Attachment 1 - FMS CONTRACT ADMINISTRATIVE SURCHARGE (CAS) FUNCTIONS
Federal Acquisition Regulation (FAR) Correlation Matrix

Attachment 2 - REVISED FOREIGN MILITARY SALES (FMS) CONTRACT ADMINISTRATIVE SERVICES (CAS) RATE METHODOLOGY

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, the DSAMS shall incorporate a new Indirect Price Component (IPC) for OCONUS; this would result in a total of four CAS-related IPCs potentially applicable to a given LOA..
• A standard note would be placed in the LOA that notifies the FMS purchaser as to the total CAS estimated. The CAS note shall include the rate, each CAS component that applies, and each CAS component that does not apply (i.e., a waiver impacts the CAS for that LOA). Different sets of notes will be used for pre-FY03 and post-FY02 LOAs (based on basic LOA implementation date).

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:

1. Annual rate and rate structure validation allows for more flexible CAS reimbursement to CAS performing activities and CAS billing for customers to reflect values closer to actual costs.
2. Revised rate structure implements necessary realignment of percentages for CAS-related components, including OCONUS.
3. Allows for periodic validation of the CAS percentages applicable to each of the four FMS CAS categories/IPCs.
4. Provides improved detail to the FMS purchaser.
5. Precedence exists (i.e., FMS administrative) for varying percentage-based rates applicable to a specific FMS surcharge.
6. Allows for eventual migration to (a) CAS assessed at the line level (with no change to the methodology described above), and/or to (b) actual cost basis.

^{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)
RECIPROCAL BILATERAL DEFENSE PROCUREMENT
REVISED PROCESS - APRIL 2002

Attachment 5 - FMS CAS BUSINESS RULES

FMS CAS LOA Development

The following LOA development business rules are emphasized:

• Whenever possible, the purchaser's desire to include OCONUS as part of an LOA should be specified in the Letter of Request (LOR).
• Efficient channels of communication amongst the procuring contracting officer, FMS case manager, and CAS performing activities (e.g., DCMA, DCAA) must exist, in part to verify in a timely manner the requirement for OCONUS CAS. This relationship is also critical to confirm the extent to which FMS CAS actually applies on LOA lines/sublines coded with a Source of Supply (SOS) of 'X' (mixed stock/procurement). Chart 5.2 delineates the preferences for ascertaining the extent to which contractual actions apply to a given LOA line.
• CAS is not priced on the LOA if all LOA lines/sublines are coded with a SOS of 'S' (for stock).
• Care must be taken to appropriately assess (or not assess) CAS for each Indirect Pricing Component (IPC).

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:

• FMS CAS will continue to be assessed against progress payments and final deliveries - irrespective of the SOS assigned to a given LOA line.
• The progress payment and delivery transactions involve specific and unique delivery source codes, reimbursable codes, price codes and transaction types for the MILDEPs and DFAS. Care must be taken to ensure an accurate accounting of FMS CAS computations. Refer to Chart 5.3.
• The annual case review checklists developed by the MILDEPs/Implementing Agencies (IAs), which are based on DSCA policy memo 01-22 dated 19 September 2001, shall include a requirement to validate CAS pricing accuracy. This entails ensuring a linkage exists between actual CAS-related execution performance with the current CAS pricing profile as contained in DSAMS. The annual review may necessitate adjustments to the DSAMS CAS pricing structure and issuance of a corresponding LOA modification.

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:

• Earnings to DCMA, DCAA and other CAS-performing activities for FMS CAS work.
• Military Pay to MILDEPs as regards FMS CAS duties performed by USG military personnel.
• Unfunded Civilian Retirement (UCR) is paid to the U.S. Treasury Miscellaneous Receipts account 3041 as regards UCR associated with USG civilian personnel performing FMS CAS duties.

Any transaction not in direct support of FMS CAS efforts shall not be paid from the FMS CAS account.

CONTRACT ADMINISTRATION SERVICES (CAS)
BUDGET FORMULATION CYCLE (Page 1 of 2)
REVISED PROCESS APRIL 2002

CONTRACT ADMINISTRATION SERVICES (CAS)
BUDGET FORMULATION CYCLE (Page 2 of 2)
REVISED PROCESS APRIL 2002

CONTRACT ADMINISTRATIVE SERVICES (CAS)
LOA DEVELOPMENT CYCLE
REVISED PROCESS APRIL 2002

CONTRACT ADMINISTRATIVE SERVICES (CAS)
FLOW OF FUNDS : EXECUTION CYCLE
REVISED PROCESS APRIL 2002

Attachment 6 - SURCHARGE TEAM: FMS CAS PARTICIPANTS (USG OFFICIALS)

ARMY

• Sherry Ownby, DASA(DE&C)
• Reginald Graham, USASAC
• Barbara Dowdy, USASAC St. Louis

NAVY

• Chris Chaikowski, IPO
• Donald Temple, NAVICP
• Morris Zupan, NAVICP
• Jane Downer, NAVAIR
• Karen Adler, NAVAIR

AIR FORCE

• Colleen Henson, SAF-IAPX
• Sheilah Boyd, SAF-IAPX
• Charles Pope, SAF-FMBIS

DFAS

• Tom McIntire, DFAS-DAC
• Dixon Weaver, DFAS-AY/DE

DCMA

• Val Brown, FBFR
• Deana Lande, FBFR
• Melanie Ammann, DCMAI
• Berthina Jamison, DCMAI
• Bob Hunter, DCMAPI
• James Davenport, FBFR

DCAA

• Linda Ebersbach
• Cris Hornsleth
• Judy Maness
• Bill Torrick
• Joe Garcia

OUSD (Comptroller)

• Tom Hafer
• Becky Allen
• OUSD (AT&L)
• Mike Mutty

DSCA

• David Rude, COMPT-FM
• Vanessa Glascoe, COMPT-FM
• Paul Kopicki, COMPT-RM
• Greg Sutton, DISAM
• John Clelan, DISAM
• Steve Harris, P3-P2
• Cindy Leach, COMPT-FM
• Chester Freedenthal, IT
• LtCol Ron Todd, USAF, OGC
• Joy Marcou, COMPT-FM