that materiel will be shipped viaSpecial Assigned Airlift the cost should be a line on thecase and will be priced as an estimate of cost. Thisshipment will cite the line on the case for reimbursement.

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0706 ADMINISTRATIVE CHARGES

070601. General. An administrative surchargeshall be added to all FMS cases (unless therecoupment of administrative expenses has beenwaived pursuant to legal authority, see Para-graph 070104) to recover DoD expenses relatedto the functions of sales negotiations, case imple-mentation, procurement, program control, com-puter programming, accounting and budgeting,Reports of Discrepancy (RODs) administration,and administration of FMS training cases at com-mand headquarters and higher levels. Applica-ble DoD Component costs are recouped in accor-dance with paragraph 070603. The Letter ofOffer and Acceptance payment schedule shallinclude, as a part of the required initial deposit,an amount equal to 50 percent of the administra-tive charge applied to the basic sale price asspecified in paragraph 070602. The remaining 50percent of the administrative charge shall beincluded as equal percentage installments withineach of the estimated payments.

070602. Prescribed Standard AdministrationCharges

A. Supply Support Arrangements.An administrative charge of 5 percent shall beadded to the basic sales price on the initialon-hand portion of Cooperative Logistics SupplySupport Arrangements (CLSSA)(See paragraph070708 for detailed instructions.

B. FMS Orders for NonstandardArticles and Services. An administrative chargeof 5 percent shall be added to the basic sale priceof FMS orders for nonstandard articles andservices, However, the 3 percent administrativecharges shall be applied under the following twoconditions:

1. A contractor is designated asthe source of supply in lieu of a DoD Compo-nent performing additional work for the non-standard articles and services. (See paragraph070408.)

2. A case management line isincluded in the Letter of Offer and Acceptancethat specifically recovers costs associated with

the tasks performed in support of the sale ofnonstandard articles or services.

C. All other FMS Orders. Adminis-trative charges for FMS cases not included inSection A above, are dependent upon the datethe applicable LOA or amendment is signed outby the cognizant Military Department or DefenseAgency. For cost increases within the scope ofthe LOA, modifications retain the administrativerates current at the time the applicable LOA oramendment was signed out. While the followingadministrative rates are applicable for the peri-ods shown below, if an amendment adds a newline to an FMS case implemented prior to Octo-ber 1, 1977, the 3 percent administrative rate isapplicable to the new line:

1. January 29, 1970 - March 9,1977. A 2 percent administrative rate, unless thesupplying Military Department had determinedthat the rate was either insufficient or in excessof actual administrative expense for any singleFMS case. The use of actual FMS case adminis-trative expense was authorized.

2. March 10, 1977 - September30, 1977. A uniform 2 percent administrativerate for offers signed out during this period.

3. October 1, 1977 - Present. Auniform 3 percent administrative rate for offerssigned out after October 1, 1977.

070603. Actual Administrative Expenses. ThoseDoD organizations which provide general ad-ministrative support of the FMS program shallrecoup the full cost (excluding a pro rata shareof fixed base operations costs) of providing suchsupport. Costs charged in connection withadministrative support shall not include costswhich are prescribed in this Volume asabove-the-line costs. Above-the-line costs in-clude (1) contract administration services, seeSection 704; (2) case management, see Section718); (3) recurring contract support costs, seeparagraph 070408, and (4) administration of FMStraining cases at the installation level which areto be included in the tuition rates. Administra-tive support cost also does not include the costof calculating nonrecurring recoupment chargesand royalty fees which is a DoD mission cost.

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A. The personnel portion of actualadministrative expenses shall include a pro ratashare of those personnel who spend 10 percentor more of their time performing FMS duties. Ifan organization’s manpower staffing is basedupon routinely maintained workload statistics(such as the number of travel orders processed),the FMS administrative personnel expense shallbe determined from equivalent FMS workloadstatistics. In other words, if FMS workload is 25percent of total workload, then 25 percent of theorganization’s payroll cost shall be fundedthrough FMS administrative surcharges. Identifi-cation of chargeable personnel in base supportactivities (such as security and civilian personnelspecialists) is determined by the incurrence ofadditional cost to support non-Base OperationsSupport (BOS) FMS administrative activities, andnot by the criteria used in performing an opera-tional audit (e.g., activity frequency, frequencyconversion factor, frequency per month, allowedmanhours per accomplishment, allowedmanhours per month, etc.). These elementswhich are used in measuring manpower require-ments do not in and of themselves prove thatincremental costs have been incurred. Thus,there is a different standard for charging BOSpersonnel, i.e., conclusive demonstration thatactual additional costs are being incurred tosupport non-BOS FMS administrative activitiesversus charging non-BOS personnel a pro ratashare of those personnel who spend 10 percentor more of their time performing (hands-on)duties. The cost of identified personnel shall becomputed in accordance with paragraph 070201.

B. Other actual or estimated actualadministrative costs include:

1. Travel costs, including perdiem and transportation, incurred in the admin-istration of the FMS program which cannot bedirectly related to mission requirements of asingle case or program. (Special care is requiredin this area. See Section 718.)

2. Automatic data processingcosts, excluding equipment cost or depreciationcharges, to support FMS workload based onproration of machine time required to producegeneral FMS reports or transactions.

3. Printing and reproductioncosts incurred primarily for the benefit of theFMS program.

4. Communications, utilities,and office supply costs incurred primarily for thegeneral administration of the FMS program.

5. Equipment costs, both pur-chased and rental, when such costs are specifical-ly incurred to support the administration of theFMS program.

6. Rental charges at fully dedi-cated FMS activities for floor space rental.

7. Administrative costs of Re-ports of Discrepancy (RODs). This cost includesthe "net cost" to the Department of Defense forprocessing RODs for overage, shortage, damage,item deficiency, and duplicate billing. Such costsexclude discrepancies that are attributable todamage or loss, occurring after passage of title.Normally, FMS shipments move from the depotor vendor’s plant on collect commercial bills oflading with title passed at point of origin.However, occasionally shipments move underGovernment Bills of Lading. Under either ofthese conditions, title passes at the point oforigin and if damage or loss occurs subsequentto title passage, payment is not to be made fromthe administrative fund (this is, claims should besubmitted against the common carrier). SeeChapter 8, Section 802 of DoD 5105.38-M [refer-ence (e)], for more detailed information.

C. DSAA shall ensure that an appro-priate share of the cost of Military AssistanceAdvisory Groups and military missions shall becharged to administrative expense.

070604. Administrative Charges on CanceledCases

A. Earned reimbursements for admin-istrative surcharges are normally not refundable,i.e., the 50 percent that is earned when the caseis accepted.

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B. The administrative surcharges maybe charged in accordance with the followingguidance:

1. For cases under $25 millionthat are canceled, SAAC shall retain a portion ofthe administrative surcharge that equals one-halfof the applicable administrative percentage of theestimated articles/services ordered value, or theadministrative rate times the actual articles/services delivered at closure, whichever is high-er.

2. For cases over $25 millionthat are canceled, DSAA Comptroller shalldetermine the appropriate administrative charge;however, the charge shall normally be at least$250,000.

C. DSAA may approve waivers orreductions outside of the above parameters ifcircumstances dictate. Such waivers or reduc-tions shall be fully documented and demonstratethat estimated administrative costs incurred onthe case have been recouped.

D. Cases canceled for the convenienceof the U.S. Government will not incur an admin-istrative cancellation fee. DSAA shall make thisdecision.

070605. Waived Administrative Charges

A. General. Cost of administrativeeffort applicable to FMS cases on which thenormal administrative surcharge has beenwaived or reduced, pursuant to statute, must bereimbursed to the FMS administrative surchargeaccount. Therefore, the IA which is the propo-nent of the case on which the charge has beenwaived shall obligate its current operation andmaintenance appropriations for the full amountbeing waived annually. The amount of theearned administrative charges, which is thevalue of the administrative charge (currently 3percent) is to be charged to Program 10. TheSAAC shall then apply the established FMSadministrative surcharge to accrued expendituresrecorded against the case on which the normaladministrative surcharge was waived and submitquarterly SF 1080 "Voucher for Transfer BetweenAppropriations and/or Funds" billings to the

appropriate IA for the amount that would nor-mally be payable by the FMS customer.

B. Fund Control. A recommendationto approve a waiver of the normal administrativesurcharge shall be accompanied by a miscella-neous obligation document which identifies thefinancing appropriation and the dollar value ofthe waiver. The IA shall certify that funds areavailable. The approving officials shall sign theobligating document. The provisions of DoDDirective 7200.1 [reference (f)], "AdministrativeControl of Appropriations," are applicable.

0707 COOPERATIVE LOGISTICS SUPPLYSUPPORT ARRANGEMENTS

070701. General. DoD Directive 2000.8 [refer-ence (t)] prescribes the policies and criteria forestablishing cooperative logistics supply supportarrangements. These cooperative logistics sup-ply support arrangements provide for the execu-tion of Foreign Military Sales Orders (FMSOs)covering stockage, consumption, and storage(Note: There is no annual inventory mainte-nance and storage charge for stock fund/DefenseBusiness Operations Fund items for CLSSAs asthe stock fund/Defense Business OperationsFund standard price recoups all costs). TwoFMS cases are required for supply supportarrangements: the FMSO I and the FMSO II.Both cases shall be executed in order for FMSrequirements to be anticipated and to be satisfiedon an equal footing with U.S. requirements.

A. The FMSO I case is subdividedinto two parts: Part A represents the on-handportion of the inventory (normally 5 months)and Part B represents an on-order dependableundertaking (normally a 12 month period). Bothparts of the FMSO I provide obligational authori-ty equal to its value in the DoD Componentactivity providing the supply support to thecustomer. Cash paid on acceptance of the FMSOI is to equal the Part A on-hand portion of theinventory and administrative surcharge. Thecash required to liquidate obligations incurredwith suppliers for the on-order portion is thecash paid by the customer in connection with theFMSO II case, and in turn creates a new orderreceived and recreates obligational authorityback to the FMSO I.

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B. The FMSO II case represents theforeign customer’s anticipated yearly consump-tion under the cooperative logistics supplysupport arrangement. Cash to cover requisitionsis paid in advance of each quarter covered bythe case.

