FMS should be distinguished from the Direct Commercial Sales (DCS) program, which oversees sales between foreign governments and private U.S. companies, and the Foreign Military Financing (FMF) program, which provides grants and loans for FMS and DCS purchases.

Security Assistance Organizations (SAOs), military personnel stationed at U.S. embassies, promote the sale of U.S.-produced defense items and carry out most tasks associated with managing FMS "cases," or agreements to make a sale. SAOs advise foreign defense ministries on potential military purchases, often by coordinating "security assistance surveys" to assess perceived needs and occasionally by aiding the development of procurement plans.

A possible FMS case begins when a foreign government requests "price and availability data" (P&A data) on the U.S.-produced items it is interested in purchasing. The SAOs in the embassy cannot provide this data unless the State Department, through its Bureau of Political and Military Affairs, issues its approval. Without this approval, an FMS sale will not proceed any further.

If the State Department approves, P&A data are provided to the purchasing government, which then decides whether to buy the items through the FMS program or another source, such as the DCS program or another country. An implementing agency within the Pentagon -- the U.S. Army, Navy, Air Force, or Defense Logistics Agency, depending on the type of item being considered -- negotiates the terms of the sale. If agreement is reached, both parties sign a letter of offer and acceptance (LOA), the contract which sets an FMS "case" in motion.

Once an LOA has been signed, the Defense Security Cooperation Agency (DSCA), a Defense Department agency that oversees security assistance programs, buys the item or items from U.S. manufacturers. This purchase normally goes through Defense Department procurement channels, and may not happen quickly; the time lag between an LOA and a delivery can take a year or more, particularly for complex weapons systems. The price quoted in the LOA may not match the cost of the items upon delivery, though in fact most final prices fall below the original estimate.

The U.S. government applies a 3 percent "administrative surcharge" to all FMS sales. An additional 3.1 percent "logistics support charge" is applied on certain spare parts, equipment modifications, secondary support equipment and supplies. These surcharges recuperate some of the costs incurred while promoting and managing sales of commercially-manufactured U.S. weapons. FMS surcharges pay a significant amount of the salaries and operating costs of Security Assistance Organizations (SAOs) and other Defense Department personnel who carry out the program.

FMS versus DCS [¹]

Though the Direct Commercial Sales (DCS) program tends to be speedier and less transparent, purchasing governments may choose FMS for several reasons.

• Countries desiring closer military-to-military contact with the United States will opt for an FMS sale. Contact between military officers occurs in all stages of the sale, and in many cases while providing follow-on training and support.
• FMS sales are often less expensive, particularly for more advanced items. When purchasing items from manufacturers, the Pentagon frequently combines its own orders with its requests on behalf of foreign governments. This can result in lower prices through economies of scale despite the FMS surcharges.
• FMS sales often carry guarantees of U.S. service and training.
• Countries with limited experience in negotiating complex procurement contracts find FMS convenient, as the Pentagon negotiates with the arms manufacturer and handles the paperwork.
• Because FMS sales are publicly recorded, at least to some extent, countries may opt for this channel to show they have "nothing to hide."

High-tech arms sales

As noted above, a purchase of high-tech weaponry normally goes through the FMS program. In 1997, the U.S. government lifted a twenty-year-old "ban" on sales of high-tech weapons to Latin America. Under this policy, the State Department had made clear that it would issue automatic denials to Latin American requests for price and availability data on high-tech weapons.

In March 1997, the policy was softened to allow Chile to request P&A data on fighter aircraft. In August 1997 the ban was lifted altogether. In 2002, Chile agreed to purchase ten F-16 fighter aircraft through FMS.

Notification and congressional power to disapprove

According to section 36(b) of the AECA, Congress must be notified of U.S. government intention to offer an LOA if the items to be sold are:

1. Defense articles or services valued at $50 million or more;
2. Design and construction services valued at $200 million or more; or
3. Major defense equipment valued at $14 million or more.
   ["Major defense equipment" means any item on the United States Munitions List with a research and development cost of at least $50 million or a total production cost of at least $200 million.]

This notification must specify:

1. The foreign country or international organization to which the offer is being made;
2. The dollar amount of the offer and the number of defense articles offered;
3. A description of the defense article or service being offered;
4. The U.S. agency (or branch of the armed forces) making the offer; and
5. If construction and design services are being offered, a description of the facilities to be constructed.

If the Speaker of the House, House International Relations Committee or Senate Foreign Relations Committee requests it, the President must "promptly" submit a statement with additional information.

Within 30 days after receiving this notification, Congress may prohibit the sale by enacting a joint resolution.

Reports

Every February, the President must submit to Congress a report, known popularly as the "Javits report," which includes:

1. An Arms Sales Proposal listing all probable Foreign Military Sales (FMS) or Direct Commercial Sales (DCS) exports for the current calendar year that exceed:
   • $7 million for major weapons or weapons-related defense equipment; or
   • $25 million for other weapons or weapons-related defense equipment;
2. An indication of which sales or licenses are most likely to be approved during the current year;
3. An estimate of the total amount of FMS sales and DCS licenses expected to be made to each foreign country; and
4. Other information about the status and rationale of FMS and DCS sales.

Though not classified, the Javits report has never been released to the public.

As part of a report submitted in accordance with section 655 of the Foreign Assistance Act of 1961 (P.L. 87-195, or the "FAA"), as amended, each February the President must list the dollar value and quantity of defense articles furnished under FMS in the previous fiscal year.

Section 36(a) of the AECA requires the President to submit a quarterly unclassified report to Congress:

1. Listing all LOAs for major defense equipment exceeding $1 million;
2. Listing all LOAs accepted during the current fiscal year, together with the total value of all sales to each country that year;
3. Including projections of dollar amounts of expected FMS for the rest of the quarter and the rest of the year; and
4. Providing other information about the status of FMS and DCS sales.