President Trump on his recent trip to Saudi Arabia reached agreement on a $110 billion arms deal. The deal includes tanks, helicopters, ships and other weapons. The questions I heard most over my years when I was involved in contracting for Foreign Military Sales (FMS) were “Why do we sell to these counties and how does it work?” “How does industry play in that sale?”
The question of why is really a political question and those decisions are made at the executive and congressional level of our government. Both branches have to approve FMS sales and the political issues of any sale are resolved at that level. However, the decision to allow the sale of US equipment is a plus not only to our security but also the US economy. The production of equipment that is used by the US military can result in sharing development cost and/or keeping production lines open.
How it works is a question where I can give some insight. Once approval of the sale is completed a service is assigned the lead to deal with the country. Depending on the items being sold, each service may be involved in selling the items that they currently manage. For example, if a country buys an F-15 fighter, the Air Force will be the lead contracting agency for that contract to buy those fighters. That service will act as the representative for the country and will negotiate the contract and manage the contract after award. Countries with extensive international procurement expertise may prefer to independently conduct their own defense procurements directly with US industry via direct commercial sales. Typically, the only USG involvement in a Direct Commercial Sale would relate to the export license approval decision.
FMS sales are formalized through a process called a Letter of Offer and Acceptance (LOA). This takes some time, as the prices have to be developed by the companies selling the equipment. Then those numbers are taken by the DoD service managing the FMS sale and developed into the LOA. The LOA is then transmitted to the country in question for their signature. Of course, that LOA has to go into a review process for the FMS government – bureaucracy is international!! I have seen that process take as little as three months and as long as a year. Once the LOA is signed then countries can purchase the equipment.
The large defense contractors will be contracted with directly by the managing service. Opportunity for the 2nd and third tier suppliers lie with those companies. The FMS sale gives a sub-vendor the chance to sell more circuit boards, steel and nuts and bolts to that big defense contractor. Those big-ticket truck, ships and planes require lots of components to produce them and deliveries for such big items may be spaced over years.
Service suppliers may see work also. The agency may need more support personnel to manage the item for development, production, logistics and training. All of these areas were included in the LOA with cost associated with them. The agency does not provide support out of its US budget so the FMS country has to include those cost in acquiring a system.
This was a very high-level look at the FMS process. There is much more detail in the process than I can cover here. While there is much information on the internet on FMS sales, the daily management issue can be very complex and requires expertise than be gained only from experience in the FMS business.