International Acquisition - International Contracting
DoD international contracting policies and practices are designed to facilitate implementation of U.S. laws and Department of Defense (DoD) policies affecting foreign participation in DoD procurement while maintaining constructive relationships with allied/friendly nations and international organizations.
DoD international contracting efforts generally use the same fundamental DoD contracting policies and practices employed for domestic programs. However, there are additional international acquisition-specific requirements, criteria, and contract clauses that must be considered and used, as applicable, depending on the nature of the international acquisition effort being pursued.
There are three general international contracting situations:
The nature of the situation determines the requirements, clauses, and CDRLs that are included in the RFP and resultant contract.
Contracting officers support PMs and IPTs on both domestic and international acquisition programs by planning and implementing international contracting activities throughout the acquisition life cycle to include:
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Ensuring appropriate Federal Acquisition Regulations (FAR) and Defense Federal Acquisition Regulations Supplement (DFARS) clauses are included in Requests for Proposals (RFPs) and contracts.
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Communicating international acquisition and security requirements to the contractor through RFPs, including the system specifications and Statement of Work (SOW).
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Including international acquisition-specific documentation requirements in the Contract Data Requirements List (CDRLs).
- Negotiating and awarding contracts that employ international contracting best practices in support of both DoD domestic and international acquisition programs.
- Domestic
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For domestic programs with international suppliers, the PMO/IPT should work with the contracting officer to ensure the required provisions and clauses are added to the RFP and contract. Pertinent provisions and clauses may include those associated with Title 10 and defense appropriations product, or material restrictions listed under DFARS 225. 70 (See below section on “Non-U.S. Sources and Domestic Preferences” for more information on these restrictions).
- FAR Clause 52.204-2, Security Requirements
- FAR Clause 52.204-21, Basic Safeguarding of Covered Contractor Information Systems
- DFARS Clause 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting
- DFARS Clause 252.227-7013, Rights in Technical Data -Noncommercial items
- DFARS Clause 252.227-7015, Technical Data Commercial items
- DFARS Clause 252.227-7037, Validation of Restrictive Markings on Technical Data
Note: When programs include release of (classified) information to prospective international contractors, a Security Classification Guide (SCG) per DoDM 5200.45 is required and listed as an attachment in Section J of the RFP.
- Hybrid
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For hybrid international contracting situations that involve combining U.S. domestic and foreign international acquisition requirements, the PMO/IPT should work with the contracting officer to ensure that International Cooperative Program (ICP) and Foreign Military Sales (FMS) specific contracting considerations are evaluated and addressed in the contracting process, as appropriate:
The Competition in Contracting Act (CICA) provides an exception to the full and open competition requirement for ICP international agreements. The requirements are specified in FAR 6.302-4/DFARS 206.302-4 (International Agreement) is added to solicitations and contracts.
Directed source subcontracting is authorized when addressed in an ICP international agreement with NATO; use DFARS 225.871-5, Directed subcontracting.
For Foreign Military Sales, customer nations can request a specific contractor and/or subcontractor, or that competition be limited to specific contractors in the Letter of Request (LOR) or another written request. FAR 6.3 and DFARS 225.7300 provide guidance to DoD Contracting Officers regarding noncompetitive contracting for FMS Letters of Offer and Acceptance (LOAs).
- International
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For international contracting situations that involve FMS, Building Partner Capacity (BPC), or non-program of record (NPOR) acquisition efforts, the PMO/IPT should work with the customer nation and/or U.S. Combatant Commander to define system capability requirements as well as programmatic cost and schedule parameters that will be used as the basis for DoD's contracting activities.
The PMO/IPT should work closely with the contracting officer to translate these requirements and parameters into RFP scope of work provisions and CDRLs that can be understood and responded to by prospective contractors. Appropriate provisions and clauses must also be included.
Although the contract supports an international capability, all the same contract clauses that apply to domestic and hybrid acquisitions will apply here as well, as the U.S. is developing, awarding, and executing the contract. Restrictions, such as those imposed by the Buy American Statute, still apply.
Non-U.S. Sources and Domestic Preferences
Most DoD equipment is procured from domestic sources. However, the DoD also makes use of a worldwide supplier base.
