Security Assistance Management Manual E-Change 623
Waivers to Nonrecurring Cost Recoupment Charge Policy Update

1. Update Section C9.4.5. "Nonrecurring Cost Recoupment Charges" (and subsections) to the following:

   C9.4.5. Nonrecurring Cost Recoupment Charges. DoW FMR, Volume 15, Chapter 7, and DoDD 2140.02 provide detailed guidance on establishing NC charges and pricing these costs on LOA documents. These costs NC charges do not apply to cases that are fully financed with non-repayable Foreign Military Financing (FMF) or non-repayable Military Assistance Program (MAP) funds. See Section C9.6.3. on NC charge waiver requirements and processes. For questions regarding the NC charges contact DSCA (Office of International Operations, Global Execution Directorate, Security Cooperation Division (IOPS/GEX/SCD)). See Appendix 6 for LOA notes relating to NC charges.

   C9.4.5.1. Nonrecurring Cost Charge Approval Process. The DoW Components submit requests to establish an NC charge to the DSCA (IOPS/GEX/SCD) in accordance with using the formats and pricing methodology in DoW FMR, Volume 15, Chapter 7. Detailed worksheets accompanying NC recoupment charge establishment requests will be marked "Controlled Unclassified Information" unless a formal classification is required circumstances require formal classification . DSCA (IOPS/GEX/SCD) staffs the package within DSCA, Under Secretary of War for Acquisition and Sustainment (USW (A&S)), and (USW (C)). After coordination, the Director, DSCA approves or disapproves the NC charge and DSCA (OBO/FPRE/FAC) updates the DSAMS NC charge table accordingly the DSAMS NC table is updated..

   C9.4.5.2. Estimated Nonrecurring Cost Charges. There may be instances when an NC charge is being developed at the same time that an LOA is being prepared to sell the item in question. If there is not enough time to complete the NC approval process, an estimated amount for NC should be included in the unit price of the item on the LOA. The LOA should also include a note informing the purchaser that NC charges on the applicable line are estimates only and advising that a modification shall be done to adjust the price once the approved NC value is known. See Appendix 6 for exact note wording. In instances when an NC charge is being developed concurrently with LOA preparation, and there is insufficient time to complete the approval process, an estimated NC charge shall expire no later than 6 months from the date of creation, unless extended by DSCA (IOPS/GEX/SCD) approval. The LOA shall include a note advising the purchaser that the NC charges are estimates and that a modification will be made once the approved value is determined.

   C9.4.5.3. Determining Nonrecurring Cost Charges When Documentation is Not Available. In cases when historical documentation cannot be found, the MILDEP will calculate the pro rata NC at 5 percent of the last known DoD acquisition cost. The MILDEP is required to submit the proposed NC calculation and the basis for concluding that the Significant Military Equipment (SME) item would have met the MDE threshold to DSCA (IOPS/GEX). If historical documentation is not available, the IA shall calculate the pro rata NC charge using the last known DoW acquisition cost. The IA must submit the resulting calculation, along with the rationale for concluding that the item would have met the MDE threshold, to DSCA (IOPS/GEX/SCD).

   Figure C9.F3. Establishing Nonrecurring Cost Process Flow

   C9.4.5.4. Special Nonrecurring Cost Charge. For special research, development, test, and evaluation (RDT&E) or nonrecurring production costs (Special NC) incurred under FMS, the entire Special NC is collected by the originator(s) of the Special NC. When a subsequent purchaser requests the same specialized feature, a pro rata adjustment of the Special NC charge may be applied, provided that the total Special NC exceeds $50 million. (This process is distinct from the standard NC charge waiver process described in Section C9.6.3.)

   C9.4.5.4.1. Special Nonrecurring Cost Charge Reimbursements. Special NC charge reimbursements shall be collected by the DoW from other purchasers or participants incurring the special NC charge. Unless otherwise authorized by the Under Secretary of War for Acquisition and Sustainment, reimbursements must not be collected after 10 years from the date the original FMS customer(s) accepted the LOA containing the Special NC. See DoW FMR, Volume 15, Chapter 7, Section 3 for reference.

