Federal Register / Vol. 83, No. 126 / Friday, June 29, 2018 / Rules and Regulations 30825 

PART 208—REQUIRED SOURCES OF 

SUPPLIES AND SERVICES 

208.404 [Amended] 

■ 2. Amend section 208.404, in 

paragraph (a)(iv), by removing 

‘‘215.408(3)’’ and ‘‘215.408(4)’’ and 

adding ‘‘215.371–6’’ and ‘‘215.408(3)’’ 

in their place, respectively. 

PART 212—ACQUISITION OF 

COMMERCIAL ITEMS 

212.301 [Amended] 

■ 3. Amend section 212.301 by— 

■ a. In paragraph (f)(vi)(A), removing 

‘‘215.408(3)(i)’’ and adding 

‘‘215.408(2)(i)’’ in its place; 

■ b. In paragraph (f)(vi)(B), removing 

‘‘215.408(3)(ii)’’ and adding 

‘‘215.408(2)(ii)’’ in its place; 

■ c. In paragraph (f)(vi)(D), removing 

‘‘215.408(4)’’ and adding ‘‘215.408(3)’’ 

in its place; 

■ d. In paragraph (f)(vi)(E), removing 

‘‘215.408(6)(i)’’ and adding 

‘‘215.408(5)(i)’’ in its place; 

■ e. In paragraph (f)(vi)(E)(1), removing 

‘‘215.408(6)(i)(A)’’ and adding 

‘‘215.408(5)(i)(A)’’ in its place; and 

■ f. In paragraph (f)(vi)(E)(2), removing 

‘‘215.408(6)(i)(B)’’ and adding 

‘‘215.408(5)(i)(B)’’ in its place. 

PART 214—SEALED BIDDING 

214.201–6 [Amended] 

■ 4. Amend section 214.201–6 by 

removing ‘‘215.408(3) and (4)’’ and 

adding ‘‘215.371–6 and 215.408(3)’’ in 

its place. 

PART 215—CONTRACTING BY 

NEGOTIATION 

215.408 [Amended] 

■ 5. Amend section 215.408 by— 

■ a. Removing paragraph (1); 

■ b. Redesignating paragraphs (2) 

through (7) as paragraphs (1) through 

(6); 

■ c. In newly redesignated paragraph 

(2)(i)(A)(2), removing ‘‘paragraph 

(3)(i)(A)(1)’’ and adding ‘‘paragraph 

(2)(i)(A)(1) of this section’’ in its place; 

and 

■ d. In newly redesignated paragraphs 

(2)(ii)(A)(2) and (2)(ii)(A)(3)(i), removing 

‘‘paragraph (3)(ii)(A) (1)’’ and adding 

‘‘paragraph (2)(ii)(A)(1) of this section’’ 

in its place. 

PART 216—TYPES OF CONTRACTS 

216.506 [Amended] 

■ 6. Amend section 216.506, in 

paragraph (S–70), by removing 

‘‘215.408(3) and (4)’’ and adding 

‘‘215.371–6 and 215.408(3)’’ in its place. 

PART 225—FOREIGN ACQUISITION 

225.870–4 [Amended] 

■ 7. Amend section 225.870–4, in 

paragraph (c)(3), by removing 

‘‘215.408(3)(i) and (ii)’’ and adding 

‘‘215.408(2)(i) and (ii)’’ in its place. 

PART 252—SOLICITATION 

PROVISIONS AND CONTRACT 

CLAUSES 

252.215–7000 [Removed and Reserved] 

■ 8. Remove and reserve 252.215–7000. 

252.215–7002 [Amended] 

■ 9. Amend section 252.215–7002, in 

the introductory text, by removing 

‘‘215.408(2)’’ and adding ‘‘215.408(1)’’ 

in its place. 

252.215–7003 [Amended] 

■ 10. Amend section 252.215–7003, in 

the introductory text, by removing 

‘‘215.408(3)(i)’’ and adding 

‘‘215.408(2)(i)’’ in its place. 

252.215–7004 [Amended] 

■ 11. Amend section 252.215–7004, in 

the introductory text, by removing 

‘‘215.408(3)(ii)’’ and adding 

‘‘215.408(2)(ii)’’ in its place. 

252.215–7008 [Amended] 

■ 12. Amend section 252.215–7008, in 

the introductory text, by removing 

‘‘215.408(4)’’ and adding ‘‘215.408(3)’’ 

in its place. 

252.215–7009 [Amended] 

■ 13. Amend section 252.215–7009 by, 

in the Basic clause introductory text, 

removing ‘‘215.408(5)’’ and adding 

‘‘215.408(4)’’ in its place. 