These are the key considerations for contracting with non-U.S. sources:
- Globalization has made more equipment and services available from non-U.S. sources.
- Non-U.S. sources expect to compete in a system where full and open competition is the standard.
- A DoD procurement objective is to obtain the best value to the warfighter and the U.S. taxpayer.
- Foreign contractor access to the U.S. defense market is complicated by laws and policies that prevent or discourage use of non-U.S. products or services.
The DoD must adhere to several laws and national policies aimed at ensuring that government purchases consist of U.S. domestic content. While these regulations have their justifications, they also pose challenges for defense procurement personnel trying to acquire the best goods and services from a global supplier base.
Foreign contractors face difficulties accessing the U.S. defense market due to various laws and policies that limit or discourage the DoD from using non-U.S. products. Examples include the Buy American Act, Berry Amendment restrictions, and Small Business Act preferences, which sometimes prevent non-U.S. entities from performing U.S. defense work.
More information can be found on these Acts and Restrictions at:
Additionally, other restrictions, such as the national disclosure policy and U.S. export control regulations, require specific U.S. Government authorizations before certain information and technology can be released.
The primary responsibility for addressing these challenges lies with the Contract Policy and International Contracting (CPIC) Directorate under the Defense Procurement and Acquisition Policy (DPCAP). It is recommended to visit this office's website since it provides extensive information.
For details on the Buy American Statute and other international contracting policies and practices, visit: OSD(A&S) Defense Pricing, Contracting, and Acquisition Policy -Contract Policy.
Reciprocal Defense Procurement Agreements
The Reciprocal Procurement Agreements encourages uniformity in defense equipment among NATO members. To this end, Congress passed the Culver-Nunn Amendment as part of the FY 1977 Defense Authorization Act (P.L. No. 94-361), allowing the Secretary of Defense to bypass the Buy American Act of 1933 if it serves the national interest.
To address some domestic preference restrictions while meeting DoD's procurement needs, the DoD has entered into Reciprocal Defense Procurement (RDP) agreements with 23 countries to promote standardization, rationalization, and interoperability of defense equipment with allies, friendly foreign nations, and others. DPCAP/CPIC oversees the negotiation and management of RDP MOUs. The DPCAP International Contracting website contains copies of these international agreements.
Reciprocal Defense Procurement (RDP) Agreements have these key benefits:
- Promotes standardization, rationalization, and interoperability of defense equipment with allies, friendly foreign nations, and others.
- Establishes procurement principles and procedures that provide for transparency in the conduct of defense procurements.
- Enhances access to each country's defense market by removing discriminatory barriers to purchase of defense supplies and services to the extent mutually beneficial and consistent with National laws and regulations, and international obligations.
- Waives application of "buy national" restrictions (the Buy American Act for the U.S.) to the extent allowable by national laws. In addition, contractors from signatory countries are given the opportunity to bid on each country's procurement requirements.
Although reciprocal procurement agreements lift the domestic preference limitations imposed by the Buy American Act, additional restrictions might still apply. These primarily pertain to access to classified or controlled unclassified information that cannot be disclosed under national disclosure policies or other relevant regulations. To participate or perform as a prime contractor or subcontractor, it is essential that all necessary information for their involvement is releasable to their home government. Disclosure determinations should be made prior to any solicitation being made available for foreign participation.
Individual RDP MOUs may contain terms or annexes related to:
- Quality assurance services
- Contract audit services
- Logistics support
- Security of supply
Based on the RDP MOU, each country affords the other certain benefits on a reciprocal basis. DoD classifies RDP MOU partners as "qualifying countries" and the DFARS accords these countries with special treatment.
Also realize that other provisions of law such as national mobilization or emergency, sensitive technologies, and small business offsets may prohibit foreign involvement in some DoD procurements. Another important fact to remember is that In some cases, foreign contractors may be considered non-qualifying suppliers under Part 209 of the DFARS, thus preventing their participation as a prime contractor. However, the foreign contractor should be given the opportunity to participate as a subcontractor, provided the required information is authorized for disclosure to the contractor’s government.
Guidance on Contracting for Foreign Military Sales
The following provides guidance on contracting, as well as a comprehensive understanding of the policies and procedures for FMS.