   C9.4.5.5. Initial Deposit. NC charges will be collected in the initial deposit and transferred to the SDAF account via offsetting collections. See Section SDAF.2.1.5.4. for processing offsetting collections.

   C9.4.5.4. C9.4.5.6. Reporting. NC collections are reported on the DSCA(Q)1112 report prescribed in DoW FMR, Volume 15, Chapter 7. The report is submitted quarterly by each of the DoW Components, to the DSCA (Office of Business Operations, Financial Policy and Regional Execution Directorate (OBO/FPRE)) within 45 days of the end of each quarter.

   Figure C9.F4. Establishing Special Nonrecurring Cost Charge Process Flow

2. Update Section C9.6.3. "Partial Waiver of Nonrecurring Cost Charge" (and subsections) to the following:

   C9.6.3. Waiver of Nonrecurring Cost Recoupment Charge Partial Waiver of Nonrecurring Cost. 

   C9.6.3.1. Basis for Nonrecurring Cost Waiver and/or Reduction Basis for Partial Waiver of the Nonrecurring Cost. In standard cases, a partial waiver of the NC charge may be granted based on the following criteria:

   C9.6.3.1.1. For sales that would significantly advance U.S. interests in NATO standardization; standardization with the Armed Forces of Japan, Australia, the Republic of Korea, Israel, New Zealand; or foreign procurement in the United States under co-production arrangements (refer to AECA Section 21(e)(2) (22 U.S.C. 2761(e)(2)).

   C9.6.3.1.2. For the sale of Major Defense Equipment (MDE) also being procured for U.S. Armed Forces and resulting in a cost savings to the U.S. on the U.S.-procured equipment that substantially offsets the revenue lost as a result of the waiver.

   C9.6.3.1.3. For sales when imposition of the charge would likely result in the loss of the sale.

   C9.6.3.1.4. For the sale of MDE at a reduced price due to age or condition, the NC is reduced by the same percentage.

   C9.6.3.2. Nonrecurring Cost Waiver Process Waiver Process for Nonrecurring Costs Charges. Waivers of the NC charge shall be granted on a case-by-case basis; blanket waivers are not considered. NCs may be waived or partially waived on a case-by-case basis; blanket waivers are not considered In most cases, the FMS purchaser's request must be submitted to the USG prior to acceptance of the LOA (or Amendment for increased quantities); however, waiver requests for ensuring NATO interoperability some waiver requests for NATO interoperability may be approved after the LOA acceptance in certain cases (or Amendment for increased quantities) is accepted.

   C9.6.3.2.1. FMS purchasers submit NC waiver requests to the Implementing Agency (IA) (preferably with the LOR). If the IA concurs, it should prepare a complete NC Waiver package that includes: Purchasers submit NC waiver or reduction requests to the Military Department (MILDEP) (preferably with the LOR). If the MILDEP concurs, it endorses the request and submits it to DSCA (IOPS) for approval. The package must include: a copy of the purchaser's written NC waiver request (including reason and/or justification), MILDEP concurrence (or non-concurrence), FMS case identifier, description and quantity of items, NC amounts to be waived (pro rata and total), and any information about cost deviation (i.e., if the proposed pro rata waiver cost does not match the approved pro rata NC charge).

