Foreign Military Sales Contracts
& Export Control Reform
NCMA Boston’s 3rd Annual Int’l Contracting Forum
Alan F. Lehman
Chief, International Law
66 ABG/JA
9 December 2015
Overview
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Background
Legal Authority
Control of Arms Exports & Imports
Foreign Military Sales (FMS)
Direct Commercial Sales (DCS) and the ITAR
Sole Source: FMS
Export Administration Regulations (EAR)
Export Control Reform
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Background
• The USG contracts on behalf of a foreign
government
• The contract implements an FMS case
• The contract implements an international
agreement *
• Contract directly with a foreign government
• Direct commercial sale
• Government-to-government sale
* FMS LOA not an international agreement per DoDD 5530.3
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Legal Authority
• Arms Export Control Act (AECA), as amended
(22 U.S.C. §2751, et seq.)
• Export Administration Act of 1979 (EAA), as
amended (50 U.S.C. app. §§2401-2420)
• ITAR
• EAR
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Legal Authority (cont’d)
• Arms Export Control Act (AECA)
• Establishes the FMS Program: reporting
requirements to Congress
• Section 38 of the AECA authorizes President to:
 establish United States Munitions List
 issue export licenses
 control imports and exports of defense articles and defense
services
 establish registration & license requirements for
manufacturers, exporters and importers
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Legal Authority (cont’d)
• Export Administration Act of 1979, as amended
• Authority for the Export Administration Regulation
(EAR) [administered by Department of Commerce]
• 15 C.F.R., Ch. VII, Subchapter C, Parts 730 - 774
• EAR contains, inter alia, the Commerce Control
List (CCL) and anti-boycott/discrimination
sanctions, both criminal & civil
• International Emergency Economic Powers Act
(IEEPA) (50 U.S.C. §1702)*
* Used from time-to-time when Export Administration Act of 1979, as
amended, has lapsed (i.e., not renewed by Congress)
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Arms Export Control Act (AECA)
• Establishes the Foreign Military Sales program
• Sec. of State reporting requirements to Congress
• Authorizes the President to enter into
cooperative projects with other nations and
international organizations
• Promulgated under authority of the Case-Zablocki
Act (1 U.S.C. §112b)
• Sec. of State reporting requirements to Congress
• Establishes control of exports/imports of
defense articles and defense services
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Export Administration Act of 1979 (EAA)
[50 U.S.C. Appx. §2401,et seq.]
• Controls exports of goods and technologies in
international markets by U.S. citizens
• Not permanent legislation, i.e., not codified
• Concerned with ability of the US to maintain
its national security, political and economic
position the world
• Establishes regulation of embargoes and
other special controls
• Authorizes regulation of restrictive trade
practices and boycotts
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International Emergency Economic
Powers Act (IEEPA)
• 50 U.S.C. §§1701-1706
• §1701 gives the President the authority to “deal with any
unusual and extraordinary threat, which has its source in
whole or substantial part outside the US, to the national
security, foreign policy, or economy of the US, if the
President declares a national emergency with respect to
that threat”
• Used to establish USG-sponsored embargoes & boycotts of other
nations and/or international organizations
• Secretary of Commerce administers the various sanctions
imposed by the President and/or Congress
• Reporting requirements to Congress by Sec. of Commerce
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Foreign Military Sales
• Normally contract under authority of
Sections 21, 22, 23, or 24 of AECA
• US contracts on behalf of foreign govt.
• Use DFARS provisions in place of FAR
• e.g., DFARS Subpart 225.73, Acquisition for
Foreign Military Sales
• DSCA Manual 5105.38-M
[aka Security
Assistance Management Manual (SAMM)]
• Section C6.3: Case Execution - Acquisition
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Foreign Military Sales (cont’d)
• C6.3.3 & Table C6.T1, Selected FAR & DFARS
Selections Relevant to FMS Acquisition
• LOA Standard Terms & Conditions, ¶1.2,
second sentence:
• DoD will do business for FMS customer like it will do
business for itself
• US contract
• Normally competed under FAR 15 (or 14)
• Sole source must be specified in LOA, otherwise . . .
