Foreign Military Sales: Millions of Dollars of Nonrecurring Research and Development Costs Have Not Been Recovered.
Abstract
The Arms Export Control Act gives the President authority to sell defense articles and services to eligible foreign countries, generally at no cost to the U.S. government. While the Defense Security Assistance Agency (DSAA) has overall responsibility for administering the program, the Army, Navy, and Air Force normally execute the sales agreements--commonly referred to as sales cases. Foreign military sales are made on an individual case basis. The cases are initiated by a foreign country representative sending a letter of request to DOD asking for various information, such as precise price data. Once the customer decides to proceed with the purchase, DOD prepares a Letter of Offer and Acceptance (LOA) stating the terms of the sale for the goods and services being provided. The Arms Export Control Act requires that, after September 30,1976, letters of offer for the sale of major defense equipment shall include a proportionate amount of nonrecurring costs related to the research, development, and production of major defense equipment DOD interpreted the act as requiring the recovery of these costs on a pro rata basis. The military services calculate the pro rata rate by dividing the total research and development and other one-time production costs by the anticipated total number of units to be produced for both domestic and foreign use. A separate charge is calculated for each item of major defense equipment and is included in the LOA as part of the price that its customers are to pay for the purchase of major defense equipment.
Document Details
- Document Type
- Technical Report
- Publication Date
- Oct 01, 1998
- Accession Number
- ADA355594
Entities
Organizations
- United States Government Accountability Office