FMS SUPPY DISCREPANCY REPORT (SDR) TRANSPORTATION REIMBURSEMENT POLICY

Purpose and Scope

This policy document, which is Attachment 1 to DSCA policy memorandum 03-15, addresses the procedures relating to the reimbursement of transportation for discrepant materiel under an approved FMS SDR. This policy was developed in the framework of the current FMS transportation process. Any changes to that process that prompt corresponding revisions to this policy document, will be issued as future updates released by DSCA.

This policy covers SDR transportation reimbursements for the following:

• FMS items furnished by Defense Working Capital Funds (DWCF) activities
• FMS items furnished by non-DWCF activities
• Packing, Crating and Handling (PC&H) relating to FMS materiel
• Local disposal relating to FMS materiel
• Transporting repaired items to the FMS customer

This policy does not cover SDR transportation reimbursements for the following:

• Items provided by commercial suppliers under a direct commercial sale. Supply discrepancy issues relating to direct commercial sales must be resolved directly with the respective vendor(s).
• Items held at FMS customer freight forwarder (FF) for disposition to U.S. depot facility or contractor facility.

Reimbursement Prerequisites

The following prerequisites apply. Transportation reimbursement will not occur if any of these prerequisites are not satisfied.

1. The discrepant materiel SDR must be received, reviewed, and approved by the USG, to include SDRs for warrantied items (e.g., exhibits, evaluations).
2. The reimbursement process is linked to the specific type of FMS SDR involved, as well as the FMS parts movement cycle. Attachment 2 identifies which SDR-related SDR Response Codes (SRCs)/Adjustment Reply Codes (SRC/ARCs) may trigger associated transportation reimbursement. Part 3 of Attachment 2 represent the only ARCs that pertain to SDR transportation reimbursement.
3. The FMS customer must follow USG disposition instructions (including Packing, Crating and Handling (PC&H)) for the discrepant materiel being returned to the USG. If the FMS customer opts to employ arrangements other than the USG's instructions for returning the discrepant materiel, the USG will not reimburse any transportation costs. If the USG's instructions are not clear, or if the FMS customer determines that alternative arrangements are more economical, the customer shall consult with the USG before further action is taken on the discrepant materiel.
4. The USG must obtain proof of discrepant materiel receipt at the USG receiving facility or, at a minimum, proof of shipment from the FMS customer. In this context, "proof of shipment" is met by (a) receipt of a DD1348-1 ("DoD Single Line Item Release/Receipt Document") or other acceptable evidence that the receiving activity has the returned materiel; (b) a DD1149 ("Requisition and Invoice/Shipping Document"); or (c) express carrier receipt signed by a USG official.

Note: The basis for reimbursement is the discrepant article/service materiel billed value. To the extent that billed values differ from those stated on the LOA, the billed values govern for purposes of calculating any reimbursement that may pertain.

Reimbursement Process

Parts Movement Cycle Applicability The applicability of transportation reimbursement for FMS SDRs is illustrated in Attachment 3. Reimbursement may accommodate costs incurred in transporting the items to the FMS customer, as well as costs incurred for transporting items from the FMS customer. A key influencing variable is the Delivery Term Code (DTC) stated in (a) the Letter of Offer and Acceptance (LOA) document, (b) the Transportation Bill Code (TBC), if applicable, and (c) the relevant delivery reporting ('NA') transaction.

Original Funding Source for Discrepant Materiel The funding source for discrepant materiel on the transportation reimbursement determination is identified in Attachment 3. In general, consideration for reimbursement occurs from Cycle B onward. Since the DWCF/non-DWCF discussion focuses primarily on movement from Cycle A to Cycle B, reimbursement methodology beyond the PC&H costs is not germane for this initial movement. For purposes of this policy, items furnished directly from contractor facilities which pertain to FMS cases are addressed as a separate category. (Note: items sent from contractor facilities that do not support FMS cases are excluded from the scope of this policy, as stated above.)

Reimbursement Calculation

Materiel Initially Sent TO the FMS Customer. This refers to the movement of materiel from Cycle B to Cycle D, as noted in Attachment 3. If a FF is responsible for the onward movement from Cycle B, reimbursement equals five percent of the discrepant article/service materiel billed value. If Cycle B is a Continental United States (CONUS) port (i.e., Defense Transportation System (DTS) movement via DTC 7, 8 or 9), reimbursement is a pro rata reversal of the accessorial charges previously billed to the FMS customer.

Materiel Sent FROM the FMS Customer. This refers to the movement of materiel from Cycle D to Cycle E, as noted in Attachment 3. See the third prerequisite noted above regarding the USG's disposition instructions. Those instructions will entail either (a) using a tracking service; (b) using Credit Commercial Bills of Lading (CCBLs); or (c) the FMS customer shall receive a credit of three percent of the discrepant article/service materiel billed value.

Packing, Crating and Handling (PC&H). Reimbursement may pertain for the movement of materiel from Cycle A to Cycle B, and from Cycle D to Cycle E, as noted in Attachment 3.

The amount credited is based on the standard PC&H percentages applied to the article/service materiel billed value.

Local Disposal. When the FMS customer and USG agree that it is more economically feasible to dispose of the discrepant items (rather than returning the items for repair), the FMS customer shall be reimbursed for five percent of the discrepant article/service materiel value. The FMS customer shall not be reimbursed if the local disposal instructions are not followed.

