What is the best way to calculate advance procurement?
There is not a prescribed formula for calculating advance procurement. Both FMR and
Defense Acquisition Guidebook, mention that the cost of components, material, parts, and effort budgeted for advance procurement should be low compared to the total cost of the end item.
DoD 7000.14-R Financial Management Regulation Volume 2A, Chapter 1, under paragraph 010202 says:
“When advance procurement is part of the program, however, the cost of components, material, parts, and effort budgeted for advance procurement shall be relatively low compared to the remaining portion of the cost of the end item. Each budget request for advance procurement shall represent, at a minimum, the termination liability associated with the total cost of the long lead-time components, material, parts, and effort for which the advance procurement request is being made. The termination liability should not cover the cost of the end item budgeted in the following fiscal year(s). The full cost of components, material, parts, and effort included in the advance procurement request should be budgeted in the FYDP consistent with full funding procedures.”
The Defense Acquisition Guidebook in section 18.104.22.168 has this to say about Advance Procurement:
“DoD Financial Management Regulation 7000.14-R (Volume 2A, Chapter 1) requires that the procurement of end items be fully funded, i.e., the cost of the end items to be bought in any fiscal year should be completely included in that year's budget request. However, there are times when it is appropriate to procure some components, parts, materiel, or effort in advance of the end item buy. These items are referred to as advance procurements. Statutory authority for these advance procurements should be provided in the relevant authorization and appropriations acts.
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3. The MDA must approve advance procurement in advance of Milestone C, and the intention should be clearly noted in the Acquisition Strategy. A template should be completed and provided for MDA approval prior to executing long lead advance procurement if the approved AS and current/appropriate year budget exhibits do not contain all of the equivalent content. The template can be included in the AS, or by separate memo for the MDA to approve.”
- Advance procurement funds are used in major acquisition programs for advance procurement of components whose long-lead times require purchase early in order to reduce the overall procurement lead-time of the major end item. Advance procurement of long lead components is an exception to the DoD "full funding" policy and must be part of the President's budget request. These expenditures are subject to the following limitations:
- a. the cost of components, material, parts, and effort budgeted for advance procurement should be low compared to the total cost of the end item
- b. the PM judges the benefits of the advance procurement to outweigh the inherent loss of or limitation to future MDA flexibility
- c. the MDA approves the advance procurement
- d. the procurement received statutory authority, as discussed above
- As part of the milestone review, the MDA should approve specific exit criteria for advance procurement. These specific exit criteria should be satisfied before the PM releases any advance procurement funding for either the initial long lead-time items contract(s) or the contract(s) for individual, follow-on, long lead-time lots. The contracts office should initiate a separate contract action for advance procurement of long lead materiel.