The cycle of obligation, acquisition, requisition,issuance, and payment can be summarized asfollows:

1. FMSO I, Parts A and B, givethe DoD Components obligational authority upto the case amount.

2. The cash provided underFMSO I, Part A, finances the on-hand inventory.

3. Requisitions made by thecustomer are filled from the on-hand inventory.

4. Replenishment of on-handinventory is made from contracts awarded underobligational authority granted by FMSO I, Part B.

5. Payments to contractors aremade from funds provided in accordance withFMSO II terms.

6. Liquidation of obligations bypayment to contractors in effect recreates obliga-tional authority granted by FMSO I, Part B, andthe cycle commences again.

C. In accordance with the concept,the entire amount of the FMSO I case representsobligational authority. Normally, no cash billingsare required against the FMSO I, Part B, unlessthe cooperative logistics supply support arrange-ment is either partly or wholly terminated. TheFMSO II case provides obligational authorityonly to the extent that cash is received. Thus,proper working of the FMSO I and II shouldresult in a constant 12 months of obligationalauthority in the applicable appropriation or fundaccount, never more or less, after the on-handinventory of FMSO I, Part A, has been acquired.

D. The cash and obligational authori-ty derived from the FMSO I and FMSO II are tobe transferred to the Commodity Command orSupply Agency that is expected to provide

supply support to the foreign country. ThisCommand or Stock Agency shall use such cashand obligational authority to increase stock andon-order quantities in anticipation of requisitionsfrom the country which entered into the supplysupport arrangement.

E. In unusual circumstances, it maybe determined that the 5-month on-hand and12-month on-order levels are inappropriate forthe particular equipment being supported. Inthese circumstances, the on-hand and on-orderrequirements may be adjusted to more realistical-ly reflect the DoD on-hand and on-order levelsfor the items being supported. Documentationin support of such determinations shall beretained by the office that developed the supplysupport arrangement.

070702. Customer Equity. Supply supportarrangements are written in terms of an absolutedollar amount of support to be provided underthe arrangement. A listing of the specific itemsrequired to support the weapon system is notdeveloped. Under this "dollar value" concept,the FMS customer’s equity shall remain valuedat the cash deposited for the FMSO I. Upontermination, a review shall be made of theforeign country’s demand data for specific items.When these demand data result in the procure-ment of stock above the DoD-approved retentionlevels, the foreign country shall be informed thatapplicable stocks owned by that country must bedrawn down or that a settlement agreeable toboth parties must be reached.

070703. Pricing. Paragraph 070302.B sets forththe pricing requirements.

070704. Storage Costs. Storage fees shall becharged based on the on-hand portion of theFMSO I. Normally, the on-hand portion repre-sents 5/17 of the total case value. The annualstorage fee is 1.5 percent. For cases not remain-ing open a full year, a fee of .125 percent amonth shall be charged. (Note: There is noannual inventory maintenance and storagecharge for stock fund/Defense Business Opera-tions Fund items for CLSSAs as the stockfund/Defense Business Operations Fund stan-dard price recoups all costs).

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070705. Obsolete Materiel. If an item becomesobsolete or excess to the United States but not tothe foreign government, the United States mayrequest the foreign government to withdraw itsundelivered quantity of the item. Additionalquantities may be offered to the foreign govern-ment at fair value prices (Paragraph 070304.A.,above). If items become obsolete or excess to therequirements of the foreign government but notto the United States, the foreign government mayrequest the United States to consider cancellationof its order and to apply its equity in the unde-livered quantity to subsequent orders for otheritems. If cancellation is not agreed to, arrange-ments shall be made for the United States todispose of the materiel and credit the net pro-ceeds to the foreign government. If the UnitedStates has a need for the materiel, appropriatecredit to the stock level case for return of themateriel to stocks of the United States shall bemade in accordance with the departmentalprocedures for credit allowance for return ofmateriel [see DoD 7420.13-R, reference (u)]. Ifitems become obsolete or excess to the require-ments of both the United States and the foreigngovernment, arrangements shall be made for theUnited States to dispose of the materiel and theproportional share of the net proceeds of saleshall be credited to the foreign government.

070706. Unusual Inventory Loss. Stock lossesdue to enemy action, major disaster, or othercasualty from a natural phenomenon shall beassessed against the foreign government in anamount proportionate to the ratio that the valueof its stock case bears to the total value of stocksin storage.

070707. Normal Operating Inventory Loss. Thestandard prices paid by the foreign governmentfor stock level of stock fund/Defense BusinessOperations Fund items already include in asurcharge for estimated normal operating lossesin storage.

070708. Administrative Surcharge

A. A one-time nonrefundable, ad-ministrative surcharge of 5 percent shall becharged on the on-hand portion (Part A) of theFMSO I case. For amendments that decrease the

value of the on-hand portion (Part A), there shallbe no adjustment made to the administrativesurcharge. However, for amendments thatincrease the value of the on-hand portion (PartA), the 5 percent nonrefundable administrativesurcharge shall be charged on the total value ofthe amendments. Table 707-1 illustrates the 5percent administrative fee computation.

B. No administrative surcharge shallbe charged on the on-order portion (Part B) ofthe FMSO I case. A 3 percent administrativesurcharge shall be charged on requisitions pro-cessed under FMSO II cases. If an FMSO Iagreement is terminated, an administrativesurcharge of 5 percent shall be charged for theinventory over and above the on-hand portion ofthe case. There shall be no additional surchargeon the on-hand portion of the case, since thecustomer has made advance payment of theadministrative charges applicable to this portionof the case.

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TABLE 707-1 FIVE PERCENT ADMINISTRATIVE FEE COMPUTATIONFMSO I - ON-HAND MATERIEL (PART I)

Increase orDecrease to

Revised On-Hand Previous On-Hand 5% Admin Fee 5% Admin FeeAmendment Materiel Value Materiel Value Charge on Increase Accrued Exp.Basic LOA $3,000,000 $3,000,000 $150,000 $150,000Amend 1 4,000,000 1,000,000 50,000 200,000Amend 2 2,000,000 (2,000,000) 0 200,000Amend 3 3,000,000 1,000,000 50,000 250,000Amend 4 5,000,000 2,000,000 100,000 350,000Amend 5 4,000,000 (1,000,000) 0 350,000

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0708 STORAGE, REPAIR AND/OR MODI-F I C A T I O N O F C U S T O M E R - O W N E DMATERIEL

070801. Storage. Costs applicable to storage ofcustomer-owned articles include the functions ofreceiving, care and preservation in storage, setassembly and related other storage activities, andoverhead in storage operations, such asre-warehousing, maintenance of operating equip-ment, physical inventories, and cleaning storageareas. Storage charges are applicable to theon-hand portion of FMSO I cases and to cases onwhich DoD is ready to deliver applicable itemsbut has been requested by the customer to delaydelivery (Note: There is no annual inventorymaintenance and storage charge for stockfund/Defense Business Operations Fund itemsfor CLSSAs as the stock fund/Defense BusinessOperations Fund standard price recoups allcosts). A uniform DoD annual rate of 1.5 per-cent or .125 percent monthly of the averagemonthly value of customer-owned materiel willbe charged to applicable FMS cases to recover anactivity’s costs of storage. An illustration ofbilling for storage, other than FMSO, is at Table804-17.

070802. Repair or Modification. When a for-eign government requests the repair and/ormodification of items, the actual or estimatedcost of the work will be priced on a job orderbasis. An illustration of price computation is atTable 708-1.

A. Labor cost will be computed inaccordance with Section 702 of this Volume.

B. Materials and supplies obtainedfrom the military supply system stocks will bepriced in accordance with Section 703 of thisVolume.

C. Materials, supplies, or servicesobtained directly from contractors will be pricedin accordance with Section 704 of this Volume.

D. Transportation and related costsincurred in movement of the materials and sup-plies used incident to repair and/or modificationwill be priced in accordance with Section 705 ofthis Volume. (See paragraph 070501.B. for treat-

ment of stock fund/Defense Business OperationsFund materiel).

E. Indirect labor, material, and con-tractual services will be costed in accordancewith the guidance in this Chapter and allocatedto job orders.

F. Incoming and outgoing transporta-tion costs related to FMS equipment/materielprocessed by repair or overhaul facilities will bepaid by the FMS customer. If uniform DoDaccessorial rates are used, they should be appliedto the DoD standard prices of the items beingserviced.

070803. Administrative Surcharge. The admin-istrative charge will be applied to all direct andindirect costs which are billed in connection withstorage, repair and/or modification.

070804. Special Instructions Applicable toIndustrial Funds/Defense Business OperationsFunds. Industrial fund/Defense Business Opera-tions Fund facilities will charge applicable ap-proved non-DoD stabilized rates and prices forservices in support of FMS cases. Stockfund/Defense Business Operations Fundmateriel, including depot level reparables, willbe priced at the standard price in effect at thetime of the drop from inventory.

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TABLE 708-1 PRICE COMPUTATION EXAMPLE OVERHAUL OF CUSTOMER-OWNED MATERIEL3

Direct materiel consumed or incorporated (does notinclude customer-owned materiel) $ 1,000.00

Direct labor hours of "funded" civilian personnel 500

Direct labor hourly rate (employee salary andpro rata overhead) $ 20.00

Direct civilian labor cost recouped (including unpackingand packing, crating and handling) 10,000.00Funded cost recouped $ 11,000.00

"Unfunded" military labor (composite rate, retirement,1

other personnel costs, leave/holiday & PCS charge)--E-7, 100 hours 1,472.00

FMS Selling Price $ 12,472.002

____________________________________________

1 The administrative surcharge is additive to the FMS selling price.


3 This table is general in nature and does not show all costs that may be included. For example,"directmateriel consumed or incorporated. . ." should include transportation, replacement prices andsurcharges as appropriate. Also, PCH and transportation charges for the direct material consumedin overhaul items are included in the total overhaul price. (See paragraph 70501.B. for treatment ofstock fund/Defense Business Operations Fund materiel). This example assumes that inbound andoutbound transportation is paid by the FMS customer. See paragraph 70802.F. If the customer doesnot pay, the calculation for transportation would be, assuming a $20,000 item’s standard price andthe item is not from the Defense Business Operations Fund, is as follows:

$10,000 x .0375 + $10,000 x .0375 = $468.75 for a shipment to a freight forwarder.4

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0709 COSTS ALLOCABLE FOR JOINTLYUSED FACILITIES

070901. General. When specific agreements orarrangements are made for the joint use of USGfacilities (that is, sharing of storage spaces,dedicated training facilities, etc.), a pro rata shareof the operating cost initially financed by operat-ing appropriations shall be charged to the for-eign customer.