252.215–7010 [Amended] 

■ 14. Amend section 252.215–7010 by— 

■ a. In the Basic clause introductory 

text, removing ‘‘215.408(6)(i) and 

(6)(i)(A)’’ and adding ‘‘215.408(5)(i) and 

(5)(i)(A)’’ in its place; and 

■ b. In the Alternate I clause 

introductory text, removing 

‘‘215.408(6)(i) and (6)(i)(B)’’ and adding 

‘‘215.408(5)(i) and (5)(i)(B)’’ in its place. 

252.215–7011 [Amended] 

■ 15. Amend section 252.215–7011, in 

the introductory text, by removing 

‘‘215.408(6)(ii)’’ and adding 

‘‘215.408(5)(ii)’’ in its place. 

252.215–7012 [Amended] 

■ 16. Amend section 252.215–7012, in 

the introductory text, by removing 

‘‘215.408(6)(iii)’’ and adding 

‘‘215.408(5)(iii)’’ in its place. 

252.215–7013 [Amended] 

■ 17. Amend section 252.215–7013, in 

the introductory text, by removing 

‘‘215.408(7)’’ and adding ‘‘215.408(6)’’ 

in its place. 

[FR Doc. 2018–14044 Filed 6–28–18; 8:45 am] 

BILLING CODE 5001–06–P 

DEPARTMENT OF DEFENSE 

Defense Acquisition Regulations 

System 

48 CFR Parts 202, 215, 225, and 252 

[Docket–DARS–2015–0027] 

RIN 0750–AI59 

Defense Federal Acquisition 

Regulation Supplement: Offset Costs 

(DFARS Case 2015–D028) 

AGENCY: Defense Acquisition 

Regulations System, Department of 

Defense (DoD). 

ACTION: Final rule. 

SUMMARY: DoD is issuing a final rule 

amending the Defense Federal 

Acquisition Regulation Supplement 

(DFARS) to implement a section of the 

National Defense Authorization Act for 

Fiscal Year 2016 related to costs 

associated with indirect offsets under 

foreign military sales (FMS) agreements 

and expand on the prior interim rule 

guidance related to FMS offset costs. 

DATES: Effective June 29, 2018. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Mark Gomersall, telephone 571–372– 

6176. 

SUPPLEMENTARY INFORMATION: 

I. Background 

DoD published an interim rule in the 

Federal Register (80 FR 31309) on June 

2, 2015, to amend the DFARS to state 

that all offset costs that involve benefits 

provided by the U.S. defense contractor 

to the FMS customer that are unrelated 

to the item being purchased under the 

Letter of Offer and Acceptance (LOA) 

(indirect offset costs) are deemed 

reasonable, with no further analysis 

necessary on the part of the contracting 

officer, provided that the U.S. defense 

contractor submits to the contracting 

officer a signed offset agreement or other 

documentation showing that the FMS 

customer has made the provision of an 

indirect offset of a certain dollar value 

a condition of the FMS acquisition. 

To expand on the interim rule 

guidance and incorporate the 

requirements of section 812 of the 

National Defense Authorization Act 

(NDAA) for Fiscal Year (FY) 2016, DoD 


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published a subsequent proposed rule 

in the Federal Register (81 FR 78015) on 

November 4, 2016. 

Section 812 of the NDAA for FY 2016 

amended 10 U.S.C. 2306a(b)(1) to state 

that submission of certified cost or 

pricing data shall not be required in the 

case of a contract, a subcontract, or 

modification of a contract or subcontract 

to the extent such data— 

(i) Relates to an offset agreement in 

connection with a contract for the sale 

of a weapon system or defense-related 

item to a foreign country or foreign firm; 

and 

(ii) Does not relate to a contract or 

subcontract under the offset agreement 

for work performed in such foreign 

country or by such foreign firm that is 

directly related to the weapon system or 

defense-related item being purchased 

under the contract. 

II. Discussion and Analysis 

One respondent submitted public 

comments in response to the proposed 

rule. DoD reviewed the public 

comments in the development of this 

final rule. A discussion of the comments 

and the changes made to the rule as a 

result of those comments are provided 

as follows: 

A. Summary of Significant Changes 

In addition to the interim rule 

revisions to DFARS 225.7303–2, Cost of 

doing business with a foreign 

government or an international 

organization, this final rule includes the 

proposed rule amendments to revise 

215.403–1(b), Exceptions to certified 

cost or pricing data requirements, and 

adds clause 252.215–7014, Exception 

from Certified Cost or Pricing Data 

Requirements for Foreign Military Sales 

Indirect Offsets. 

In response to public comments, the 

definitions of ‘‘direct offset’’ and 

‘‘indirect offset’’ have been revised, and 

the title of DFARS Clause 252.215–7014 

has been revised. 