- DFARS Subpart 225.7300
- DFARS Subpart 225.73, “Acquisitions for Foreign Military Sales”, contains policies and procedures for acquisitions for FMS made through new procurement.
- The subpart does not apply to sales made from U.S. inventories or stocks, acquisitions for replenishment of inventories or stocks, or acquisitions made under Cooperative Logistic Supply Support Arrangements (CLSSAs).
- DFARS Procedures, Guidance, and Information (PGI)
- A DFARS companion resource, the PGI provides policies and procedures that are unique to FMS acquisitions.
- Security Assistance Management Manual (SAMM)
- SAMM C6.3 Case Execution Acquisition, also provides additional compliance regulations and procedures that pertain to FMS acquisitions.
Contracting Officer Participation in Foreign Military Sales Role
Contracting Officer participation in FMS programs often begins prior to the LOA. For complex acquisitions, contracting officers may need to participate in discussions with the customer to ensure that the LOR requirements and customer expectations are clear and understood.
Based upon the LOR, the contracting officer will assist the Implementing Agency in developing cost and delivery estimates along with other data necessary to prepare the Price and Availability (P&A) data or the LOA.
A key role of the contracting officer in the LOA development process is to ensure that the content of the LOA can be implemented using normal FAR and DFARS procurement and contract management procedures.
If the LOA is accepted, the task of acquiring the respective articles or services will rest with the contracting officer with support from the program office team.
The contracting officer remains involved throughout the entire FMS process by managing contract execution and supporting the case manager in case reconciliation actions which ultimately lead to facilitate case closure.
- Engagement
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The contracting officer assists the Implementing Agency responsible for preparing the LOA by working with prospective contractors to:
- Identify (in advance of the LOA) any unusual provisions or deviations.
- Advise the contractor if the DoD expands, modifies, or does not accept any requirements proposed by the contractor.
- Identify any logistics support necessary to perform the contract.
For noncompetitive acquisitions over $10,000, the contracting officer will ask the prospective vendor for information on:
- Price
- Delivery
- Other relevant factors
- Case Development Support
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The contracting officer works with the Implementing Agency personnel responsible for preparing the LOA to:
- Assist in preparing P&A data
- Assist in preparation of the LOA
- Identify and explain all unusual contractual requirements or requests for deviations
FMS Sole Source Requests
The SAMM, C6.3.4 defines the process for DoD consideration of foreign government sole source requests based on the objective needs of the purchaser.
Sole source requests should be included in the customer’s LOR and identify the specific prime and/or subcontractor source.
When possible, while the LOR is being prepared, the sole source request should be sent to the contracting officer for information and advice.
The Military Departments (MILDEPs) are delegated the authority to approve or disapprove the foreign government’s request.
Approved sole source requests result in a sole source note being included within the LOA. The note will:
- Designate the approved sole source (by name)
- Become the basis for sole source contracting as authorized by FAR Subpart 6.304-2
Disapprovals are to be coordinated through the Defense Security Cooperation Agency (DSCA).
The intent of this policy to avoid committing to sole source procurement when the contracting activity advises that the proposed contractor has poor past performance, no relevant experience, is ineligible for contracts, or otherwise represents a high risk.
Foreign Military Sales Pricing Administration
DFARS Subpart 225.7303 provides the following considerations for pricing FMS acquisitions:
- FMS contracts are priced using the same principles used in pricing U.S. defense contracts.
- The FAR allows a contract made under the terms of an LOA to recognize the reasonable and allocable costs of doing business with a foreign government or an international organization, even though costs might not be recognized in the same amounts in DoD-only contracts. Such costs may include:
- Selling expenses
- Product support and post delivery service expense
- Offset costs
- Other independent research and development and bid and proposal costs
Application of this FAR pricing principle may result in prices that differ from similar US defense contracts due to recognition of these costs.
Industry’s cost of fulfilling offset agreements related to an FMS program are allowable charges in contracts made under the terms of an LOA. Additionally, offset costs may be aggregated and included in the LOA unit cost, but the Executive Order requiring a US government non-involvement on offset arrangements precludes use of a separate contract line item for offset costs.
Refer to DAU Offset ACQuipedia article for more information.
Foreign Military Sales Solicitation and Contract Terms
DFARS Subpart 225.7301 and the PGI provide the following framework for solicitation and FMS contract terms:
- Allows FMS requirements to be included in the same contract used for DoD procurements.