A. When jointly used storage or officespace is involved, the pro rata share of operatingcosts shall be determined on the basis of spaceassigned to the foreign government versus totalspace available for assignment.

B. Operating costs shall include, butare not necessarily limited to, cost of mainte-nance and upkeep of facilities including accessroads, security, communications, utilities, andrent, if the U.S. Government must make rentalpayments under lease agreements.

070902. Joint Use of Satellites. When jointlyused satellites are involved, the launch cost shallbe allocated to each participant based on pre-launch negotiations that consider the expectedbenefits accruing to each participant. Recurringoperating costs shall be pro rated on the basis oftime each participant actually uses the satellite.

0710 T R A I N I N G O F F O R E I G NNATIONALS

071001. General. Tuition rates for training shallbe based on the costs of providing the training.Detailed instructions to be followed in develop-ing the tuition rates are included in Sections 711and 712 of this Volume. Any special require-ment for the exclusive use of a foreign studentshall be reimbursed in full.

071002. Observers. Observers auditing a courseshall be charged the same price as an enrolledstudent.

071003. Pricing Military Pay. Price militarypay using the composite standard rates andacceleration factors published in Appendix C.

Price civilian pay using the current annual salaryand acceleration factors in Appendix C.

071004. DoD Course Cancellations. A charge of50 percent of the tuition rate for the course orcourse phase shall be made for a student who iscanceled or rescheduled within 60 days beforethe starting date of the course or phase. Forsequential training, the cancellation charge shallapply only to courses or phases scheduled tostart within the 60-day period. No charge shallbe made for withdrawal from follow-on trainingwhen course cancellations or reschedulings arecaused by the U.S. Government or for studentswho attrit due to academic failure beyond thecontrol of the student, injury or illness incurredduring training. Cancellations or reschedulingsshall be effective on the date notice is presentedin writing to the U.S. overseas security assistanceorganization (SAO) or other duly appointed andrecognized U.S. Government representative.Charges for attrited (separated) students shallnot be less than 50 percent of the tuition rate.Further, if the student completes more than halfof the course, the cost shall be assessed on a prorata share (e.g., 70 percent) of the tuition rate, or100 percent of the tuition rate if a pro rata com-putation is not practicable. The provisions of thisparagraph shall be included on any LOA thatcovers training. For contractor provided courses,the cancellation fee will be 100 per cent of thecourse cost. The 60 day limitation for DoDcourses does not apply to contract providedcourses. No cancellation fee will be assessedwhen the quota for the contractor providedcourse is filled by another student.

071005. Inflation Factors. Tuition rate estimatesfor future years shall be adjusted for inflation.The Office of the Comptroller, DoD shall providefactors to be used for this purpose.

071006. Annual Publication of Rates. Tuitionrates shall be computed annually by the MilitaryDepartments and published in the MilitaryArticles & Services List (MASL)[see Section 1503of reference (e)]. Tuition rates shall be those ineffect for the year in which the student entersthe course or phase of a course. Approved ratesshall remain constant for the year. Adjustmentsshall be made only to correct significant errors incomputation, change in syllabus, or major unan-

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ticipated increases or decreases in the cost ofsuch items as POL and salaries. The foreigncountry shall be billed for the actual time thestudent is in training when it varies from thescheduled length of the course. Any adjustmentsshall be made as soon as possible but not laterthan 90 days after completion of the course.

071007. NATO Rates

A. Training course tuition rates underNorth Atlantic Treaty Organization Standardiza-tion Agreements ratified by the U.S. Governmentand for Australia, New Zealand, Japan, and withother countries which are major non-NATOallies if based on similar reciprocity agreements,shall include reimbursement for all direct costs,but will exclude:

1. Indirect costs.

2. Administrative surcharges.(However, see paragraph 070605.)

3. Cost of billeting trainees(except to the extent that members of the U.S.Armed Forces occupying comparable accommo-dations are charged for such accommodations bythe United States).

B. The above exclusions do not applyfor dedicated training, e.g., contractor training,dedicated training courses, mobile training teams(MTT’s), and extended training services special-ists (ETSS).

C. For training at industrialfund/Defense Business Operations Fund activi-ties, direct costs shall be defined for the purposeof these regulations as including a pro rata shareof overhead costs distributed in accordance withthe prescribed costing procedures for industrialfunds/Defense Business Operations Funds.When industrially funded/Defense BusinessOperations Fund personnel are utilized otherthan at the industrial fund/Defense BusinessOperations Fund site, price civilian personnelusing the current annual salary and appropriateacceleration factors without overhead costs.

D. NATO countries who are eligiblefor IMET shall be charged the incremental FMS

prices instead of NATO prices for training (seeparagraph 071008).

071008. IMET Rates. Effective October 1, 1985,any student from an IMET-eligible country whois currently receiving IMET funds and who isbuying FMS training shall be charged for anyincremental cost (additional cost) to the U.S.government for providing the training. Detailedinstructions to be followed in developing incre-mental rates are included in Section 712 of thisVolume.

071009. Liability for Damages. Training casesthat involve the use of U.S. equipment (such asaircraft, trucks, etc.) and that do not includecharges for attrition shall include a statementregarding liability for damages. This statementshall state that the foreign government shall beliable for any damage to such equipment due tonegligence on the part of the student. The costof replacing equipment which is destroyed as aresult of student negligence shall be reimbursedin full. See Section 703 of this Volume forinstructions on pricing replacement equipment.

071010. Elimination of the Cost of Military Payand Entitlements. Public Law (P.L.) 99-83 andP.L. 100-461 amend Sec 503(a) of the FAA [refer-ence (a)] of 1961, as amended, and provide forelimination of the cost of military pay andentitlements if the FMS training case is totallyfinanced by the Military Assistance Program(MAP) and/or by non-repayable FMS credits.Training cases shall be priced to exclude militarypay and entitlements (including retired payaccrual) only for those cases citing MAP fundsand/or FMS Credit (non-repayable) as the exclu-sive method of funding on the LOA. The exclu-sion for non-repayable FMS Credit cases isapplicable beginning FY 1990. DSAA will com-mit MAP funds and non-repayable credits on allFMS training cases excluding military pay andentitlements (including retired pay accrual) priorto FMS training cases being offered to a country.Any subsequent amendment/modificationserving to reduce the MAP and/ornon-repayable credit financing below 100% shallrequire repricing to add military pay andentitlements to the entire case. The followingadditional clarification is offered.

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A. A country’s IMET training pro-gram will be charged on an incremental basis.Furthermore, military salaries and entitlementswill be excluded for IMET funded assistance.

B. A country receiving assistanceunder the IMET program that decides to pur-chase additional training under a totally MAPfunded FMS case will be charged on an incre-mental basis which will exclude military salariesand entitlements.

C. In the event that the purchaser isa NATO member, Japan, Australia, New Zea-land, or major non-NATO ally, and has a recip-rocal pricing agreement with the USG, thepurchaser will be charged full direct costs lessreimbursement for indirect costs, administrativesurcharges, costs of billeting trainees (except tothe extent that members of the United StatesArmed Forces occupying comparable accommo-dations are charged for such accommodations bythe United States). See paragraph 071007.A.2.

D. If a country is a MAP but not anIMET recipient, and the country purchasestraining under a totally MAP funded case, thepurchaser will be charged at full cost (i.e., in-cludes both direct and indirect costs) less mili-tary salaries and entitlements.

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TABLE 710-1 PRICING MATRIX FOR TRAINING[Effective October 1, 1985 (FY86)]

FMSFMS NATO MAP/IMET IMET

PAY & FRINGE BENEFITSDirect Cost

Civilian Pay5 X X I ICivilian Fringe Benefits1 X X X XCivilian Unfunded Retirement1,2 X X - -Military Pay4,5 X X I -Military Fringe Benefits1,4 X X X3 -

Indirect CostCivilian Pay5 X - I ICivilian Fringe Benefits1 X - X XCivilian Unfunded Retirement1,2 X - - -Military Pay4,5 X - I4 -Military Fringe Benefits1,4 X - X3 -

CHARGES FOR USE OF DOD ASSETSAttrition

Insurance Factor X - - -Replacement cost of equipment

lost as a result of studentnegligence (not included in - X X -training course cost--specificbill will be provided if lossoccurs)

NON-PERSONNEL COSTSDirect Material/Other Costs X X X XIndirect Material/Other Costs X - I I

INFORMATIONAL PROGRAM X X X X

MAILING FEE X X X X

ADMINISTRATIVE SURCHARGE X - X -

Legend: X = Full CostI = Incremental

Notes:1 Applied as a percentage of labor cost.2 U.S. Government contribution which is not included in DoD appropriations.3 The full fringe benefit rate is applied to incremental payroll cost.4 Not charged when case is 100 percent financed by MAP and/or non-repayable FMS credits.5 See paragraph 070202 and 070203 relative to leave and holidays as part of civilian or military pay.

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0711 INSTRUCTIONS FOR COMPUTINGFMS TRAINING COST

071101. Personnel Costs. Certain costs associat-ed with support of the foreign students or theirdependents are considered to be a responsibilityof the foreign government but are not includedin the tuition rate for training course. Computeand bill these costs as follows:

A. The students pay for meals in thebase mess at the rates established in DoD1338.10-M [reference (v)].

B. Medical care (including outpatient)for students and dependents shall be charged atthe rate prescribed by the Office of the Comp-troller, DoD. This cost shall be shown as aseparate line on the LOA and billed to theforeign country.

C. Normally, student travel andrelated costs shall be paid to the commercialcarrier, etc., by the foreign country or student.For any U.S. services provided, such as, MACtransportation, the nongovernment rate shall beapplied and billed to the foreign country orstudent, as appropriate.

