ACQUISITION AND
 TECHNOLOGY

DP(DAR)

                                                                  In reply refer to
                                                                  DFARS Case: 96-D309
                                                                  D. L. 96-010



MEMORANDUM FOR	DIRECTORS OF DEFENSE AGENCIES
                    DEPUTY FOR ACQUISITION AND BUSINESS MANAGEMENT,
                      ASN(RD&A)/ABM
                    DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE
                      (CONTRACTING), SAF/AQC
                    DIRECTOR, PROCUREMENT POLICY, ASA(RD&A)/SARD-PP
                    DEPUTY DIRECTOR (ACQUISITION), DEFENSE LOGISTICS
                      AGENCY



SUBJECT:	Pricing for Sales of Defense Articles


	We have amended the Defense Federal Acquisition Regulation Supplement (DFARS) to
implement Section 531A of the FY 1996 Foreign Operations, Export Financing, and
Related Programs Appropriations Act (Pub. L. 104-107), which requires that sales of
defense articles and defense services wholly paid for from funds made available on a
nonrepayable basis shall be priced on the same costing basis as is applicable to like
items purchased by the Department of Defense for its own use.

   The attached interim DFARS rule is effective immediately and will be included in a
future Defense Acquisition Circular.






                                                    /s/

                                             Eleanor R. Spector
                                             Director, Defense Procurement

Attachment

cc: DSMC, Ft. Belvoir

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DFARS CASE 96-D309
Interim Rule

PART 225--FOREIGN ACQUISITION

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SUBPART 225.73--ACQUISITIONS FOR FOREIGN MILITARY SALES

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225.7303 Pricing acquisitions for foreign military sales [(FMS)].

Price foreign military sale contracts using the same principles as are used in pricing other defense contracts. Application of the pricing principles in FAR Parts 15 and 31 to a foreign military sale contract, however, may result in prices that differ from other defense contract prices for the same item due to the considerations in this section.

* * * * *

225.7303-2 Cost of doing business with a foreign government or an international organization.

(a) In pricing FMS contracts where non-U.S. Government prices as described in 225.7303-1 do not exist, [except as provided in 225.7303-5,] recognize the reasonable and allocable costs of doing business with a foreign government or international organization, even though such costs might not be recognized in the same amounts in pricing other defense contracts. Examples of such costs include, but are not limited to-- * * *

* * * * *

(c) The provisions of 10 U.S.C. 2372 do not apply to contracts for foreign military sales. Therefore, the cost limitations on independent research and development and bid and proposal (IR&D/B&P) costs in FAR 31.205-18 do not apply to such contracts[, except as provided in 225.7303-5]. The allowability of IR&D/B&P costs on contracts for foreign military sales [not wholly paid for from funds made available on a nonrepayable basis] shall be limited to the contract's allocable share of the contractor's total IR&D/B&P expenditures. In pricing contracts for [such] foreign military sales-- * * *

* * * * *

[225.7303-5 Acquisitions wholly paid for from nonrepayable funds.

(a) In accordance with 22 U.S.C. 2762(d), foreign military sales wholly paid for from funds made available on a nonrepayable basis shall be priced on the same costing basis with regard to profit, overhead, IR&D/B&P, and other costing elements, as is applicable to acquisitions of like items purchased by DoD for its own use.

(b) Direct costs associated with meeting a foreign customer’s additional or unique requirements will be allowable under such contracts. Indirect burden rates applicable to such direct costs shall be permitted at the same rates applicable to acquisitions of like items purchased by DoD for its own use.

(c) A U.S. defense contractor may not recover costs incurred to implement its offset agreement with a foreign government or international organization if the foreign military sale Letter of Offer and Acceptance is financed with funds made available on a nonrepayable basis. ]