International Acquisition - Defense Exportability Integration (DEI)
OUSD(A&S)’s International Acquisition and Exportability (IA&E) policy guidance asks DoD Program Managers (PMs), Integrated Product Teams (IPTs), and DoD contractors to focus on exportability considerations during the early development phases in order to assess, design, develop, and incorporate defense exportability features in their systems. Historically, the time and expense of redesigning and incorporating exportability features during the Production and Deployment (P&D) phase have caused numerous technology security problems and, in some cases, prevented the U.S. Government (USG) from selling or transferring systems to allies and partners who need them. These denials included nations that typically participate in coalition operations with U.S. forces or that have legitimate national security needs that are consistent with USG/DoD Security Cooperation policy goals. DoD’s primary DEI objective is to address USG/DoD Security Cooperation-related exportability considerations during the early acquisition phases rather than wait until the P&D phase to address this aspect of system design and development.
Comprehensive Defense Exportability planning and execution throughout the program life cycle leads to enhanced acquisition outcomes and security cooperation relationships that support U.S., allied, and friendly nation's warfighters. Failure to adequately address defense exportability considerations increases U.S. and foreign acquisition costs and reduces coalition mission effectiveness.
DEI aspects include:
- Program Protection measures
- Technology Security & Foreign Disclosure (TSFD) approvals
- Exportability design & development (D&D)
- Export Control authorizations
- Defense Exportability Introduction
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The enactment of the initial defense exportability legislation in the National Defense Authorization Act (NDAA) for Fiscal Year 2011 (Public Law 111-383) authorized the Secretary of Defense to carry out a Defense Exportability Features (DEF) Pilot Program to develop and incorporate technology protection features into designated systems during their research and development phases.
In the past, DoD's general practice was to address defense exportability considerations after a product had been designed, tested, and put into production for U.S. forces. With a few exceptions, mostly in the International Cooperative Program (ICP) area, DoD acquisition programs did not pursue exportability design and development activities in early acquisition phases because there was no overall authority to spend DoD appropriations to address anticipated defense exportability requirements. The DEF Program provides DoD program management and contractor teams with specific legislative authority to enable them to conduct DEI activities beginning in the early acquisition phases and continuing throughout the acquisition life cycle.
DoD's current DEI policy and practices encourage the DoD Components and DoD PMs to assess the feasibility of designing and developing one or more exportable system configurations to facilitate future USG/DoD Security Cooperation-related exports to allied and friendly nations. Exportable system configurations must include the technical modifications necessary to protect Sensitive Information; Critical Program Information (CPI), critical technologies, and critical warfighting capabilities; and Trusted Systems and Networks (TSN) critical components. DEI policies and practices focus on Program Protection-related exportability design and development efforts – including use of cyber security measures, Anti-Tamper (AT), and Communications Security (COMSEC) – as well as design and development of USG/DoD Technology Security and Foreign Disclosure (TSFD) and export policy-related modifications incorporated into exportable versions of U.S.-origin defense systems and equipment.
- Defense Exportability Laws and Policies
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As noted above, the DoD DEF Pilot Program was first authorized by Section 243 of the FY 2011 NDAA (Public Law 111-383), "Pilot Program to Include Technology Protection Features During Research and Development of Defense Programs." This legislation authorized DoD to carry out a pilot program for developing and incorporating technology protection features into designated systems during their research and development phase. The FY 2012 NDAA (Public Law 112-81), Section 252, further modified the law to require industry to contribute at least half of the cost of any DEF Pilot Program contractual effort. The FY 2014 NDAA (Public Law 113-66), Section 264, extended the DEF Program five additional years to October 1, 2020, to provide more time to determine the actual results and impact of the DEF studies. The DEF Program legislation was further amended by Section 231 of the FY 2015 NDAA, which changed the industry matching requirement from "at least half' to "half' of the cost of DEF activities and inserted "or such other portion as the Secretary [of Defense] considers appropriate upon showing good cause." DEF Program legislative authority was made permanent in the FY 2019 NDAA, SEC. 223. “Permanent Extension and Codification of Authority to Conduct Technology Protection Features Activities during Research and Development of Defense Systems.”
The Joint Capabilities Integration and Development System (JCIDS) Manual, DoDI 5000.85 and DoDI 5000.83. These three DoD policy issuances require DoD Component PMs to integrate international acquisition and exportability considerations into their Major Acquisition Capability (MCA) program's Acquisition Strategy at each major milestone or decision point. For further details, consult the DAU DSMC-I blogs “IA&E in the New DoDI 5000.85 (Major Capability Acquisition)” published in August 2020 and “The IA&E Aspects of the New DoDI 5000.83 (Technology and Program Protection)” published in September 2020.