   • A signed IA endorsement memorandum of the request
   • FMS purchaser's written NC waiver request (including justification and rationale), concurrence (or non-concurrence)
   • FMS case identifier
   • Description and quantity of items
   • Copy of draft LOA (if available)
   • NC waiver amount (pro rata and total), and any information about cost deviation (i.e., if the proposed pro rata waiver cost does not match the approved pro rata NC charge)

   C9.6.3.2.1.1. The IA shall forward the complete package to DSCA (IOPS, Global Execution Directorate, Security Cooperation Division (IOPS/GEX/SCD)) for evaluation. DSCA (IOPS) staffs the package within DSCA, USW (A&S), and USW (C); additionally, if the basis of the NC waiver is "loss of sale", the package is staffed within the Office of the Under Secretary of War for Policy (OUSW (P)). After coordination, the Director, DSCA approves, partially approves, or disapproves the NC Waiver and the MILDEP is notified.

   C9.6.3.2.2. To standardize the waiver procedures within the DoW, only waiver requests totaling a minimum NC charge will be accepted. Detailed cost analysis has indicated that the administrative expenses for processing individual NC waiver requests are significant. Waiver requests below the $5,000.00 threshold will be returned to the IA. In such cases, the applicable NC charge will be added to the corresponding LOA for recovery from the purchaser.

   C9.6.3.2.3. For waiver requests based on a potential loss of sale, the FMS purchaser's NC waiver request must clearly state that if the waiver is denied, the sale will be lost. To support the request, please ensure the following:

   • The IA request memo must include, for every item for which a waiver is requested, a competing item and its cost, provided these details can be identified.
   • The Under Secretary of War for Policy (USW(P)) regional policy country directors (CD) must concur with and provide a policy assessment for the supporting package.
   • DSCA (IOPS, Regional Execution Directorate (IOPS/REX)) must provide an assessment of the loss of sale justification.
   • For loss of sale waivers, the purchaser must sign the LOA only after the waiver has been approved and the NC cost has been removed from the LOA or Amendment in DSAMS.
   • Acceptance of an LOA or Amendment that still includes the NC cost will negate the waiver justification and prevent any subsequent waiver request under the same case.

   C9.6.3.2.3. C9.6.3.2.4. Waiver requests based on offsetting USG costs must be validated by the MILDEP to determine if U.S. cost savings would be realized. Waiver requests predicated on offsetting USG costs must be validated by the IA to confirm that U.S. cost savings would be realized. The savings must substantially offset the revenue given up by the waiver. The IA determination The MILDEP determination is coordinated with the IA's MILDEP's Comptroller organization and is provided to DSCA (IOPS/GEX/SCD) DSCA (IOPS) prior to submitting the LOA or Amendment for countersignature. This waiver authority does not apply to sales from stock unless the equipment is to be replaced by current DoW DoD procurement of additional equipment for the U.S. Armed Forces.

   C9.6.3.2.4. C9.6.3.2.5. Section C5.6.5.1.1.4. specifies classification requirements for response documents when waiver requests require congressional notification pursuant to AECA, Section 36(b) (22 U.S.C. 2776(b)).

   C9.6.3.2.5. C9.6.3.2.6. An NC charge may be collected as part of a cooperative project or consortium of which USG is a member. In cases where an NC charge is associated with a cooperative project or consortium in which the USG is a member. If a waiver is granted in such instances, a special note shall be included in the LOA. See Appendix 6 for language on NC charge notes wordings on NC notes..

   C9.6.3.2.6. C9.6.3.2.7. A partially approved NC waiver for increased line-item quantities against an existing line granted a full waiver requires a new line added to the case.In cases where the waiver is partially approved for increased line-item quantities against an existing line already granted a full waiver, a new line must be added to the case to capture the increased quantities at the partially approved cost.

   C9.6.3.2.8. Once DSCA receives the complete waiver request package from the IA, it shall respond within 30 business days. Should priority processing be necessary, the IA may request expedited handling with appropriate justification, subject to endorsement by the DSCA Director. Upon the Director's determination on the waiver request, DSCA (IOPS/GEX/SCD) will send notifications to the IA and Defense Finance and Accounting Service (DFAS), as appropriate.

   Figure C9.F5. Establishing Special Nonrecurring Cost Charge Process Flow
3. Renumber subsequent figures in chapter 9 as required.