- Ensures LOA terms and conditions, including any country unique requirements, are incorporated into the contract.
- Ensures that contracts related to BPC programs funded with U.S. Government funds under pseudo LOAs are consistent with the period of funds availability.
- Complies with Defense Transportation Regulation requirements.
- Requires the preparation of a DD 250, Material Inspection and Receiving Report, as the shipment release document to accompany the shipment for customs clearance.
- Ensures that prior to contract award, contracting officers have:
- A contracting officer's representative assigned with detailed point of contact information
- Unique country requirements specified in the contract
- Commodity-unique requirements specified in the contract
- FMS Transportation Accounting Code stated in the contract
Scope of Work Requirements
International acquisition requirements are written into the RFP and contract to describe the scope of work. FMS requirements need to be separately identifiable to industry in order that industry may utilize the DFARS 225.7303 pricing policy.
- Accounting
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Separation of FMS requirements by CLIN and/or SubCLIN permits separate Accounting Classification Record Numbers (ACRNs) to be cited thereby directly designating:
- Specific FMS country
- LOA case
- LOA line that is financing the purchase
- CDRLs
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When describing the scope of work, a corresponding CDRL is required for all deliverable data items.
For example, Given a contract procurement of a technical publication for both the US and a foreign government, two CDRLs need to be included – one
- for the U.S.-only version of the technical publication and another for delivery of an appropriately sanitized, exportable technical publication for international users.
- Defense Transportation Regulation Requirements
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- Packaging, labeling, and documentation
- A Transportation Plan is required for each LOA containing Classified, sensitive (including Controlled Cryptographic Items (CCI)), or Arms, Ammunition, and Explosives
- Customs Clearance
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The current Wide Area Workflow (WAWF) receiving report is insufficient for satisfying FMS customs clearance requirements.
As such, FMS procurements should specify that a DD 250 is required to accompany the shipment.
- Contact Information
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Clearly visible contact information, such as phone number with international dialing protocols and physical and mailing address.
FMS Customer Participation
With the contracting officer's approval and following consultation with the contractor, FMS customers may join U.S. Government acquisition personnel in discussions with industry to:
- Develop technical specifications
- Establish delivery schedules
- Identify any special warranty provisions or other requirements unique to the FMS customer
- Review prices of varying alternatives, quantities, and options needed to make price-performance tradeoffs
DFARS Subpart 225.7304 explains factors that may limit customer participation in other areas, including not observing or participating in negotiations between the U.S. Government and the contractor involving cost or pricing data, unless a deviation is granted.
Acknowledging the FMS customers' desire to take part in FMS acquisitions and the role of the FMS program as a tool of U.S. foreign policy, senior leaders at DSCA and DPCAP have encouraged the acquisition community to seek out opportunities for customer involvement in FMS acquisitions activity. This engagement aids in building relationships through enhanced understanding, increased transparency, and bolstered customer confidence and teamwork.
Contract Administration
Contract administration is an integral part of the FMS process, and the customer is entitled to this service as part of the FMS purchase.
In the LOA, the customer is charged a Contract Administration Service (CAS) surcharge fee for FMS materiel and services delivered through procurement.
Within DoD, DCMA is responsible for contract administration and quality assurance services.
The Defense Contract Audit Agency (DCAA) provides audit and financial advisory services in support of DoD acquisitions for FMS.
Contract and LOA Consistency
The LOA serves as a commitment between the U.S. Government and the foreign purchaser. During FMS program execution, the FMS program or case manager must work closely with the contracting officer to ensure the LOA and contract maintain consistency.
There is potential of two separate scenarios:
- LOA amendments may require subsequent contracting actions
- Contract changes may require LOA amendments
**Early communication of changes or problems is preferable over last minute surprises.
Contracting considerations continue until all contracted supplies and services for the case have been physically completed and all case financial obligations are fully liquidated or appropriately documented to support case closure procedures.
Contracting for International Cooperative Programs
The international agreement for an ICP will:
- Define any contracting responsibilities for the effort.
- Specify which of the participant's contract laws, regulations, and procedures to follow.
