Defense Department officials on May 17 pushed back on industry claims that the Foreign Military Sales (FMS) process is moving too slowly, necessitating major reforms.
The FMS process as a whole is being criticized on the merits of a few high-profile cases concerning expensive, well-known platforms, said Vice Adm. Joseph Rixey, director of the Defense Security Cooperation Agency (DSCA).
Rixey called the system “burdened, but not broken,” pointing to the fact that in fiscal year 2015, the government implemented more than 1,700 new FMS cases worth more than $47 billion.
“Most of what we have goes through the system relatively quickly,” he said during a hearing of the House Armed Services Committee (HASC) oversight and investigation subcommittee. “The few [that don’t] happen to have huge production lines and have huge workforces depend on the sales of these end items, but when I look at the system as a whole, writ large, we get through the system quickly.”
Some delays are the natural outcome of Arms Export Control Act requirements, he added.
“Things tend to get hung up when some of the countries don’t sign security agreements with us, so when we come to technology transfer and technology review, we pause on whether we’re going to provide that capability,” he said.
Over the past year, both industry groups and service officials, such as Air Force Secretary Deborah Lee James, have criticized the pace of arms sales, arguing that the length of the process is sending allied and partner nations to buy products from more rival countries like Russia.
The congressional defense committees in their 2017 defense authorization bills addressed the issue in different ways. HASC took an incremental approach, calling for a number of studies meant to gauge areas where the Defense Department could reform the process to be more agile and efficient (Defense Daily, April 25). The Senate Armed Services Committee went further, instituting new language that would constrict FMS to firm, fixed price contracts and mandate that undefinitized contracting actions (UCAs) last no longer than 100 days (Defense Daily, May 16). Both of those provisions were sought by industry organizations like the Aerospace Industries Association.
Changes in policy that would restrict the government to firm, fixed-price contacts in FMS cases would have negative effects, Claire Grady, the Pentagon’s director of defense procurement and acquisition policy, said during the hearing.
In the current process, the letter of offer and acceptance acts states the terms for an arms sale between the foreign nation and the United States, but the actual contract is negotiated between the U.S government and the contractor, Grady said.
“We look at and apply the same rigor and discipline associated with selection of contract type for FMS customers as we do for our U.S. customers. In a mature production environment, it would be fairly typical to see a firm, fixed-price contract type. Where we have seen uses of fixed-price incentive has been instances where—when we look at what we negotiated versus what the actual costs incurred were— there was a significant variation,” she said. “Our preference is to use firm, fixed-price, but only if we have cost certainty.”
In her testimony, Grady also defended the use of undefinitized contracting actions. Although the government prefers to finalize price and terms of a contract, sometimes it becomes necessary for a contractor to begin work before a contract is finalized, necessitating a UCA. However, she recognized that the duration of UCAs sometimes have become unacceptably drawn out.
“There were a total of 11 UCAs reported during period that remained undefinitized for a period in excess of 730 days,” she said in her testimony. “Two years is too long, we can and will do better and are working to address this problem.”
Although companies have told the DSCA that they have lost sales as a result of the FMS process, Rixey said he had not validated those claims.
“We do get delayed in certain items,” he acknowledged. “The international customers do convey to me that they will look elsewhere for products.”
DSCA is involved in about 40 interagency initiatives meant to speed up the process, including expanding training for the security cooperation workforce and ensuring the agency has enough manpower to meet demands, Rixey said.
DSCA has about 7,000 acquisition personnel, but more will likely need to be hired if the demand for FMS remains steady, he said. “We have a lot of work to do to determine the anticipated demand.”