Pentagon issues final rule on FMS offsets

The Pentagon today issued a final rule amending defense acquisition regulations to indicate that all indirect offset costs of a U.S. defense contractor related to a foreign military sale are deemed reasonable, provided the contractor presents documentation that the cost was a condition of the acquisition.

According to a Federal Register notice, the rule also implements a section of the Fiscal Year 2016 National Defense Authorization Act that was intended "to eliminate the need for an unnecessary and time-consuming review of offsets that are negotiated directly between the contractor and foreign customer."

"DOD recognizes the need to have offsets embedded in DOD FMS contracts," the document states. "However, the decision whether to engage in indirect offsets, and the responsibility for negotiating and implementing these offset arrangements, ultimately reside with the FMS customer and contractor(s) involved. Thus, the DOD contracting officer is not provided the information necessary to negotiate cost or price of the indirect offsets, particularly with respect to price reasonableness determinations."

"This rule provides that under these circumstances, when the provision of an indirect offset is a condition of the FMS acquisition and provided that the U.S. defense contractor submits to the contracting officer an offset agreement or other substantiating documentation, those indirect offset costs are deemed reasonable," it adds.