D. DoD policy concerning occupancyof student family housing by foreign students isthat they may occupy family housing only aftera determination has been made that U.S. studentrequirements are satisfied and shall be satisfiedfor the projected duration of the foreignstudent’s occupancy. Under these circumstances,the amount to be charged shall be the costincurred by the Department of Defense, incidentto operation and maintenance of family housingunits. Table 711-1 provides guidance for calcu-lating the monthly rental charge for FMS studentoccupancy of DoD family housing. When for-eign students occupy family housing that is notexcess to U.S. Military Service needs, the amountto be charged shall be equal to the cost ofhousing U.S. Military Service personnel on theeconomy (BAQ and VHA).

E. When foreign students occupy theBOQ/BEQ/VOQ/VEQ, the students shall berequired to pay only the local custodial andnonappropriated fund fees.

071102. Direct Cost and Training Overhead

A. Certain costs can be directlyidentified to training courses. Once identified,divide the direct cost by the total number ofstudents enrolled in a course to arrive at a costper student. In turn, add all of the direct costsper student to be included in the tuition rate.

B. Compute the cost of salaries,allowances, etc., of instructors by dividing theannual instructor cost (see paragraph 071003) by52 weeks and multiplying the result by thenumber of weeks in the applicable course.Divide this cost by the average number of stu-dents in the class to develop a per-student rate.Alternatively, instructor costs may be allocatedon a instructor contract hours basis (that is, totalinstructor costs divided by total platformman-hours) that allows for a more equitabledistribution. Compute the costs of salaries,allowances, etc., of administrative and otherpersonnel supporting training by dividing thetotal annual cost by total course weeks of train-ing and multiplying result by the number ofweeks in the applicable course. Divide this costby the average number of students in the class todevelop a per-student rate.

C. The cost of TDY shall be allocatedto courses on the basis of a casual or beneficialrelationship. Accordingly, TDY must be segre-gated into two categories: one for TDY that iscaused by or benefits a specific course or coursesand the other for TDY that benefits the trainingoperation as a whole. TDY that is directlyrelated to (benefits) one or more courses shall bedirectly allocated to those courses. In order topreclude "double charging" a course for TDY,care must be taken to ensure that all directlyallocable travel is eliminated from the TDYincluded in the indirect cost pool. TDY thatbenefits the training operation as a whole shallbe allocated to sources by dividing the totalindirect TDY costs by total number of studentsand then multiplying the results by the numberof students enrolled in each course to arrive at acourse cost.

D. Cost for training U.S. instructorpilots, including proficiency and continuationtraining, shall be limited to special aircraft not in

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the active U.S. aircraft inventory. Divide thesecosts by the normal tour of duty for an instructorpilot to arrive at an annual cost that shall bedistributed to courses in the same manner asinstructor salaries and allowances.

E. Cost of training materials, equip-ment, supplies, aids, munitions,.flight clothing,and personal equipment shall be charged to theapplicable course. Training material and aidsprepared above base level, that are readilyidentifiable to a course, shall be included as adirect cost of the course. If not readily identifi-able to a specific course, distribute these costs tocourses in the same manner as indirect TDYcosts. Care must be taken to ensure against"double charging" a course.

F. Compute the POL cost for aircraft(rotary/fixed wing), motorized equipment, ships,landing craft, etc., using the equipment hourlycost of POL times the number of operating hoursfor the course.

G. Depot level maintenance cost ofaircraft, engines, motorized vehicles, and equip-ment shall be charged to the applicable course atthe budgeted average hourly item repair costthat includes civilian pay, contractual effort, andsupplies. These costs shall be adjusted to in-clude military pay and centrally procured equip-ment and parts. Multiply this average hourlycost by the hours programmed for use in thespecific course.

H. Base level aircraft and equipmentmaintenance costs (including munitions mainte-nance) shall be allocated to courses on the basisof total maintenance costs divided by the totaltraining hours supported, if not identifiable andchargeable on a job order basis. Costs shallinclude military and civilian pay, supplies andequipment (including replenishment spares), andcontractual support. If there are a significantnumber of transit or nontraining aircraft at thebase, aircraft operating costs shall be distributedinitially between training and nontraining on thebasis of percentage of number of takeoffs, num-ber of sorties per year, or maintenance directlabor hours, whichever results in the best alloca-tion of costs in relation to the benefits received.For this purpose, aircraft used by personnel

supporting training for proficiency flying shallbe classified as training aircraft.

I. Simulator costs shall include payof the operators, supplies, and equipment main-tenance. Simulator costs shall be allocated to thecourse in the same ratio as hours used bears tothe total hours available.

J. Civil Engineer (Public Works) andother directly relatable support costs allocable totraining operations shall be distributed to cours-es on the basis of total training hour support orany other logical method of measurement; forexample, square footage of buildings, etc., (seesubparagraph H., above). This categoryincludes: the cost of air operation department;squadron command administration; crash/firedepartment; maintenance of hangars and airfieldpavements and marking; operation and mainte-nance of communications, navigation aids,airfield lighting, control tower, training facilities,and ground support and refueling equipment.Costs in this category shall include only thosethat would not be required if the training mis-sion were removed from the installation. If theywould remain, were the training mission re-moved, they shall be combined and allocatedalong with the other indirect base operating costsin paragraph 071103.

K. Range maintenance and operatingcosts shall be computed and allocated to coursesbased on the percentage of sorties or roundsfired in the course compared to the total sortiesor rounds fired or any other basis that results inan equitable allocation of these costs.

L. Tuition rates shall include thecosts of information programs, including trans-portation, meals, lodging, admission, programs,and incidental costs thereof. The student as-sumes the personal costs for laundry, cleaning,telephone service, and all other costs not directlyassociated with the programmed tour.

M. Include attrition rate of 4% forflying training and/or 1% for non-flying train-ing. There will be a year-end analysis of accountactivity in accordance with paragraph 030210.G.of this Volume.

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071103. Indirect Base Operating Costs

A. All other indirect base operatingcosts shall be allocated initially to major claim-ants (training, tenants, etc.). The amount allocat-ed to training shall then be distributed to areasof training that are significantly different (flyingoperations, classroom training, equipment main-tenance, etc.). All allocations shall be made atthe installation level using engineering estimatesor some other basis to ensure that allocations arecommensurate with the benefits received. Coststo support or operate quarters, a family housingcomplex, and food service activities that areapplicable to instructors and training supportpersonnel may not be allocated to tuition rates ifthese costs are recouped in base personnelsalaries. The amount allocated to each area oftraining shall then be distributed to the tuitionrate by dividing the amount allocated by theannual estimated student weeks of training.Reduce by 5 percent the amount allocated toforeign students to allow for costs consideredinappropriate for allocation, for example, chapel,equal rights office, alcohol treatment, specialservices, etc.

B. Exclude costs associated withcombat development, training development (lesscourse development), nonresident instruction, orother activity that offers no support to the train-ing mission and a pro rata share of school over-head costs to support these elements.

C. Exclude costs associated with unitsattached to the training activity with duty sta-tions at another location that are not involved inthe training of foreign students.

D. Costs related under-utilized capac-ity and mobilization requirements, when specifi-cally identified and documented, shall be exclud-ed from these allocations.

071104. Administrative Surcharge. Apply anoverall administrative surcharge of 3 percent tothe case cost.

071105. Shipment of Instructional Materials

A. Effective October 1, 1983, theshipment of instructional materials shall be

included in the tuition rates for all IMETP/FMScourses based on standard rates. The rates are$265 for Professional Military Education Courses(Military Articles and Services List, Item identifi-cation in the 171 series) and $65 for all othercourses.

B. This material is to be packed andlabeled at the training installation and shipped tothe Security Assistance Organization (SAO) ofthe country for delivery to the FMT. A copy ofthe student’s ITO shall be placed inside thepackage.

C. The training installation shallensure that no personal baggage or other unau-thorized matter is shipped with the instructionalmaterial.

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TABLE 711-1 DEVELOPMENT OF FAMILY HOUSING CHARGES FOR FMS STUDENTS

This table provides guidelines for calculating charges for family housing provided to FMS students. Theguidelines shall be used only after a determination has been made that U.S. students’ requirements havebeen satisfied and shall be satisfied for the projected duration of the foreign student’s occupancy.

A. Steps to be followed in calculating the monthly rental charges to FMS students are as follows:

Step 1. Use the most recent annual installation family housing cost report to identify the costsincurred in operation and maintenance of installation family housing units.

Step 2. Inflate the annual cost report by the operation and maintenance inflation factorpublished each year by the Office of the Comptroller, DoD as part of Program Objectives Memorandumand budget guidance.

Step 3. Divide the sum of the amounts determined in Steps 1 and 2 by the number of familyhousing units located on the installation.

Step 4. Divide the annual average cost to operate and maintain a family housing unit by 12, toarrive at average monthly costs.

Step 5. Add $100 to the results of Step 4. The $100 is predicated on average charge for WherryHousing mortgage amortization and is in lieu of depreciation and interest on investment.

B. A price illustration of the FMS student family housing calculation follows:

1. Total FY 1980 cost incurred by installation inoperating and maintaining family housing units $ 998,586.00

2. Addition of FY 1981 inflation factor (11.27%) 112,541.00

Subtotal $1,111,127.00

3. Annual cost per family unit (449 units). 2,474.67

4. Monthly cost per family housing unit. 206.22

5. Monthly mortgage amortization charge. 100.00

Monthly rental charge to FMS student. $306.22

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0712 INCREMENTAL COSTING OF TRAIN-ING

071201. Instructors and School Support Staff.Courses shall be reviewed to determine if theincremental cost should be developed for aspecific course (for example, pilot training) or agroup of courses. For classroom or technicalcourses that are similar or that utilize instructorswho teach more than one course, such coursesmay be grouped for computation purposes.When there is a one-for-one or one-for-tworelationship of instructor to student, the instruc-tor in all cases shall be considered incremental.If the entire class is composed of foreign stu-dents, the instructor and staff shall always beconsidered incremental.

A. It is anticipated that the incremen-tal cost charged to IMET for instructors shall beminimal for courses or groupings of courseswhen either the ratios of students to instructorsor U.S. students to IMET students is high.