B. Analysis of Public Comments 

1. Definition of ‘‘direct offsets’’ 

Comment: The respondent stated that 

the definition of ‘‘direct offsets’’ in the 

proposed rule is too broad to satisfy the 

statutory requirements, and leaves room 

for ambiguity in determining whether 

an offset requirement is indirect or 

direct. In some cases, there may be 

indirect offset projects that are related to 

the item being purchased, but not part 

of the FMS procurement itself, such as 

a maintenance facility for the item that 

is being offered. The definition for 

direct offsets should be limited to 

manufacturing or services performed by 

a foreign supplier to fulfill the specific 

FMS contract deliverable. For example, 

the respondent explained that FMS 

customers are increasingly interested in 

maintaining their aircraft throughout the 

lifecycle and are requesting projects 

from U.S. aerospace companies that 

involve maintenance, repair, overhaul, 

and simulation capability. Related 

products and services that are needed to 

operate, maintain, and/or sustain the 

item, but are not part of the scope or 

directly procured under the LOA, 

including training and maintenance 

activities, are not direct offsets. 

Moreover, although it is correct that 

direct offsets are ‘‘generally . . . 

performed within a specific period,’’ 

this is not necessarily a distinguishing 

characteristic for a direct offset, and 

may lead to confusion. The respondent, 

however, recommended adding the 

clarifying phrase ‘‘integral to the 

deliverable of the FMS contract’’ in the 

definition, because it reinforces that 

direct offsets are directly related to the 

system offered in the LOA. 

Response: DoD concurs with the 

respondent’s recommendation in part. 

The first sentence of the direct offset 

definition is revised to provide that a 

direct offset involves benefits or 

obligations, including supplies or 

services, that are directly related to the 

item being purchased and are integral to 

the deliverable of the FMS contract. 

However, the definition still states that, 

generally, direct offsets must be 

performed within a specific period, 

because they are integral to the 

deliverable of the FMS contract, to 

provide a bright line discriminator 

between direct and indirect offsets. 

2. Definition of ‘‘indirect offsets’’ 

Comment: The respondent 

recommended revising the definition of 

‘‘indirect offsets’’ to provide clarity for 

the contracting officers to identify 

indirect offsets and enable FMS 

customers to obtain the offset benefits 

they need without the additional cost 

and time of having the contractor 

propose and negotiate an offset program 

subject to Federal Acquisition 

Regulation (FAR) parts 15 and 31, 

thereby fulfilling the intention of 

section 812 of the NDAA for FY 2016. 

Foreign customers are increasingly 

looking for indirect offset projects that 

are not integral to the items being 

purchased in an LOA, but that may be 

related to the defense articles. Without 

revision to this definition, contracting 

officers could mistakenly view these 

indirect offset projects as direct offsets. 

In addition, offsets are not necessarily in 

fulfillment of an FMS contract. Since 

offsets are executed under a separate 

offset agreement, the offset customer is 

not always the same as the supply 

contract customer, and the offset 

authority may have different offset 

project priorities than the supply 

contract customer. 

Response: DoD concurs with the 

respondent’s recommendation and has 

revised the definition of indirect offsets. 

3. Definition of ‘‘offset costs’’ 

Comment: The respondent 

recommended revising the definition of 

‘‘offset costs.’’ Generally, offsets are 

implemented in accordance with a 

foreign purchaser’s national offset 

requirements. These requirements can 

differ from country to country, and not 

all offset transactions may be deemed to 

be required. Offsets are frequently 

agreed to in a contractual commitment 

and are not addressed explicitly in the 

LOA. Accordingly, the definition of 

offset costs should be modified to 

address these circumstances. 

Response: DoD disagrees with this 

recommendation. For offsets to be 

included in FMS contracts, they must be 

required (explicitly or implicitly) as a 

condition of foreign military sales. 

4. Offset Agreements 

Comment: The respondent 

recommended removing the word 

‘‘Agreements’’ from the title for DFARS 

clause 252.215–7014. The distinction 

between direct and indirect offsets is 

typically made at the project level, not 

at the agreement level. An FMS 

customer may include requirements for 

both direct and indirect projects in a 

single offset agreement. A reference here 

to an Agreement is overbroad and is 

certain to cause confusion in the 

implementation. 

Response: DoD concurs with the 

respondent’s recommendation and has 

revised the title of DFARS clause 

252.215–7014, accordingly. 

5. Appropriate Documentation 

Comment: The respondent believes 

that the administrative requirement for 

evidence to show that the FMS 

customer has ‘‘made the provision of an 

indirect offset a condition of the FMS 

acquisition’’ and that such evidence 

support the specific acquisition is 

unnecessary, onerous, and not 

responsive to statutory guidance 

provided in section 812 of the NDAA for 

FY 2016. 