Transporting Repaired Items. This pertains to situations where the FMS customer and USG agree that it is more economically efficient to return the discrepant items to the USG for repair. (Note: This does not pertain to items being repaired under previously established repair/return/replace/exchange LOAs, and for which no SDR for that repair applies.) Reimbursement equals five percent of the article/service materiel billed value for the item being returned for repair. Since reimbursement captures the costs of transporting the item back to the USG, the FMS customer must then pay for transporting the repaired item back to the final destination, or otherwise in accordance with the LOA shipment instructions (e.g., DTC, Mode of Shipment).

Reimbursement Transactions

Reimbursements to the FMS Accounts. In general, reimbursement for transportation associated with approved SDRs is sent to the FMS Transportation Account (L009). Reimbursement associated with PC&H is sent to the PC&H Account (L081). DLA will send the transportation cost reimbursements directly to L009, and the PC&H reimbursements directly to L081. MILDEPs will send reimbursements from other WCFs/non-WCFs in the same manner (L009/L081). Where the other WCFs/non-WCFs or contractor facilities should fund the reimbursement effort (i.e., nature of discrepant materiel was the fault of the WCF/non-WCF activity/contractor facility), the MILDEPs are responsible for securing reimbursement to the L009/L081 accounts. The MILDEPs shall send a quarterly report to DSCA/FM (Financial Policy) verifying the deposits into L009/L081 made from those WCFs/facilities. The initial report is due 31 January 2004, for the quarter ending 31 December 2003.

Reimbursements to the FMS Customer. Reimbursements to the FMS customer will be paid from the FMS Transportation Account (L009) and PC&H Account (L081). Reimbursements will occur on a quarterly basis. It is important to note that SDR transportation reimbursements will not be recorded directly against the FMS case(s) to which the discrepant materiel SDR pertained. Rather, those reimbursements will be reflected in the quarterly holding account statements attached to the DD645 (FMS Billing Statement) by DFAS Denver. A new holding account, 8QQ, will be established for each country as SDR transportation reimbursements occur. The 8QQ holding account statements will identify the FMS case(s) to which the SDR transportation reimbursement applied during that quarter. In addition, the 8QQ statements will identify the case designator and SDR number that can be referenced to the FMS delivery listing and SDR adjustment reply report, both of which are attached to the quarterly DD645.

Transactions to the Defense Integrated Financial System (DIFS). The Implementing Agency (IA) submits a mirror SDR credit adjustment ('NZ' transaction) for the discrepant materiel, using one of the new SRCs/ARCs established that generate SDR transportation reimbursement (see Attachment 2). The 'NZ' transaction is processed only after all of the prerequisites identified above are satisfied. The FMS delivery listing attachment to the DD645 identifies the mirror transaction using the unique SRC/ARC, so that the FMS customer knows the holding account was credited by the authorized refund value. The transportation reimbursement is performed manually by DFAS Denver, using a DIFS retrieval that extracts all transactions citing the unique SRC/ARC. The retrieval is programmed to:

• Provide an EXCEL-formatted spreadsheet with the country code, IA, in-country service, FMS case, holding account, SDR value, SDR number and transportation refund amount; and
• Calculate the refund amount based upon the SRC/ARC and SDR value.

DFAS Denver processes a 'SC' transaction in DIFS transferring the refund from the L009 and/or L081 accounts, to the appropriate holding account for each FMS customer. The holding account is cross-referenced to the FMS case designator and SDR number. Then, DFAS Denver prepares a SF 1081 ("Voucher and Schedule of Withdrawals and Credits") to document the transfer of funds from the L009/L081 account(s) to the FMS customer's holding accounts. Copies of the SF 1081 are distributed to DFAS country program managers, DSCA/RM and DSCA/FM.

Effective Date

This policy is effective as of 1 October 2003 (FY2004). This date corresponds to the approval date of the discrepant materiel FMS SDR. This policy is not retroactive for FMS SDRs submitted and approved prior to 1 October 2003.

Policy Review and Exceptions

The initial evaluation for this policy will occur in the September 2004 timeframe. On an annual basis thereafter, DSCA will analyze the impact of SDR transportation reimbursements on the L009/L081 accounts, and will gauge overall implementation success of this policy. Further refinements to this policy document may be issued, as a result. Only DSCA may issue revisions to this policy. IAs and DFAS may issue more detailed procedural guidance, as deemed appropriate.

The anticipated frequency of any policy exceptions is minimal. Only DSCA/FM can approve exceptions to this policy. Exceptions may be submitted by either the proponent IA or the FMS customer, and must include a thorough justification as to the desired waiver.

Contacts

DSCA: DSCA/FM Financial Policy, (703) 604-6569, DSN 664-6569 DFAS Denver: DFAS Systems and Policy, (303) 676-5735, DSN 926-5735

SDR RESPONSE CODES (SRCs)/ ADJUSTMENT REPLY CODES (ARCs)

PART 1: REVISIONS TO EXISTING CODES

PART 2: EXPANSION OF EXISTING CODES (NOT RELATED TO TRANSPORTATION REIMBURSEMENT)

PART 3: NEW CODES THAT GENERATE SDR TRANSPORTATION REIMBURSEMENT

SUPPLY DISCREPANCY REPORT (SDR) TRANSPORTATION REIMBURSEMENT METHODOLOGY