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DEFENSE SECURITY COOPERATION AGENCY |
6/3/2002 | |||||||||||||||
MEMORANDUM FOR :
DEPUTY UNDER SECRETARY OF THE ARMY SUBJECT : FMS Contract Administrative Services (CAS) Surcharge Policy Improvements (DSCA 02-14) As announced in the September 2001 Security Cooperation Conference, I chartered a team to review and recommend improvements to the FMS Surcharges. CAS was the first surcharge explored in depth. This memorandum announces the FMS financial policies and procedures for implementing the CAS improvements. Please note that some of the items discussed herein are effective immediately, while others will be implemented at a later time (e.g., FY2003). The CAS improvements encompass clarifying its purpose and scope; establishing a revised rate structure, developing future rate validation guidelines; revising reciprocal agreement processes; and mapping the associated FMS case management transactions. For example, a major outcome regards the FMS CAS rate as shown below:
A summary of Attachments 1 through 5 that follow, which provide additional details on these improvements, is furnished on the page next under. This package will be posted on the DSCA web site, Publications and Policy section (www.dsca.mil), and will be incorporated into the SAMM and DoDFMR, Volume 15. In summary, I am confident that these policies represent real change and improvement to our FMS program. Its implementation and widespread practice will further promote business process efficiencies and increase customer satisfaction. To that end, I want to thank the individuals outside DSCA as noted in Attachment 6 for their outstanding contributions to this important endeavor. Please convey my personal appreciation for their dedication and professionalism, without which this endeavor would not have been accomplished. Should your staff have any questions, the DSCA points of contact/Surcharge Team co-chairs are Mr. David Rude, telephone 703-604-6569, email david.rude@osd.pentagon.mil and Ms. Vanessa Glascoe, telephone 7036013744, email vanessa.glascoe@osd.pentagon.mil. Tome H. Walters, Jr. ATTACHMENT : CC :
Chairman Foreign Procurement Group
Commandant, DISAM SUMMARY OF ATTACHMENTS Attachment 1: FMS CAS Purpose and Scope One of the initial items the team addressed was to determine the purpose and scope of the FMS CAS surcharge. In that regard, Attachment 1 provides a matrix that correlates the FMS CAS functions with those specified in the Federal Acquisition Regulation (FAR). The matrix identifies those functions, categorizes them into the appropriate CAS pool, identifies the performing activity(ies), and provides additional comments as appropriate. We hope this matrix offers a better understanding of what CAS as regards FMS entails, and facilitates improved communications among the performing activities. Attachment 2: FMS CAS Rate Assessment and Structure The team reviewed the resource and funding efforts required to effectively execute the FMS CAS functions. Based on these findings, the means by which the CAS rate is assessed and the corresponding rate structure were revisited. The new CAS rate structure as described in Attachment 2 is effective with basic LOAs initiated in FY2003. The long-term goal is to get to a process by which CAS is charged on an actual cost basis. This will be accomplished by DCMA and DCAA presenting to DSCA by 31 December 2002 a study for addressing the potential transition of FMS CAS to an actual cost basis on dedicated FMS CAS line(s) on an LOA. Based on this study, an assessment will be made to determine a course of action that is both beneficial, desirable and provides a clear return on investment. Attachment 3: FMS CAS Surcharge Rate and Country Validation The mechanics of this validation process, and the current tables relating to specific countries/international organizations, are described in Attachment 3. Attachment 4: FMS CAS Reciprocal Agreements Attachment 4 is the flowchart depicting the FMS CAS-related reciprocal agreement process. In addition, under separate cover DSCA will forward to DoD General Counsel recommendations for improving DoD Directive 5530.3 (International Agreements), which assigns responsibility for controlling the negotiation and conclusion of agreements with foreign governments and international organizations by DoD personnel. Attachment 5: FMS CAS Process Mapping One of the key elements of managing FMS CAS is understanding the processes by which it operates. The team explored FMS CAS in the context of reciprocal agreements, budget formulation, LOA development and LOA execution. Separate flowcharts depicting these distinct yet related processes were developed, and are furnished at Attachment 5 (except for reciprocal agreements, noted in Attachment 4). FMS CAS Budget Formulation. Refer to the flowchart provided at Attachment 5 (chart 5.1). To optimize the efficiency of the budget formulation process, DSCA/COMPT-RM will move the annual OCONUS budget call to the March timeframe, which is conducive to when DCMA International (DCMAI) issues the annual budget plan to its field activities. FMS CAS LOA Development. Refer to the business rules at Attachment 5, and the corresponding flowchart provided at Attachment 5 (chart 5.2). FMS CAS Execution. Refer to the business rules at Attachment 5, and the corresponding flowchart provided at Attachment 5 (chart 5.3). That diagram is the foundation on which the detailed FMS CAS requirements for the Case Execution Management Information System (CEMIS) are being built. FMS CAS Account Payment Components. Attachment 5 describes those efforts for which reimbursement from the FMS CAS Account is authorized. Attachment 6: Surcharge Team. |