Guide to DoD International Acquisition and Exportability Practices. Section 1-4 of the IA&E Guidebook addresses Integration of Exportability Features.
Office of SecDef (OSD) DEF Program Policy. Former USD(AT&L) Kendall issued the initial “Defense Exportability Features Policy Implementation Memorandum and Guidelines” on April 9, 2015, to provide the DoD acquisition workforce and supporting industry with guidance on how to achieve desired International Acquisition and Exportability (IA&E) outcomes in both new and ongoing DoD acquisition programs.
DoD’s DEI initiatives encourage DoD PMs and IPTs to: (1) design, develop, and implement features that protect both U.S. and exportable system configurations; and/or (2) modify or remove technologies and/or capabilities prohibited for export as early in the acquisition life cycle as possible.
Accordingly, PM and IPT exportability design and development efforts should be based on two foundational building blocks: 1) incorporation of system-wide Program Protection measures; and 2) implementation of USG/DoD Technology Security and Foreign Policy (TSFD) policy through specific Differential Capability modifications to the system. PMs and IPTs should focus on these two building blocks in their program’s exportability design and development efforts. IA&E Guidebook, Section 1-4 provides information and guidance on DEI and DEF Program implementation, including DoD Component-approved non-DEF Program alternatives. Optimal DEI design and development solutions enable programs to mitigate future exportability risks.
Experience has shown that DEI activities conducted during a program’s early acquisition phases require engagement with appropriate DoD TSFD approval authorities in order to obtain the TSFD policy guidance needed to support detailed exportability design efforts. Consult IA&E Guidebook, Section 1-9 (Technology Security and Foreign Disclosure Processes) for further information in this area.
- Defense Exportability Integration (DEI) Assessment, Planning, and Implementation
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DAU has developed several IA&E Job Support Tools (JSTs) that contain DEI-related information for use by PMs and IPTs.
- DAU’s IA&E Assessment JST provides information and best practice DEI guidance in this area to meet the IA&E Guidebook recommendation that PMs conduct an IA&E Assessment to collect information and assess factors related to a program’s future international involvement, including DEI considerations.
- The Acquisition Strategy – International Considerations JST provides additional best information and best practice guidance regarding DoD documentation requirements for the DEI aspects of international involvement in DoD acquisition programs throughout a program’s life cycle.
- Depending on the nature of their programs, PMs should also consider consulting the International Cooperative Program (ICP) JST or Foreign Military Sales (FMS) Systems Acquisition JST to help address the DEI aspects of current and future ICP and FMS arrangements. For mature programs with substantial international acquisition involvement – including complex DEI planning and implementation challenges – PMs should consult the International Business Planning JST.
- As mentioned in the introduction of this article, DAU has also developed a Defense Exportability Integration (DEI) JST that provides detailed information and suggested best practices regarding program-level DEI implementation. It provides best practice information in all of the DEI areas listed above, with special emphasis on PM-led/IPT conducted DEI activities.
PMs with international acquisition responsibilities should work closely with their local Foreign Disclosure Office (FDO), their DoD Component International Program Organization (IPO), and other DoD Component and Office of Secretary of Defense (OSD) level organizations, as applicable, to organize, plan, and implement program-specific DEI efforts.
- Defense Exportability Features (DEF) Program
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The OUSD/A&S DEF Program's primary objectives are to:
(1) demonstrate that program protection costs can be reduced, and U.S. products can be made available for foreign sales sooner through the incorporation of technology protection and exportability features in initial designs, and
(2) garner lessons learned across DoD programs to improve the return on investment for future programs. These objectives support DoD's larger goal of enabling foreign sales in order to enhance coalition interoperability, decrease costs to DoD and international partners through economies of scale, and improve international competitiveness of U.S. defense systems.
The OUSD(A&S) International Cooperation Office (IC) designates DEF Programs on a case-by-case basis in response to DoD Component requests. Designated DEF Programs have the opportunity to:
a) receive funding from OUSD(A&S)|IC;
b) perform the initial feasibility study and subsequent design activities associated with implementing DEF; and,
c) take advantage of expertise available from OUSD(A&S) IC and their respective DoD Component DEF Point of Contact (POC), and to realize many benefits of an exported system, such as economic order quantity cost-savings on future unit procurements and throughout the remainder of the program lifecycle.
DEF Program efforts include assessment, design, and incorporation of Program Protection and Differential Capability exportability features in their system and sharing of DEI lessons learned across a range of DoD programs to improve the return on investment for future DEI efforts.