B. For these latter courses (or groupsof courses), a projection shall be made as to theestimated number of U.S. students who shall bein the course and the number of instructors andstaff required. A second projection shall bemade of the total number of students estimated,both U.S. and foreign, and the number of in-structors and staff required. Both projectionsshall be based on the maximum number ofstudents who can be taught by instructors orstaff rather than on optimum class size. Thedifference in instructor and staff between the twoprojections represents the incremental costs.This value, divided by the total number offoreign students, represents the incremental costper student for the course (or courses).Although used in the computation to deriveincremental IMET costs, FMS students shall stillbe priced at full cost in accordance with otherprovisions of this Chapter. In computing fullcost for the FMS student, care shall be taken toensure that the incremental cost charged to IMETstudents is not included in the FMS computation.

071202. Travel and Per Diem. All studenttravel and per diem associated with the trainingshall be considered incremental. All travel, perdiem, and allowance paid to members of Techni-

cal Assistance Field Teams (TAFTs) and similarteams, established to conduct in-country training,shall be considered incremental.

071203. Equipment Overhaul and Maintenance.The overhaul and maintenance of major items ofequipment, when computed on an hourly usebasis, shall be incremental to a course based onestimated utilization hours.

071204. Simulators. Simulator hours shall beincremental. See paragraph 071102.I.

071205. Supplies, Materiel, Training Aids, andAmmunition. Incremental cost shall be the re-placement price of items that are not returned orreusable (including POL) used in conducting thetraining. If discrete pricing is not or cannot bedeveloped for publications and Table 716-3 isused, determine IMET pricing at 10 percent ofthe costs shown in the table.

071206. Base Support Cost (i.e., Indirect Costs).Standard weekly rates shall be charged for IMETand IMET(FMS) training. The FY 1981 rates are$15 per week for IMET and $18 per week forIMET(FMS). In FY 1984, rates were $17 and $19.The rates for FY 1986 are $22 for IMET andFMS/IMET. These rates shall be adjusted annu-ally for inflation. Once every three years, theserates shall be validated by each Military Serviceand adjusted by the Office of the Comptroller,DoD as appropriate.

071207. Instructor Training. The training ofU.S. instructors or other personnel for specialcourses normally not conducted for U.S. person-nel shall be considered incremental. When therequired training is conducted at a U.S. trainingfacility, the benefiting country will be chargedthe course cost established in accordance withSections 711 and 712 instructions for computingtraining costs. When the special course is con-ducted by a Management Service Team (MST)away from the normal training institution, theservices of the MST will be treated as a serviceand priced in accordance with paragraphs 070202and 070203.

071208. Facilities and Equipment. Any facilitiesor equipment acquired primarily for the support

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of foreign students shall be considered incremen-tal.

071209. Information Program. The full cost ofthe information program to the U.S. Governmentshall be incremental.

071210. Administrative Surcharge. The admin-istrative surcharge shall be charged on FMStraining sold to IMET-recipient countries, andshall also be charged to cases financed withMAP funds.

071211. Exclusions. The unfunded civilianretirement charge that is deposited to the Miscel-laneous Receipts Account shall be considered afixed cost and not included in the FMS trainingrates for IMET-recipient countries. This exclu-sion also applies to TAFTs established to conductin-country training and mobile training teams(MTTs).

0713 OTHER CASH SALES AND LEASINGOF DEFENSE ARTICLES

071301. General. Cash sales of Defense servicesother than those heretofore covered specificallyin this Chapter shall be priced to recover allelements of identifiable costs.

071302. DoD Support Costs. A separate FMScase shall be established to recoup DoD supportcosts such as those defined in paragraph 070406when support is furnished by Department ofDefense to facilitate direct sales by a U.S. con-tractor to a foreign government.

071303. Administrative Surcharge. The admin-istrative surcharge prescribed in Section 706 shallbe applied to identifiable costs.

071304. Pricing. When defense articles isleased to a foreign country or internationalorganization under authority of AECA [reference(a)], inspection, restoration, maintenance, andaccessorial costs incurred in connection with thelease shall be priced in accordance with para-graph 070802. In addition, depreciation chargeson the leased items may be applicable. Aworksheet to determine the applicability ofdepreciation charges and the amount thereof is

contained at Table 713-1. In the event leaseddefense articles are damaged beyond repair or isnot returned, replacement costs calculated inaccordance with paragraphs 070302.B. and C., asapplicable, shall be collected from the foreigncountry or international organization. Replace-ment cost shall be estimated when the equip-ment is placed on lease and set forth in the leaseagreement. Refer to Chapter 12 of DoD5105.38-M [reference (e)] for procedures onleasing arrangements. Charges for repair orother support of these items will not be madepart of this monthly lease payment.

222


TABLE 713-1 CALCULATION OF DEPRECIATION CHARGES FOR LEASEDDEFENSE ARTICLES WITH ILLUSTRATIVE ENTRIES

STEP 1: Determine purpose of lease.Yes No

a. Cooperative research or development project ( ) (x)b. Military exercise ( ) (x)c. Electronics interface project ( ) (x)

(If "yes" is checked on items a., b., or c., depreciation is not applicable and it is not necessary to completeremaining steps.)

STEP 2: Determine service life.

a. Date to be leased June 1982b. Date item first fielded or actual acquisition June 1972

date of specific item (if known)c. Calculate age in months of item on lease date 120d. Number of months to be leased 12e. Estimated months of service life remaining at 144

conclusion of leasef. Total months of service life (c. + d. + e.) 276g. Calculate item c. as a percentage of item f. 43%

(If result of step 2.g. is 75 percent or more, depreciation is not applicable and it is not necessary tocomplete remaining steps.)

STEP 3: Determine cost of defense articles leased.

a. Original acquisition cost $1,000,000b. Pro rata share nonrecurring R&D or

production costs 100,000c. Capital improvements

(1) Major overhauls2 $500,000(2) Modifications net of retirements1 $300,000 800,000

Total Cost $1,900,000Less residual value (100,000)Amount subject to depreciation $1,800,000

STEP 4: Calculate monthly depreciation charge.

Divide results of Step 2.F. into results of Step 3($1,800, 000/276) = $ 6,522

____________________________________________1 Retirements represent serviceable components and weapons that are replaced by a modified

version and that are returned to inventory upon removal. Normally, retired items are valued atstandard inventory price, if repair is not necessary. If repair is required before the item may bereissued, the retirement item is valued at standard inventory price less estimated repair cost.

2 The overhaul costs will be pro-rated over the interval between the last actual overhaul and the nextscheduled overhaul. If a future overhaul is not scheduled, the cost of the last overhaul will beprorated over the normal average interval between overhauls (see paragraph 70302.C.1.).

223


0714 EXPANSION OF FACILITIES

071401. General. All costs of construction orexpansion of facilities desired by and for theexclusive use of the foreign government shall befinanced and funded by the foreign government.Charges by the U.S. Government for labor,materiel, or services shall be reimbursed inaccordance with the provisions of Sections 702and 703 of this Volume. When expansion isrequired for DoD use but may also be availablefor FMS, the cost shall be funded through thenormal DoD budget process.

071402. Reimbursement of Proportionate Share.In addition to the costs as above, a proportionateshare of operating costs shall be reimbursed.

0715 PRICING FOR USE OF TECHNOLOGY

071501. General. A Technical Data Package(TDP) encompasses production designs, draw-ings, specifications, models, manufacturingtechniques and details, and similar information(but excludes information associated with theRDT&E stage) necessary to enable a foreigngovernment to manufacture or have manufac-tured items of military equipment and repairparts. It does not include technical assistance orknow-how by U.S. Government personnel;however, such assistance may be provided atadditional cost.

071502. Pricing of Technical Data Packages.The Defense Security Assistance Agency (DSAA)may authorize release of a TDP to a foreigngovernment for in-country manufacture ofmilitary equipment and repair parts. Costsincurred in the preparation, reproduction, andhandling of the TDP shall be priced in accor-dance with the pricing policies set forth inparagraph 071301. When the pricing of the TDPis subject to an international agreement of whichthe DoD is a party or is otherwise bound, thesale will be determined consistent with the termsof the agreement.

0716 PUBLICATION PRICING

071601. General. This section prescribes themethod which will be used to determine the

price of DoD publications when they are sold toFMS customers. The term "publications" in-cludes technical orders, technical manuals,supply catalogs, training publications, adminis-trative publications, engineering drawings, andassociated documents, Integrated LogisticsSupport publications and associated documents,equipment component lists, special file extracts,decals, forms, and audio-visual products. Apublication may be bound or loose-leaf, imprint-ed form, ADP listing, operator’s card, microfilm,slide, motion picture film, etc. Engineeringdrawings and associated documents will bereviewed to determine if a technology charge isappropriate.

071602. Publication Pricing Factors. The fol-lowing costs shall be included in the develop-ment of FMS prices for publications:

A. Acquisition Cost (AC). The con-tractual and in-house DoD cost required todeliver a reproducible master including, but notlimited to, the amounts paid for technical oradministrative writing, editing, illustrating,animation, and copy preparation.

B. Copy Production Cost (CPC). Thecopy production costs incurred in printing orreproduction of copies from the reproduciblemaster.

C. Special Cost (SC). The cost in-curred in the sanitization (elimination ofnonreleasable information from a DoD publica-tion prior to release to a foreign government),classified handling, development, and mainte-nance of country-peculiar publications.

071603. Development of a Per Copy SellingPrice

A. The total cost of a publication isthe sum of the costs identified in B., above. Thetotal cost will be reduced to a per-copy expres-sion by dividing the cost by the quantity pro-duced (Q) as per the following formula:

(AC + CPC + SC) = Price per copyQ

224


B. Recorded actual costs will be usedwhen available. When actual costs for individu-al publications cannot be readily determined, afactored expression of historical costs will bedeveloped from the most current cost recordsavailable. Uniform pricing tables can be devel-oped from the cost per "unit" ("unit" being eithera page, a roll of microfilm/microfiche page, or arunning foot of tape or motion picture film).Table 716-1 provides guidance for developingpublication pricing tables. Table 716-2 is asample pricing guide developed in accordancewith this guidance.