Attachment 1 - FMS CONTRACT ADMINISTRATIVE SURCHARGE (CAS) FUNCTIONS
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Attachment 2 - REVISED FOREIGN MILITARY SALES (FMS) Background When compared to the revenue generated by the current 1.5% FMS CAS surcharge, the Surcharge team noted that the functions performed primarily by the Defense Contract Management Agency (DCMA) required funds exceeding the 1.0% allotted for quality assurance/inspection and contract administration. The contract audit effort performed predominantly by the Defense Contract Audit Agency (DCAA) costs less than the 0.5% allotted within the FMS CAS rate. The team also noted that $31M was infused into the FMS CAS account during the FY99/FY00 timeframe to ensure solvency. A major obstacle to the continued solvency of the FMS CAS account was the decision to charge the FMS Trust Fund, vice individual FMS cases for Outside the Continental United States (OCONUS) efforts effective 1 Oct 1993. Based on these findings, the means by which the CAS rate is assessed and the corresponding rate structure were revisited. The new CAS rate structure as described below is effective with basic LOAs initiated in FY2003. Although the DCMA1 and DCAA systems that track CAS requirements provide some level of detail, neither system is currently capable of consistently identifying CAS at the individual FMS country/case/line level. Until those systems reach that level of sophistication, CAS will continue to be charged on a percentage (fixed rate) platform. This paper also describes the CAS rate assessment methodology, associated rates, DSAMS programming requirements, and implementation timeline. By 30 June 2002, OUSD (Comptroller) will issue an interim change to the Department of Defense Financial Management Regulation (DoD FMR), Volume 15, authorizing the CAS rate changes. Revised Rate and Rate Structure Effective with new (basic) Letters of Offer and Acceptance (LOAs) implemented on or after 1 October 2002, the rate and rate structure for FMS CAS changes. For LOAs implemented prior to 1 October 2002, the previous FMS CAS rates apply for the remaining life of those LOAs. In addition, Outside the Continental United States (OCONUS) efforts shall now be charged separately from the other categories relating to FMS CAS: quality assurance and inspection; contract audit; and contract administration. The following table applies:
See "Defense Security Assistance Management System (DSAMS) Changes" section below for information about developing LOA documents in DSAMS that incorporate these revisions. OCONUS Impact The separation of OCONUS as an additional FMS CAS component requires a clear channel of communication between the contracting officer, DCMA and the FMS case manager. It involves a two-pronged approach: OCONUS request and OCONUS confirmation. Optimally, the purchaser's desire for OCONUS CAS should be stated in the Letter of Request (LOR) whenever possible. In less than optimal conditions, if the OCONUS CAS effort is identified after basic LOA implementation, that would constitute a change in scope - thus, an amendment to the LOA would be required. The new CAS rate, to include the OCONUS component, would apply as of the basic LOA implementation date. If necessary, DFAS will manually adjust the CAS accruals for any applicable progress payments occurring prior to amendment issuance. An amendment may immediately follow basic LOA implementation, which is less desirable than the OCONUS designation in the LOR, but is preferred to waiting until the execution phase already commenced. In any event, the procuring contracting officer (PCO) must confirm the existence of OCONUS to the performing activity and especially the FMS case manager. This process will be aided by ensuring that the FMS case identifier is clearly displayed in the contract line item number (CLIN). DSCA will explore whether the Defense Federal Acquisition Regulation Supplement (DFARS) should be revised to stress these relationships. The OCONUS component requires special focus on the contracts being administered outside of CONUS. This influences specific cost drivers, particularly labor, personal services, personnel change of station (PCS) and facilities. Accordingly, the costs necessary to capture the OCONUS effort must reflect these intensified efforts. Revised Rate Structure Methodology Defense Security Assistance Management System (DSAMS) Changes
By 31 May 2002, two standard "boilerplate" notes will be programmed into DSAMS by each MILDEP as follows:
Illustration of CAS Pricing Computation Given current DIFS constraints, the total CAS surcharge would be assessed at the case level until DIFS can accommodate line-level CAS computations. An illustration follows:
DFAS will load into DIFS a 1.7% CAS surcharge for the case. The 1.7% CAS would be assessed against the progress payments reported, as is done today. If OCONUS does not apply, that IPC is not factored into the CAS pricing for that LOA (and, in the preceding example, a 1.5% CAS surcharge would apply). Benefits to FMS Purchasers:
NOTE: 1 The methodology for calculating FMS CONUS CAS earnings for DCMA is outlined in the 9 Apr 1999 CAS Memorandum of Agreement between DCMA, the Defense Finance and Accounting Service (DFAS) and DSCA. FMS OCONUS CAS earnings are calculated on an actual cost basis at the country level. |
Attachment 3 - CAS RATE AND COUNTRY VALIDATION Rate Validation The FMS CAS surcharge rate shall be validated annually by DSCA Comptroller, and submitted to OUSD (Comptroller, DCFO, Finance and Management Policy) for approval. The annual validation will occur by 31 December of each year, and will include a review of the prior fiscal year's FMS CAS-related collections and expenditures (the latter by performing activity). The primary performing activities (DCMA and DCAA) will continue to provide documentation evidencing improved management efficiencies. For example, DCAA will continue to provide this information as part of the budget estimate/hourly reimbursable rate process previously established by DoD Comptroller. Alternatively, performing activities may document these improvements in response to DSCA's annual budget calls and development of the FMS CAS rate. Lastly, the annual DSCA Comptroller validation will include verifying the inventory of countries and international organizations for which a waiver of the FMS CAS applies either in whole or in part. DSCA Comptroller will include the performing activity's input into its rate validation assessment, solicit coordination from those activities on that assessment, and submit the package to OUSD (Comptroller/ODCFO/F&MP) for approval. This document identifies the current tables relating to the affected countries/international organizations. These updated tables will be reflected in the next Security Assistance Management Manual (SAMM, DoD 5105.38-M) revision. Country/International Organization Rates When CAS work is performed on FMS cases that have CAS waivers, the cost of the CAS efforts (contract audit; quality assurance and inspection; and contract administration services) shall be funded by any DoD appropriation having sufficient funds to absorb the cost of those efforts waived. Billings for actual costs shall not be submitted for reimbursement against the FMS CAS Surcharge Account. Countries, NATO projects or organizations and other CAS waiver agreements are illustrated in the following three tables. Additions, changes or deletions to the tables will be updated by the DSCAComptroller/ FM after coordination with the DoD proponent organization. Table 1 reflects a listing of approved reciprocal country agreements. The waiver under each reciprocal agreement applies only to new FMS LOAs with implementation dates, on or after the Effective Date of the reciprocal agreement and as recorded in DIFS (Does not apply to individual LOA lines, contracts or amendments to LOAs). All systems should contain the same date as the reciprocal agreement and DIFS records. Table 1 - APPROVED RECIPROCAL COUNTRY AGREEMENTS
Table 2 - APPROVED AGREEMENTS/WAIVERS RELATIVE TO PARTICIPATING GROUPS/ ORGANIZATIONS/PROJECTS.
Table 3 - APPROVED NATO AGREEMENTS This table will be furnished separately, once the FMS community determines the consensus architecture of the NATO Infrastructure programs. |
Attachment 4 - CONTRACT ADMINISTRATIVE SERVICES (CAS)
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Attachment 5 - FMS CAS BUSINESS RULES FMS CAS LOA Development The following LOA development business rules are emphasized:
A new standard LOA note is required on all LOA documents, effective 1 Oct 2002. Refer to Attachment 2 for additional information. FMS CAS Execution The following business rules are stressed:
To the extent OCONUS is identified on or after the 1 October 2002 basic LOA implementation date, the MILDEP/IA shall be responsible for modifying the LOA. This entails (a) specifying the revised CAS rates in the LOA note and (b) case managers notifying their DFAS Denver counterparts in order for DFAS to manually adjust CAS accruals for any applicable progress payments reported prior to the inclusion of the OCONUS rate. FMS CAS Account Payment Components The following describes those efforts for which reimbursement from the FMS CAS account is authorized:
Any transaction not in direct support of FMS CAS efforts shall not be paid from the FMS CAS account.
CONTRACT ADMINISTRATION SERVICES (CAS)
CONTRACT ADMINISTRATION SERVICES (CAS)
CONTRACT ADMINISTRATIVE SERVICES (CAS)
CONTRACT ADMINISTRATIVE SERVICES (CAS)
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Attachment 6 - SURCHARGE TEAM: FMS CAS PARTICIPANTS (USG OFFICIALS) ARMY
NAVY
AIR FORCE
DFAS
DCMA
DCAA
OUSD (Comptroller)
DSCA
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