As noted above, OSD’s "Defense Exportability Features Policy Implementation Guidelines" issued in April 2015 provides additional guidance on the DEF Program. PMs should also consult OUSD(AT&L)/IC’s DEF Supplemental Cost Sharing Guidelines of February 23, 2016, to obtain guidance on how to request an adjusted industry cost sharing portion for more or less than half of the total DEF Program cost.
- DEI Funding and Contracting Considerations
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There are several potential DEI funding sources that may be considered and used by DoD PMs for DEI efforts depending on the circumstances. U.S. Government funding sources available for DEI efforts may include the following: The A&S DEF RDT&E Program Element (PE), which is normally the DoD source used to fund the government’s share of DEF Program costs.
- Other DoD RDT&E funding sources which, in certain circumstances, may be used to implement DEI efforts. For example, PMs may use DoD Component Title 10 RDT&E funds for DEI efforts that have been specifically authorized and appropriated for this purpose. This approach normally requires a DoD request for such funding through the DoD budgeting process.
- For DEI configuration changes required by USG/DoD TSFD policy decisions prior to system export, PMs have the option of consulting with industry on use of Value Engineering Change Proposal (VECP) contract provisions that would enable government-industry cost sharing for DEF non-recurring engineering (NRE) efforts (see DoD Instruction 4245.14 and FAR Part 52.248 for further details).
- For select DoD programs sold through Foreign Military Sales, Defense Security Cooperation Agency (DSCA) Special Defense Acquisition Funding (SDAF) may be another available source of funding for DEI NRE efforts. Use of SDAF for DEI efforts is approved by the Director, DSCA on a case-by- case basis for selected programs that meet strict DSCA criteria.
Industry funding for DEI efforts is based on individual company policy and practice which varies widely. Here are a few examples of the different types of industry DEI investments:
- A contractor may elect to fund a mutually agreed “industry share” of a DEF Program contractual effort established between industry and the DoD. As discussed in paragraph 4.3, above, DEF Program contractual efforts are based mutually agreed cost sharing arrangements between DoD and industry.
- A contractor may elect to pursue DEI-related Independent R&D (IRAD) investments – particularly horizontal program protection IRAD efforts pursued to benefit all of their programs – to reduce the total cost of program-specific DEI efforts. In such circumstances, IRAD investments by industry should be used to reduce overall DEF Program costs rather than be considered by DoD as an industry contribution as part of a company's 50% (or greater) cost share under a specific DEF Program contractual arrangement. Furthermore, contractors may not “claim” previous or ongoing IRAD investments as part of their cost share under a DEF Program contractual arrangement.
- A contractor, solely at its discretion, may decide to fund DEI non-recurring design and development efforts in furtherance of potential future sales, then obtain fair reimbursement for its non-recurring investment by amortizing this cost and adding it to the price of production units eventually sold to allied/friendly nations. However, DoD PMs cannot mandate (or otherwise attempt to coerce) a contractor to do this.
ICP partner nation or FMS customer nation funding may also be used, if available, to help fund the cost of designing and developing DEF for a system they decide to develop with and/or acquire from the U.S.
- If applicable, ICP Memorandum of Understanding (MOU) funding contributions from foreign partner nations – which have the net effect of reducing DoD Title 10 funding requirements for the ICP – may be used to effectively reduce DEI costs to DoD and industry for DEI design and development efforts.
- In those cases where programs are in the EMD or P&D acquisition phases, potential FMS customer nations may be able to reduce DEI design and development costs to the Government and industry if they are willing to do so through FMS Letters of Offer and Acceptance (LOAs). Similar to the ICP R&D funding described above, FMS funding may reduce DEF costs to DoD and industry. However, neither ICP nor FMS funding from other nations can be used to fund the USG or industry share of a DEF Program contractual effort.
DEI Contracting Approaches. Experience has also shown that PMs, in consultation with their Contracting Officers, may elect to use one or more of the following DEI contracting approaches.
Traditional Federal Acquisition Regulation (FAR) contracts may be used to implement DEI contractual arrangements. DEF Programs have used both competitive and sole source FAR contracts depending on program circumstances:
- While defense exportability planning and implementation is not a mandatory requirement per DoDI 5000.80, DEF Programs being conducted during Middle Tier Acquisition (MTA) rapid development or rapid fielding efforts would typically be included in whatever FAR contracts or Other Transaction Authority (OTA) agreements awarded.