C. In the event there is an immediateneed for pricing existing inventories of publica-tions, and discrete pricing is not or cannot bedeveloped, Table 716-3 may be used. The pric-ing in Table 716-3 shall not be used for constantpricing of publications. It is to be used to fill animmediate need when actual or estimated pricescannot be determined. Its design allows a pricedefinition that recognizes the cost of each publi-cation in relation to its unit count, without theneed for performing a separate price calculationfor each publication. In recognition of the higherper-unit acquisition and copy production costthat occurs in low unit count publications, aminimum price is set to effect related cost recov-eries.

071604. Other Applicable Costs.

A. A technology charge that shall becollected in accordance with DoD Directive2140.2 [reference (r)] and Section 715 of thisVolume shall be an additional charge whenapplicable.

B. The standard administrative andaccessorial charges prescribed in this Chaptershall be recouped as a percentage of publicationprices. These charges are not included in the percopy selling price.

C. The FMS price for a joint MilitaryService publication shall be established by theMilitary Department responsible for its acquisi-tion and management. That Military Departmentshall notify the other participating DoD Compo-nents of the established FMS price.

225


TABLE 716-1 DEVELOPMENT OF FMS PUBLICATION PRICING TABLES

This table provides instructions for constructing and using publication pricing tables based on factoredcosts when actual publication costs cannot be readily determined.

A. Using a representative sample of the various types of publications, develop unit prices for eachpublication category (such as, technical, supply, administrative, training, and engineering drawings) asfollows:

Step 1: From reproducible master procurement or production records, determine the averageacquisition cost within the category.

Step 2: From copy production records, determine the average copy production cost within thecategory.

Step 3: Add the results of Steps 1 and 2.

Step 4: Estimate the "typical quantity," as derived from a representative sample of actual usage orfrom forecasted requirements for publications within the category

Step 5: Divide the total from Step 3 by the estimated number of copies to be produced to derivethe price per unit.

Step 6: To determine the selling price of a single copy of the publication, multiply unit or page costby number of units or pages in the publication.

B. An example of the steps above is shown for a sample of X number of publications in paper formas follows:

Step 1:Acquisition Cost of

Producible Master Samples = Average Acquisition CostTotal Reproducible Masters Per Reproducible Master

Sampled

$234,000 = $2341,000

Step 2:1

Actual Copy Production CostIncurred in Reproduction ofReproducible Masters Sampled = Average Copy Production CostTotal Production Runs Sampled

$52,000 = $262,000

226


TABLE 716-1 DEVELOPMENT OF FMS PUBLICATION PRICING TABLES (CONTINUED)

Step 3:Average Acquisition Cost (AC)

plus = Total Average CostAverage Copy Production Cost (CPC)

$234 + $26 = $260

Step 4:Actual Number

of Units or Pages Produced = Typical Quantity (Q)Total Reproducible Masters

Sampled

100,000 = 1,000100

Step 5:AC + CPC = Price Per Unit

Q

$260 = $0.260 Per Unit or Page2

1,000

Step 6:Unit or Page Price Multiplied byUnit or Page Count of Publication = Selling Price Per Copy

PlusSpecial Cost (if any)

$0.260 x 20 (pages) + 0 = $5.20

______________________________________________

1 The relationship between Acquisition Cost vs. Copy Production Cost is approximately 90% vs.10%.

2 See Table 716-3 for application.

227


TABLE 716-2 SAMPLE PRICING GUIDE FOR TECHNICAL PUBLICATIONS(SUBCATEGORY TITLE, WHEN DESIRED)

_____________________________________________________________________________________________UNITS All pubs 100 Units or Less

PRICE PER COPY $16 (based on a 60-unit count average)_____________________________________________________________________________________________

_____________________________________________________________________________________________UNITS All pubs over 100 Units

PRICE PER COPY Extrapolate from below_____________________________________________________________________________________________

_____________________________________________________________________________________________UNITS 1 2 3 4 5 6 7 8 9 10

PRICES ($) 0.26 0.51 0.78 1.04 1.30 1.55 1.81 2.08 2.34 2.59_____________________________________________________________________________________________

_____________________________________________________________________________________________UNITS 50 60 70 80 90 100 200 300 400 500

PRICES ($) 12.80 16.00 17.60 20.80 24.00 25.60 51.20 78.40 104.00 129.60_____________________________________________________________________________________________

INSTRUCTIONS

1. Determine unit cost of publication.

2. If unit count is at or below the minimum, set price at $16.00.

3. Extrapolate when unit counts are above the minimum. For example, the calculation for a unit countof 382 would be computed from the table as follows:

Units Price300 $78.4080 20.802 .51

Total 382 $99.71

Rounding to the nearest dollar, the price charged to the FMS customer would be $100.00.

4. Add 20% to price for classified publications.

228


TABLE 716-3 GUIDE FOR PUBLICATIONS PRICING (PER COPY)

____________________________________________________________________________________________

CATEGORIES OF PUBLICATIONS (PRICE PER COPY2)__________________________________________________________________________

NO. UNITS1 TECH TRNG ADMIN SUPPLY OTHER3

1-100 $ 16.00 $10.00 $ 5.00 $ 5.00101-200 $ 38.00 $22.00 $11.00 $11.00201-300 $ 66.00 $38.00 $19.00 $19.00301-400 $ 91.00 $54.00 $27.00 $27.00401-500 $117.00 $67.00 $34.00 $34.00

________________________________________________________________________________________________________________________________________________________________________________________Engr Drawings All Categories:

Aperture or copy cards @ $.88 per copyHard copy - $3.20 per copy

________________________________________________________________________________________________________________________________________________________________________________________Letter Type All Categories:Bulletins and $3.20 per copyDirectives________________________________________________________________________________________________________________________________________________________________________________________Forms All Categories:

$.08 per copy with a minimum charge of $3.20.If standard inventory price available, use standardprice.

____________________________________________________________________________________________

1 Unit: A page, a role of microfilm, a microfiche frame, or a running foot of tape or motionpicture film.

2 An additional charge of 20% is added for classified items.

3 Other selected categories of publications, such as audiovisual products, decals, etc.

229


0717 SPECIAL DEFENSE ACQUISITIONFUND (SDAF)

071701. General. The Special Defense Acquisi-tion fund was authorized in 1981 by an amend-ment to Chapter 5 of the AECA to fund the pro-curement of defense articles in anticipation oftheir sale or transfer to foreign governments.The basic objective of the fund is to facilitatedelivery of materiel in advance of normal pro-curement lead-times. The detail requirements ofthe fund are discussed in Chapter 14 of theSecurity Assistance Management Manual(SAMM)[reference (e)].

071702. Sales Involving the Special Defense Ac-quisition Fund

A. Sales to the Fund. Sales ofmateriel and recurring services in support ofpurchases to the SDAF will be priced accordingto the requirements of this section. These pric-ing elements represent SDAF obligations. There-fore, care must be taken to record and obligatetransactions in a timely manner. Over-oblig-ations shall be reported in accordance withDoDD 7200.1 [reference (f)]. The DoD Compo-nent with custody of the SDAF asset beingpurchased will maintain identity of the relatedunfunded costs until the respective asset is soldto an FMS customer. The following additionalguidance on pricing sales to the SDAF is provid-ed to address specific problems:

1. A c c e s s o r i a l c o s t s a sprescribed by Section 705 of this Chapter will becharged to the fund only if applicable; e.g.,PC&H and transportation will not be charged forshipments in place to change the commoditymanager’s ownership/purpose code assigned tothe asset in stock.

2. Contracts awarded to meetSDAF requirements shall not provide for rentalcharges under provisions of the Federal Acquisi-tion Regulation (FAR)[reference (g)].

3. The actual CAS cost applica-ble to procurements for the SDAF shall be in-cluded in Standard Form 1080 for billing FMScosts from the DoD Components to the clearingaccount maintained by the SAAC. The normal

CAS surcharge will be added to billings forcontract cost for the purpose of inventory valua-tion.

4. All unfunded costs other thannonrecurring charges will be charged for sales tothe fund. These charges include military andcivilian pay for services such as engineeringchanges, personnel acceleration factors andsecondary item replacement factors. Nonrecur-ring cost recoupment charges will be collectedfrom FMS customers when the materiel is soldfrom the fund and deposited to the appropriateaccounts identified in paragraph 070105.

B. Sales from the Fund. Sales ofmateriel from the fund will be classified as salesfrom SDAF stock. This is distinguished fromsales of DoD stocks or sales from procurementand is consistent with normal definition ofDefense Stocks.

C. Sales to Foreign Governments.The selling price for SDAF items sold to foreigngovernments will be computed by establishing abase acquisition price as outlined in subpara-graph 1 below. Applicable charges for nonrecur-ring costs will be added to the base price toarrive at the SDAF selling price. PC&H andtransportation, and FMS administrative surcharg-es are additive to and not a component of theitem selling price.

1. The SDAF full value baseprice will be the higher of the SDAF procure-ment price or the current DoD contract price, ifthe item is on a contract signed subsequent tothe SDAF contract at the time of preparation ofan LOA for the sale.

a. The SDAF procurementprice is the total estimated unit price as reflectedon SDAF procurement requests (direct cite andreimbursable) for the item being priced.

b. The current DoD contractprice will be estimated by the DoD Componentinvolved as prescribed in Section 704 of thisVolume with identification of all appropriateadd-on charges.

230


2. If the DSAA determines anSDAF item to be of reduced utility, an appropri-ate reduction to the price may be made in accor-dance with paragraph 070302.C.1. Such a reduc-tion could conceivably lower the selling price tobelow the SDAF cost.

D. Sales to a Military Department.The selling price of an item sold to a MilitaryDepartment will depend on whether the item isin turn sold to an FMS customer or is used bythe Military Department.

1. If an SDAF item is sold to aMilitary Department for further sale to an FMScustomer, the selling price for both transactionswill be the FMS price prescribed in subpara-graph C.1., above.

2. A sale to a MilitaryDepartment for its own use will be priced torecover the cost incurred by the SDAF. DoDComponents are not authorized to pay higherprices than actual DoD contract prices.