- Apply the terms of the FAR and DFARS to contracts for cooperative programs where the U.S. has contracting responsibilities under the terms of the international agreement
- Contain provisions applicable when another participant is contracting on the behalf of the U.S.
A primary goal of the U.S. is to maintain the maximum competition throughout the life cycle of a system. However, on ICPs, the FAR allows other than full and open competition when justified and approved by DCPAP.
The CICA and the FAR 6.302-4 allows for an exception to the requirement for full and open competition when it is precluded by the terms of an international agreement or a treaty between the U.S. and a foreign government or international organization.
The Summary Statement of Intent (SSOI) that is prepared to obtain Request Authority to Develop (RAD) approval of a Cooperative Agreement must explain and justify any envisioned use of other than full and open competitive contracting. This explanation and justification are reviewed by DCPAP as part of the OSD international agreement staffing process.
ICP international agreements that permit another country to contract on the U.S.'s behalf may be established by DoD using Arms Export Control Act (AECA) Section 27 authority. Approval is outside of the RAD and Request Final Approval (RFA) international agreement staffing process. Instead, a Determination and Finding (D&F) must be prepared for USD(A&S) approval in compliance with the 10 U.S.C. 2350b and as provided for by DFARS Subpart 225.871-3. This D&F may also provide the basis for waiving the U.S. statutory requirement for competitive procurements, in which case a two-part D&F is prepared:
- Part I
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Obtains approval for a foreign country to contract for U.S. requirements. Requires a USD(A&S) D&F that such contract will significantly further:
- Standardization
- Rationalization
- Interoperability
This approval is required before the other country can award contracts using U.S. Government funds.
- Part II
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(only if applicable): Obtains USD(A&S) approval of a waiver to the statutory requirement that a foreign country award the contract on a competitive basis. In the absence of such a waiver, the law requires that:
- Contracts be made on a competitive basis
- U.S. sources are not precluded from competing under the contract
When another country is contracting on behalf of the U.S., it is important that the U.S. include language in the international agreement prohibiting the use of a cost-plus-a-percentage-of-cost type contract as these contracts are prohibited by U.S. law in 10 U.S.C. 3322.
Directed source subcontracting may be required to meet industrial participation objectives of an International Cooperative Program.
DFARS Subpart 225.871-5 enables DCPAP to authorize the direct placement of subcontracts with particular subcontractors when specifically addressed in the terms of the international agreement for an ICP. In some instances, it may not be feasible to name specific subcontractors at the time the agreement is concluded. However, the agreement should clearly state the general provisions for work sharing at the prime and subcontract level. DPCAP approval is obtained through the OSD international agreement staffing process and a separate approval is not required.
Preserving the Authority for ICP contracts
On an ICP, source selection is conducted in accordance with the procedures of the nation responsible for contracting. The terms of an international agreement may provide for the Source Selection Authority (SSA) to be advised by a multinational steering committee or group. The SSA's decision must be based on an integrated assessment of proposals against the source selection criteria in the solicitation.
The International Agreement must clearly recognize the SSA’s sole authority to make the source selection decision. The SSA may use reports and analyses prepared by others, but the source selection decision must represent the SSA's independent judgment. In addition, the SSA’s decision must be documented for all ICP participants.
The contract is key to implementing the terms of the Government-to-Government international agreement for an ICP; therefore, the contracting officer must have the authority to determine the application of rules, regulations and policies. The contract must be consistent with the terms of the international agreement.
International agreements normally contain specific terms that must be reflected in contracts related to:
- Rights in technical data
- Disclosure and use of information
- Controlled Unclassified Information (CUI)
- Security
- Third party sales and transfers
- Compliance with the export control laws of the participants
The international agreement should leverage and reference existing:
- RDP MOUs
- Government Quality Assurance (GQA) agreements
This agreement should also define the responsibilities for providing:
- Contract administration
- Auditing
- Quality assurance services
Provision of these services should be factored into the participants’ equitable share of program costs.
Role of the Contracting Officer in an International Cooperative Program
Just as in FMS acquisitions, the contracting officer is an important team member in an ICP.
Contracting officers play an important role in:
- Developing the acquisition strategy
- Providing inputs to the SSOI and the subsequent international agreement
Major contracting considerations in ICPs are promoting competition in contracting and preserving the authority of the SSA and contracting officers.
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].