• Follow SAMM C6.1, Case Implementation
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Foreign Military Sales (cont’d)
• Follow FAR Subpart 6.302 (DFARS
206.302) procedures for exceptions to
competition
 Examples of exceptions:
• Only one responsible source
[§2304(c)1] (FAR 6.302-1)
• International agreement
[§2304(c)4] (FAR 6.302-4)
• Funds must be in Trust Account (DFAS)
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Foreign Military Sales (cont’d)
• All international contracts under USG
responsibility contain additional clauses
• Most found in DFARS 252.225
• The rest of the clauses scattered about the rest
of DFARS Part 252
• DFARS 252.225-7031
• Secondary Arab Boycott of Israel
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Control of Arms Exports & Imports
• Under Executive Order 11958, administration
of AECA Section 38 (22 U.S.C. §2778)
delegated to Secretary of State
• State Dept. promulgated International Traffic
in Arms Regulation (ITAR), establishing
export licensing requirements (22 C.F.R.
§120, et seq.)
• Establishes U.S. Munitions List (USML)
• Licensing requirements based on what is on USML
• Mostly affects direct commercial sales
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Direct Commercial Sales & the ITAR
• AECA Section 38 (22 U.S.C. §2778)
• Contracts between US contractor and a foreign
government
• Contracts between US contractor and foreign
contractor
• International Traffic in Arms Regulation
(ITAR) export licensing requirements (22
C.F.R. §120, et seq.)
• §124.1, Manufacturing license agreements and
technical assistance agreements
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Direct Commercial Sales & the ITAR (cont’d)
• §124.3, Exports of technical data in further-
ance of an international agreement
• Part 125, Licenses for the Export of Technical
Data and Classified Defense Articles
• Part 127, Violations and Penalties
• §127.1(a): Unlawful to export or attempt to export
defense article or service, or technical data without
permission in writing (i.e., license) from Directorate
of Defense Trade Controls (DDTC)
• §127.3, Penalties per AECA, Sect. 38
− $1,000,000, or 20 yrs., or both, per violation
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Sole Source: FMS
• Foreign Military Sales (FMS)
• DFARS 206.3, Other Than Full & Open Competition,
applies
• If sole source reflected in the LOA, use 206.302-4,
International Agreement, as exception
• Absent that, use normal sole source procedures
• DSCA Manual 5105.38-M, [SAMM], C6.3.4, Requests for
Other than Full and Open Competition
• Submit sole source justification(s) for designated source
in Letter of Request (LOR)
− Example justifications listed in Figure C15.F2
• Approval of designated source reflected in resultant
Letter of Offer and Acceptance (LOA)
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Export Administration Regulations (EAR)
[15 C.F.R. Parts 730-774]
• §730.2: Legal authority
• EAA is the primary legal authority; IEEPA may sub
• Other underlying legal authorities listed at the beginning of
each section
• §730.3: “Dual Use,” other types of items subject to
EAR and the Commerce Control List (CCL)
• Dual Use: one that has civil applications as well as terrorism
and military of WMD applications
• Part 746: Embargoes & Other Special Controls
• Part 760: Restrictive Trade Practices or Boycotts
• Part 764: Enforcement & Protective Measures
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EAR & Anti-Boycott Restrictions
• DFARS 252.225-7031
Secondary Arab Boycott of Israel
• Contractor must certify it is not a participant
• Export Administration Regulations (EAR) 15
C.F.R. Part 760, Restrictive Trade Practices or
Boycotts — civil & criminal
• Don’t have restrictive contract clauses in your
contracts!
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Export Control Reform (ECR)
• Begun in 2010, the President approved a plan
that envisions:
• A Single Licensing Agency to receive and
adjudicate licenses currently processed by State,
Treasury and Commerce
• A Single Control List, tiered based on sensitivity of
commodity
• A Single IT system for submission, review an
adjudication of licenses
• A Single Export Enforcement Coordination Agency
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ECR (cont’d)
• The Departments began action to reform the way
the US does exports in 3 phases:
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I: Immediate improvements, create framework
• II: Implement the new framework within existing
structures/authorities
• III: Complete transition: Merge & consolidate
• To date, a transition from USML to CCL
• Category rewrites in both ITAR and EAR, moving some
categories from USML to BIS-600 Series in the EAR
• DoC’s Bureau of Industry and Security (BIS) issuing
more licenses as a result
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Summary
• Foreign Military Sales (FMS) contracts follow
normal U.S. laws, policies, and procedures
• DFARS has specialized coverage for FMS contracting
• Exports of defense articles and services
controlled by the ITAR
• Exports of non-military technologies and
commercial ventures controlled by the EAR
• The EAR also controls export of dual-use technology
• The EAR regulates restrictive trade practices and
boycotts
• Export Control Reform is alive and well
• Continual re-categorizing & transfers from USML to
CCL
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finis
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