071703. Quotation of Stabilized Prices. Sales ofSDAF items will be quoted as firm prices andLOA will be annotated accordingly. The DSAAis responsible for reviewing SDAF prices toassure full cost recovery and for changing anyproposed SDAF prices to achieve that objective.

071704. Charges for Nonrecurring Costs

A. Nonrecurring cost will not becharged the SDAF on sales to the fund.

B. Nonrecurring costs will be deter-mined according to paragraph 070305 and col-lected on sales from the SDAF to a foreigncustomer.

071705. Recovery of Contract AdministrationCosts Incurred in Support of New Procurementsfor the Fund. SDAF pays the normal CASsurcharge at the time of procurement and thiscost is included as part of the SDAF acquisitioncost (see Table 717-1). Therefore, when anSDAF-owned item is sold, it is considered to bea sale from inventory and no additional CAScharge is applied.

071706. Special SDAF Surcharge. The purposeof this surcharge is to maintain the solvency ofthe SDAF account; i.e., the SDAF corpus cannotgain or lose monies as a result of inventory/salestransactions. Accordingly, a special SDAFsurcharge will be applied, as necessary, to recov-er the cost of SDAF inventory losses, pilferage,obsolescence, and any loss of SDAF proceedsresulting from sales at reduced prices. Thesurcharge percentages will be determined annu-ally by DSAA and applied to the SDAF acquisi-tion cost by SAAC.

071707. Exceptions. Requests for exceptions tothe preceding pricing policies will be submittedin accordance with Section 719 of this Volume.

231


TABLE 717-1 SPECIAL DEFENSE ACQUISITION FUND (SDAF) PRICE COMPUTATION EXAMPLES

Sale to Sale of Same SDAFSDAF Asset to FMS Customer

1. Example-Item Procured for SDAF

Contract Cost $60,000.00Contract Administration services (1.5%) 900.00Recurring Contract support cost 1,000.00GFM (including associated 500.00

transportation and PCH) _________ _________SDAF Acquisition Cost $62,400.00 $62,400.00Pro rata nonrecurring charges 2,000.00Special SDAF Surcharge XX1

FMS Unit Selling price $64,400.002

2. Example-Item provided to SDAF from DoD Stock

Nonexcess procurement funded item (to be $50,000.00replaced shownin Table 703-3)

SDAF Acquisition cost $50,000.00 $50,000.00

Pro rata nonrecurring charges 1,000.00(50% of $2,000; See table 703-3)

Special SDAF Surcharge XX1

FMS Unit Selling Price $51,000.003

____________________________________________

1 The Special SDAF Surcharge is applied, as necessary, by SAAC based on DSAA guidance. See paragraph071706.

2 Apply applicable PCH, administrative fee, and applicable transportation surcharges to the FMS unit sellingprice. Note that a PCH charge is not applied to items procured by the SDAF for direct shipment to an FMScustomer.

3 Apply PCH, if applicable, and the administrative fee to the FMS unit selling price.

232


0718 CASE MANAGEMENT LINE

071801. General. DoD Components shall assurethat each type of cost is allocated only once andonly on one basis to an FMS Case. Additionaldiscussion on consistency in allocating costsincurred for the same purpose is contained inVolume 4 of this Regulation.

A. A case management line shall beincluded in FMS cases when there will be provi-sion of non-routine levels of DoD case manage-ment effort in support of a case. Non-routineeffort may be provided only if a case manage-ment line (L8A) has been accepted by the FMSpurchaser.

B. Program management lines, asopposed to case management lines, are intendedto be used in those instances where it is neces-sary that the implementing agency undertakesome system or program management effort inorder to successfully deliver the item that hasbeen ordered by the FMS customer. The costs tobe recovered by program management linesdiffer from those covered by case managementlines in that they are directly related to the itemor service being delivered as opposed to anextraordinary FMS case management expenseassociated with the implementation of a specificcomplex FMS case.

C. Table 718-1 provides a fundingmatrix of the appropriate funding sources for thecost of various types of activities/functionsinvolved in FMS case implementation. Whilenot all inclusive, it aids in differentiating activi-ties and functions to be funded by FMS adminis-trative funds, hardware or service lines, casemanagement lines, or program managementlines."

D. Costs incurred for communica-tions, utilities, automatic data processing, officesupplies and equipment, and rental charges arenormally recouped as administrative expenses.However, when a case management or programmanagement line has been established, thesetypes of costs shall be charged directly to thatline, as appropriate.

233


TABLE 718-1 CASE FUNDING MATRIX

Funded by

Description FMS Hardware/ Case Progof Effort Admin Services Mgmt Mgmt

Performed Budget Line Line Line

Price and Availability (P&A) X

Preparation of Letters of Offer and Acceptance (LOA) X

Program Requirements/ Survey Team (PRST) X

Program Management Reviews (PMR) Overseas or at non-DoD activities X At CONUS DoD activities X

Quality Assurance Team (QAT) for special X purposes as distinguished from Contract Administrative Services (CAS)

Preparation of IL Supply Delivery Plan (ILSDP) or its equivalent. X

Update/Revision of the ILSDP or its equivalent. X

Cooperative Logistics Supply Sup- port Arrangement Renegotiations X

TDY [Dependent on financing source of employee payroll cost] Employee paid from Admin/LSC X Employee paid for Hardware/Svc Line X Employee paid from Case Mgt Line X Employee paid from Program Mgt Line X

Preparation of reports to the customer required by DoD 7000.14-M or DoD 5105.38-M X

Preparation of reports to the customer not required by DoD 7000.14-M or DoD 5105.38-M X

234


TABLE 718-1 CASE FUNDING MATRIX (CONTINUED)

Funded by

Description FMS Hardware/ Case Progof Effort Admin Services Mgmt Mgmt

Performed Budget Line Line Line

Preparation and processing of requisitions for articles and services X

Preparation of the requisition status-MILSTRIP, DoD 4140.17-M X

Processing Reports of Discrep- ancies (RODs) and the granting of credits for the net cost. X

Special configuration management and control X

Special Weapon/Systems X Management

Case reconciliation and closure X

235


0719 EXCEPTION TO PRICING POLICIESAND COST RECOUPMENT WAIVERS

071901. General. An exception to prescribedpricing policies refers to approval of an alterna-tive method of identifying applicable cost. Acost recoupment waiver refers to the exercise oflegal authority to partially or totally waiverecoupment of incurred costs.

071902. Request for Exception to Policies orDirectives. Requests for exceptions to the poli-cies prescribed herein or waivers of DoD costsshall be submitted to the Office of the DoDComptroller with a copy to the DSAA Comptrol-ler. Sufficient data shall accompany the requestto enable the Comptroller, DoD to evaluate themerits of the proposed deviation. When devia-tions or waivers are requested, it shall be shownthat such deviations or waivers are consistentwith statutory requirements and are in the bestinterest of the U.S. Government. No charges orsurcharges based on a percentage rate shall bemade to recover any element of cost unless (1)the percentage charge or surcharge is expresslyprescribed in this Volume, or (2) the percentagerate is proposed in writing to and is approvedby the Office of the Comptroller, DoD.

0720 PERIODIC REVIEW AND UPDATINGOF RATES

072001. General. Rates that may be developedto recoup accessorial costs (Section 705) andadministrative costs (Section 706) are subject toreview. The Office of the Comptroller, DoD,should notify applicable DoD Components whensuch reviews are being made and request appro-priate DoD Component participation. Beginningin FY 1993, the rates for PC&H will be reviewedevery two years by the DFAS.

072002. Revising Rates. Whenever a Depart-ment believes that a prescribed rate should berevised, it should submit an appropriate requestto the Office of the Comptroller, DoD withsupporting data.

0721 FINAL ACCOUNTING

072101. General. Once a final statement hasbeen sent for an FMS case, the case shall bereclassified by the IA from active to inactivestatus in accordance with paragraph 021104.Effective October 1, 1992, all closed cases withpost closure activity, not subject to acceleratedclosure procedures, will be reopened to reportexecution and will be recertified prior to closure.

0722 LOGISTICS SUPPORT CHARGE

072201. Applicability. The logistics supportcharge is applicable to other than Defense Busi-ness Operations Fund materiel.

072202. Purpose. A logistics support chargeshall be added to FMS case lines for spare parts,supplies, and maintenance of customer ownedequipment to recoup an appropriate share of thecost incurred in the logistics support area. Thelogistics support charge shall be a part of thecost of the item supplied and shall not be shownas a separate add-on charge to the FMS customerin the delivery listing or the DD Form 645,"Foreign Military Sales Billing Statement," pro-vided to the FMS customer. The functionsperformed in the logistics support area includeproduction control, requisition processing, inven-tory maintenance, administration of Reports ofDiscrepancy (RODs), and logistics management.

072203. Actual Logistics Support Expenses.Those DOD organizations which provide generallogistic support of the FMS program shall recoupthe full cost of providing such support. Costscharged in connection with logistic support shallnot include costs which are prescribed in thismanual for alternative recoupment methods.

A. The personnel portion of thebudget for actual logistics support expense shallinclude a pro rata share of those personnelperforming logistics support duties. If anorganization’s manpower staffing is based uponroutinely maintained workload statistics (such asthe number of requisitions processed), the costallocable as a actual logistics support expenseshall be determined on a pro rata basis fromworkload statistics. For example, if the FMSlogistics workload is 25 percent of the totalworkload, then 25 percent of the organization’s

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payroll shall be funded through FMS logisticssupport expense charges. If routinely main-tained statistics are not available, the costs willbe determined based on cost finding techniquesor other methods which are appropriate indetermining the cost of maintaining the FMSprogram.

B. Other actual or estimated actuallogistics support costs include:

1. Travel costs, including perdiem and transportation incurred in the logisticssupport of the FMS logistics program.

2. Automatic data processingcosts to support FMS logistics workload basedon proration of machine time required to pro-duce FMS logistics reports, requisition historystatus, or other transactions.

3. Printing and reproductioncost incurred primarily for the benefit of theFMS logistics program.

4. Communications, utilities,and office supply costs shall be allocated aslogistics support expense, on a pro rata basis i.e.,a proration of number of phone instruments, etc.

5. Equipment costs, both pur-chased and rental, when such costs are specifical-ly incurred to support the FMS logistics pro-gram.