- DEF Programs entering the TMRR phase have employed a competitive FAR contracting approach resulting in the award of two or more TMRR phase contracts. In such circumstances, PMs developed DEF Request for Proposal (RFP) provisions using the example Statement of Work provided in OSD’s “Defense Exportability Features Policy Implementation Memorandum and Guidelines”. The competitive FAR contract approach may also be applicable for pre-Milestone B DEF Programs. In such circumstances, DEF Program RFP provisions could be considered and approved as part of the Development RFP Release Decision (DRFPRD) process to ensure prospective EMD contractors address proposed EMD DEF Program or other planned DEI efforts in their RFP responses.
- DEF Programs or other DEI efforts initiated during EMD phase after a prime contractor has been selected are normally conducted in a sole source contracting environment. In such circumstances, program managers may use one or more DEI-specific Contract Line-Item Numbers (CLINs) and/or DEI-specific optional CLINs depending on the amount and type of funding available for EMD phase DEI efforts.
- For FMS-related DEI efforts, new contracts may be established – or existing program contracts may be modified – on a sole source basis during EMD, Low-Rate Initial Production (LRIP), or Full Rate Production (FRP) phases to include DEI-related CLINs and other relevant provisions.
PMs in a sole-source contractual environment may also consider use of an OTA agreement rather than a FAR contract to conduct their initial DEI feasibility study efforts. However, since OTAs are a specialized type of contractual mechanism, PMs should consult their DoD Component subject matter experts before attempting to use an OTA to implement a DEI effort.
In certain circumstances, Cooperative Research and Development Agreements (CRADAs) may also be used by DoD Components to implement DEI efforts in a sole source contractual environment. Title 15 USC 3710a provides USG/DoD with the general legal authority to implement CRADAs in circumstances where this is the optimal approach to achieve desired program results.
- CRADAs provide DoD with a means, mechanism, and authority to implement private sector technology transfer which allows for great flexibility and discretion (including the transfer of Government intellectual property rights to the private sector) in research and development collaborations between DoD laboratories and non-government entities.
- Since CRADAs are a specialized type of contractual mechanism, PMs should consult their DoD Component subject matter experts prior to attempting to establish a CRADA for DEI efforts.
Other DEI Contracting Considerations. While there are many similarities in the contracting approaches used by DEF Programs as compared to other DEI efforts, there are some significant differences that should be considered by PMs pursuing DEI efforts outside the scope of the DEF Program:
- Unlike DEF Programs, there is no legal requirement for government industry cost sharing for overall DEI design and development efforts.
- DEI efforts outside the scope of DEF Programs often require use of international transaction mechanisms -- such as ICP MOUs or FMS LOAs -- to obtain customer and/or partner nations funding to develop and incorporate defense exportability features in a system.
- Moreover, PMs often face complex contracting challenges outside the scope of DEF Programs when they are tasked to implement DoD TSFD and export control policy guidance that governs the development and production of an approved export version of their system.
- In the event an international transaction mechanism (FMS LOA, ICP MOU) contains DEI-related provisions (see paragraphs 6.1.3 and 6.1.4, below), PMs and their Contracting Officers are often required to establish and conduct DEI design and development contractual efforts that cannot be shared with the partner/customer nation(s) involved. In such circumstances, PMs and Contracting Officers should strongly consider employing one or more separate CLINs and associated Contract Data Requirements List (CDRL) data items to ensure that “unshareable” DEI-related efforts and contract data are managed and delivered in a “U.S. only” environment rather than “mixed in” with partner/customer funded contractual efforts that are sharable with the foreign nation(s). PMs may also wish to consult with their DoD Component International Program Organization (IPO) to obtain additional “best practice” advice and examples of DEI-related contracting approaches used to address such challenges.
International Transaction Mechanisms (ICP MOUs and FMS LOAs). When the need arises, PMs should work with their DoD Component IPO to develop and include applicable DEI- related provisions in international transaction mechanisms – e.g., the FMS AT Policy for LOAs found in the Security Assistance Management Manual Chapter 3, paragraph C3.6. Incorporation of DEI- related provisions in their program’s international transaction mechanism(s), as appropriate, enables PMs to obtain and use customer and/or partner nation funding needed to accomplish DEI efforts required by USG/DoD TSFD and export control policy guidance to produce and deliver an exportable version of the system. Accordingly, PMs should engage with their DoD Component IPOs and, if applicable, participate in the ICP MOU and/or FMS LOA development to ensure that these program-related international transactions mechanisms contain the appropriate, DEI-related provisions for DEI efforts that are funded (either directly or indirectly) by customer and/or partner nations.
