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    Is the SDAF funding treated as United States appropriation or FMS appropriation for Progress Payment purposes?


    DAU consulted with the Defense Security Cooperation Agency's Special Defense Acquisition Fund (SDAF) experts.  They provided the basis for the following response.

    SDAF funding should be not be treated as a U.S. Government/DoD appropriation for progress payment purposes since SDAF funding is a form of FMS funding (which is not authorized nor appropriated by Congress).  The SDAF fund was capitalized with non-appropriated money (FMS admin) and does not currently contain any USG.DoD appropriated money to operate.  22 USC 2795 identifies SDAF as a revolving fund that will operate separate from other accounts and will be capitalized with excess funds from FMS cases.  At the time the USG/DoD purchases defense articles using SDAF funding (either in whole or in part), the purchase is made by and for the USG/DoD using a specified amount from the SDAF revolving fund and the defense articles are delivered and put into DoD stock.  Subsequently, FMS customer nations who acquire SDAF-funded defense articles out of DoD stock pay the full value of the articles acquired via their FMS cases, and any SDAF funding used by the USG/DoD to initially purchase the defense articles is "paid back" to the SDAF revolving fund.

    The description of the "fact pattern" in this question -- a DoD contract that includes US appropriated funding, FMS funding from a customer nation, and SDAF funding -- is somewhat ambiguous.

    If the SDAF funding was mistakenly included in a DoD contract related to an FMS customer purchasing defense articles IN DOD STOCK that were previously funded by SDAF through an FMS case, no progress payments should be paid to contractors in this situation for the SDAF funding:

    • since the USG/DoD previously used the SDAF funding to acquire the defense articles (in whole or in part) prior to establishment of the FMS case; and,
    • since the amount of funding allocated to SDAF on the FMS case, once it's paid by the FMS customer nation upon signature and implementation of the FMS case, must be used to reimburse the SDAF revolving fund.

    However, if the SDAF funding on the DoD contract is being used to purchase additional defense articles to be ADDED TO DOD STOCK in anticipation of future FMS purchases, then progress payments should be made based on the guidance used for FMS progress payments since the SDAF revolving fund was capitalized and is being reimbursed solely by various types of FMS funding (from FMS admin and FMS cases) rather than USG/DoD appropriated funds

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