6. Rental charges at fully dedi-cated FMS logistics activities for floor spacerental, and certain other support services.

7. The "net cost" to the Depart-ment of Defense for processing RODs for over-age, shortage, damage, item deficiency, andduplicate billing. Such costs exclude discrepan-cies that are attributable to damage or lossoccurring after passage of title. Normally, FMSshipments move from the depot or vendor’splant on collect commercial bill of lading withtitle passed at point of origin. However, occa-sionally shipments move under Government Billsof Lading. Under either of these conditions titlepasses at the point of origin and if damage orloss occurs subsequent to title passage, payment

is not to be made from the administrative fund(that is, claims should be submitted against thecommon carrier). See Chapter 8, Section IV.F ofDOD 5105.38-M [reference (e)], for more de-tailed information.

8. Materiel costs included inactual logistics support expenses should be thenet value of the returned materiel. There is no"net cost" to the Department of Defense incanceling duplicate billings or in shipping anitem for which a country had been billed but theDepartment of Defense cannot confirm it hasbeen shipped.

C. Funded cost must be accelerated torecover unfunded cost where appropriate, i.e.,personnel cost must be accelerated for unfundedcivilian retirement.

072204. Prescribed Logistics Support Charge

A. The SAAC shall recover theearned logistics support expenses by applying a3.1 percent factor to delivery transactions onFMS case lines with the following specific gener-ic codes:

Generic Code1 Description

SPARES:A9C Aircraft Components Parts and

AccessoriesB9A Guided Missile Parts, ComponentsB9C Free Missile Parts, ComponentsC9A Ship spare partsF9A Other Weapons Spare PartsF9B Naval Ordnance Spare PartsF9C Nonstandard Weapon Spare Parts,

Components and AccessoriesH9A Communication Equipment Spare

Parts Equipment

EQUIPMENT MODS:A6A Class IV MOD-Navy/USAF Air-

craftB6A Missile MOD, Test Equipment and

Services

MAINTENANCE:M2A Aircraft Repair and Rehabilitation

and Engine Overhaul

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M2B Ship OverhaulM2C Other Repair and RehabilitationM2D Combat Vehicle Repair and

RehabilitationM2E Tactical/Support Vehicle Repair

and RehabilitationM2F Weapons and Support EquipmentM2G Ammunition Repair and Rehabili-

tationM2H Communication/Electronic/

Metero Repair and RehabilitationM2J Support Equipment Repair and

RehabilitationM2K Missiles Repair and Rehabilitation

SECONDARY SUPPORT EQUIPMENT:A7A AGE Follow-on, including Compo-

nents and AccessoriesA7B Barricade and Equipment,

Follow-onA7C Launching Equipment, Follow-onA7D Special Trucks/Trailers, Follow-on

B1 Ground Launched Missile SupportEquipment2

B2 Air Launched Missile SupportEquipment2

B3 Sea Launched Missile SupportEquipment2

F4A Chemical Weapons and EquipmentF4B Camouflage and Deception Equip-

mentF4D Fire Control EquipmentF4Z MiscellaneousJ Support Equipment

SUPPLIES:K Supplies

NOTES:1The LSC will not normally be applied to Gener-ic Codes for stock numbers which have an MDEindicator listed in the MASL.2Applies only to the numbers listed in paragraph72204.B. below.

B. Specific generic codes and MilitaryArticles and Services List (MASL) numbersidentified for application of the Logistics SupportCharge as cited in codes B1, B2 and B3, above.

National Stock Number Description

MISSILE SUPPORT EQUIPMENTB1A9B4A00N1KESUP NIKE Support Equip-

mentB1C9B4C00HAWKSUP HAWK Support Equip-

mentB1G9B1G00PERSSUP PERSHING Support

EquipmentB1J493500TOWSHOP TOW Support EquipmentB1K9B1K00DRAGSUP DRAGON Support

EquipmentB1N141N00LANCESP LANCE Support

EquipmentB1P9B1P00ST1NSUP STINGER Support Equip-

mentB1R144000CHAPSUP CHAPARRAL Support

EquipmentB1S9B1S00SH1LSUP SHILL Support Equip-

mentB1W9B1W00R0LSUP ROLAND Support

EquipmentB2A9B2A00SHRKSUP SHRIKE Support Equip-

mentB2B1410000AGMSUP HARM Support Equip-

mentB2D9B2D000STDSUP STANDARD Support

EquipmentB2F9B4Y00TRGTSUP TARGET Support Equip-

mentB2G9B2G00MARVSUP MAVERICK Support

EquipmentB2N9B4N00FACLSUP FALCON Support Equip-

mentB2R9B4R00S1DESUP SIDEWINDER Support

EquipmentB2S9B4S00BULPSUP BULLPUP Support

EquipmentB2T9B2T00PHOESUP PHOENIX Support

EquipmentB2W9B4W00SPARSUP SPARROW Support

EquipmentB2Y9B2Y00MATSUPE MATTADOR Support

EquipmentB2Z9B2Z00AMRASUP AMRAAM Support

EquipmentB3P9B3P00TERRSUP TERRIER Support Equip-

mentB3Q9B3Q00TARTSUP TARTAR Support Equip-

mentB3R9B3R00HARPSUP HARPOON Support

EquipmentB3W9B3W00SPARSUP SEASPARROW Support

Equipment

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MISSILE MODS, TEST EQUIPMENT, SERVICESB1A493500NHKETKS NIKE HERC Tool KitsB1A493500NHSHOPS NIKE HERC Shop SetsB1A493500NHTESTE NIKE HERC Test Equip-

mentB1C143000HAWKMOD HAWK MOD KitsB1C493500HAWKSHP HAWK Shop KitsB1C493500HAWKTKS HAWK Tool SetsB1C493500HAWKSTE HAWK Test EquipmentB1G493500PERSSHP PERSHING Shop SetsB1G493500PERSTSE PERSHING Test Equip-

mentB1J143000TOWMODS TOW MOD KitsB1N143000LANMODS LANCE MOD KitsB1R493500CHAPSHP CHAPARRAL Shop KitsB2R9B2R00A1N9CMD SIDEWINDER Com-

ponent MODSB2R9B2R00S1DEWDM SIDEWINDER Class IV

MODS

072205. Administration of the Logistics SupportCharge.

A. Obligational Authority. At thetime of case implementation, the SAAC shallretain 3.1% of the customer ordered value (Obli-gational Authority) by the designated genericcodes in paragraph 072204. The amount ofobligational authority retained by the SAACshall be provided to the applicable IA for infor-mation purposes only. Actual logistics supportexpense will be in accordance with section030211.A. and 080601.A. Future logistics supportcharge percentage rates will be determined inaccordance with paragraph 030211.G.

B. Billing. The SAAC shall computeand charge the logistics support charge based onthe IA delivery reports and header informationcontained in the SAAC data file. The SAACshall provide the Logistics Support disbursementand the applicable delivery feedback to the IA’sin accordance with Section 809 of this Volumefor inclusion in the FMS case closure certificate.

C. Reports of Discrepancy. TheSAAC will credit the LSC included in the billedprice of any item being credited on an approvedReport of Discrepancy. The inclusion of thecredit LSC will be accomplished at the time anadjusting delivery "NZ" transaction is processed.Implementing activities must insure that the

original ship date of the article being credited isreported in positions 61-64 of the transaction.

D. FMS Case Closure. At the time ofcase closure, the IAs shall be responsible fordetermining from the SAAC the total amount ofthe SAAC Logistics Support Charge for eachimplemented FMS case. This charge shall beincluded within the IA’s FMS case closure certifi-cate to be submitted to SAAC.

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TABLE 722-1 PRICE COMPUTATION EXAMPLES - LOGISTICS SUPPORT CHARGE (LSC)

Example #1:Given: Materiel selling price is $1,000

Sale is I.A.W. Section 21, AECA

Calculation:Material Selling Price $1,000.00Logistics Support Charge (3.1% x $1,000) 31.00 (credit Acct 5060)FMS SELLING PRICE $1,031.003

Example #2:Given: Materiel selling price is $20,000, EACH

Sale is for 2 items IAW Section 22, AECADelivery to EuropeNC is $200.00 per item

Calculation:(a) Four Progress payments $10,000 report as

WIP (N price Code) (4 x 10,000) $40,000.00SAAC Applied CAS (1.5% x $10,000 x 4)1 600.00 (credit Acct 5020)NC reported as WIP with "A" price code 400.00TOTAL WIP $41,000.00

(b) Delivery of 2 items ("E" Price Code)Materiel Cost (2 X $20,000) $40,000.00CAS (applied by SAAC to W.I.P.)2 600.00NC (2 x $200) 400.00Value of the delivery transactions $41,000.00Logistics Support Charge (3.1% x $41,000)1 1,271.00FMS SELLING PRICE $42,271.003

(c) Final Price Revision with Increase ("A" Price Code)Requires a credit delivery with values from "b" abovefollowed by:Materiel Cost (2 x $21,000) $42,000.00CAS (1.5% x $42,000) 630.00NC (2 x $200) 400.00Value of the delivery transactions $43,030.00Logistics Support Charge (3.1% x $43,030) 1,333.93FMS SELLING PRICE $44,363.933

(d) WIP report required as a result of price increaseRevised WIP ("N" price Code) $2,000.00CAS applied (1.5% x $2,000)1 30.00 (credit Acct 5020)TOTAL WIP $2,030.00

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TABLE 722-1 PRICE COMPUTATION EXAMPLES - LOGISTICS SUPPORT CHARGE(LSC)(CONTINUED)

Notes:

1These costs are calculated and transferred to applicable surcharge accounts based upon performancereported as work-in-process ("N" price code reports).

2IAs may use any reasonable allocation procedure to spread the cumulative CAS value among thedelivered items.

3PCH&T. 1% Asset Use Charge and Administrative Surcharge are additive to the selling price asapplicable. Transportation charges for reports "b" and "c" are computed as follows:

(b) Transportation Charge[(14.25% x $10,000) + (14.25% ÷ 4 x 11,135.50)] x 2)= 3,643.40

(c) Transportation Charge[(14.25% x $10,000) + (14.25% ÷ 4 x 12,181.97)] x 2)= 3,717.97

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