- Typical PM-Level Defense Exportability Considerations
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Determining if one or more exportable configurations should be developed is probably the most challenging decision the PM and IPT will face in this area. Decisions on whether, how, and when to develop one or more exportable configurations depend on a number of factors that are highlighted by the following questions:
Prior to EMD, was a Feasibility Study conducted? Defense exportability Feasibility Studies are normally completed by DEF Programs or other DEI activities conducted during the TMRR Phase. If a Feasibility Study was conducted, the PM should propose which exportable configuration(s) should be developed during EMD and as appropriate, include development of one or more exportable configurations as either funded work (or optional work) in the Development RFP Release Decision and Milestone B documentation. Normally funds for defense exportability work in EMD come from either ICP funding provided by the partner nation(s) or one or more prospective FMS purchasers, but DoD and the EMD contractor(s) may also have the option of continuing to fund defense exportability EMD work using a combination of Title 10 and industry funding. Alternative approaches should be developed and presented to the Milestone Decision Authority (MDA) for decision based on the program’s circumstances.
What actions should a program pursue if a Feasibility Study was not conducted during TMRR? The PM has the option of applying for DEF Program status and OSD funding via their Component Acquisition Executive to conduct a defense exportability Feasibility Study during EMD. If this is not possible, the DoD Component also has the option of conducting a DEI Feasibility Study on its own, or in conjunction with the EMD contractor(s). The MDA should be advised by the PM of the planned or recommended course of action during the Development RFP Release Decision and/or Milestone B decision process.
Is there a signed ICP international agreement? If there is a signed ICP international agreement that requires development of one or more exportable configurations during EMD, the funding for development the exportable configuration(s) for the ICP partner nations will come from ICP “program funds” provided by the partners (including DoD) that are provided in accordance with the terms of the ICP international agreement.
Are there any signed FMS LOAs? While it is unlikely that there will be signed FMS LOAs at the time of the Development RFP Release Decision and Milestone B decision, there could be FMS cases during later stages of EMD if a Yockey waiver is approved. In this situation, FMS case funds should be used to pay for development of an exportable configuration for the customer nation during EMD or in parallel with the program’s Low-Rate Initial Production (LRIP) efforts. DEI development work during EMD for an FMS customer should be based on earlier phase DEF Program or DEI Feasibility Study results (if available) as well as specific USG/DoD TSFD decisions regarding production and support of an exportable configuration of the system for that specific FMS customer and (if possible) any other similar FMS customers in the future.
What about use of Defense Security Cooperation Agency (DSCA) Special Defense Acquisition Funding (SDAF) in anticipation of FMS cases (under consideration)? DSCA has been amenable to considering use of SDAF to develop exportable configurations in the future based on a case-by-case DSCA review, but this is unlikely to occur at Milestone B decision point. However, programs in the latter stages of EMD, LRIP, or Full Rate Production (FRP) may decide to approach DSCA and request SDAF funding for DEI efforts if there are FMS customers that have firm plans to purchase the system.
How would USG-approve d export of a proposed U.S. industry DCS transaction during EMD affect a program’s defense exportability efforts? If a U.S. company has an approved export license that specifies the USG/DoD TSFD design and development requirements that must be met, the company may (of its own volition) use its own funds to develop an exportable configuration that complies with these requirements. In general, the DoD would benefit from such a decision since at least one exportable DCS configuration would be developed during EMD, LRIP, or FRP as a result. However, the DoD cannot use the DoD contracting or milestone decision process to coerce DoD contractor(s) to make such investments.
How many exportable configurations should be developed? Fewer exportable configurations simplify a program’s development and testing efforts, production and logistics configuration management, and product upgrade activities. This approach ultimately results in a more efficient and affordable program for the U.S. and foreign partner/customer nations. A larger number of exportable configurations provides greater customer choice (some countries like this), treats countries differently (some of the USG/DoD TSFD “pipes” like this), and provides for tailored logistics and upgrades (some countries and some U.S. and foreign warfighters like this). However, this approach almost always results in significantly higher costs (which nobody likes). There is no silver bullet solution that will please everyone. Experience has shown that DoD and partner/customer nations must compromise to achieve optimal acquisition outcomes for all, and that the programs that find a way to do this (even though it’s hard) are more efficient and affordable.
In Summary . . .
DEI is a complex area and there is no “standard” DoD approach to exportable design, development, production, and logistics support. Accordingly, PMs - in conjunction with their DoD Component Acquisition Executive and International Program Organization (IPO) - should pursue DEI alternatives that lead to development of an appropriate number of exportable configurations that support future allied and friendly nation acquisition of U.S. systems, consistent with USG foreign policy and national security objectives.
If you have any questions, concerns, or would like to provide input to update this article, please contact the DAU International Center at [email protected].