The respondent concurs with prior 

public comments to the interim rule 

which stated that, ‘‘a country’s offset 

guidelines may allow for both direct and 

indirect projects, but the defense 

contractor and foreign government 

might not decide on a specific mix of 


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Federal Register / Vol. 83, No. 126 / Friday, June 29, 2018 / Rules and Regulations 30827 

direct versus indirect projects until after 

the LOA is signed. As such, this 

requirement could effectively negate 

much of the benefit of this rule.’’ 

The respondent explained that in 

practice, an offset agreement may not 

specify an indirect offset requirement, 

but rather the overall offset obligation 

that can be fulfilled with both direct and 

indirect offset projects. Moreover, many 

offset agreements do not require offset 

obligation percentages or minimum 

direct/indirect offset requirements. A 

country’s offset requirements may also 

flow down to items (products or 

services) that are affiliated with sales 

that are being supplied by, but not 

limited to, Government-furnished 

equipment, or lower tier defense 

contractors. In such cases, a contractor 

may have no ‘‘evidence’’ to provide of 

the requirement related to the specific 

acquisition other than the requirements 

outlined in the foreign law, regulation, 

policy, or other general guidance. 

The intent of section 812 of the NDAA 

for FY 2016 was to eliminate the need 

for an unnecessary and time-consuming 

review of offsets that are negotiated 

directly between the contractor and 

foreign customer. A combination of the 

‘‘FMS customer’s offset guidelines, 

requirements, regulations or law, policy 

or historical requirements’’ should be a 

sufficient showing of evidence for an 

offset requirement. 

The respondent recommended that 

contracting officers accept that the 

contractor has an indirect offset 

requirement, if so stated, since a 

contractor claiming an offset 

requirement where none exists would 

be subject to other laws and regulations 

governing such false claims. 

Response: It is not an unreasonable 

requirement for contractors to provide 

the contracting officer a signed offset 

agreement or other documentation 

showing that the FMS customer has 

made the provision of an indirect offset 

a condition of the FMS acquisition as a 

condition for deeming indirect offset 

costs to be reasonable for purposes of 

FAR parts 15 and 31 with no further 

analysis necessary. Therefore, no 

revisions are necessary. 

6. Administrative Costs 

Comment: The respondent believed 

that administration costs should not be 

distinguishable from other indirect costs 

for the purposes of this rule. As stated, 

‘‘indirect offset costs are deemed 

reasonable for purposes of FAR parts 15 

and 31 with no further analysis 

necessary on the part of the contracting 

officer. . . .’’ Similarly, section 812 of 

the NDAA for FY 2016 makes no such 

distinction between indirect offset 

administration costs and other costs. 

The respondent further stated that it 

is unclear what administration costs 

might be envisioned for further review. 

For example, travel and project 

execution costs might be deemed 

administrative costs. Since these costs 

would not be determined until the offset 

projects are defined, such costs might 

also not be determined until after the 

LOA is signed. 

The respondent explained that the 

intent of the statutory and regulatory 

guidance related to indirect offset costs 

was to ensure that contracting officers 

did not have to conduct reasonableness 

analysis in these instances. Contracting 

officers should not have a greater 

requirement to parse out indirect 

administration costs for which they 

have no greater knowledge and 

expertise than the indirect offset costs in 

total. 

The respondent suggested that the 

definitions for ‘‘direct’’ and ‘‘indirect’’ 

offsets should provide sufficient 

clarification for contracting officers to 

ensure that the final rule implements 

the statutory requirement that those 

costs not directly related to the system 

or item being purchased under the LOA 

are not subjected to certified pricing 

requirements. 

Therefore, the respondent believed 

that it is not appropriate or necessary for 

a contracting officer to engage in cost 

reasonableness analysis for 

administration costs related to indirect 

offsets. The respondent recommended 

that the final rule should make clear 

that all indirect offset costs are deemed 

reasonable for the purposes of FAR parts 

15 and 31 with no further analysis 

necessary on the part of the contracting 

officer, and that the rule applies to all 

indirect offset costs, including any 

administrative costs. 

Response: The definitions for ‘‘direct’’ 

and ‘‘indirect’’ offsets provides 

sufficient clarification for contracting 

officers to ensure that those costs not 

directly related to the item being 

purchased or integral to the deliverable 

of the FMS contract are not subjected to 

certified pricing requirements. No 

further clarification is required. 

III. Applicability to Contracts at or 

Below the Simplified Acquisition 

Threshold (SAT) and for Commercial 

Items, Including Commercially 

Available Off-the-Shelf (COTS) Items 

This rule clarifies requirements 

related to costs associated with indirect 

offsets under Foreign Military Sales 

agreements. The revisions do not add 

any new burdens or impact applicability 

of clauses and provisions at or below 

the simplified acquisition threshold, or 

to commercial items. 

IV. Executive Orders 12866 and 13563 

Executive Orders (E.O.s) 12866 and 

13563 direct agencies to assess all costs 

and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). E.O. 13563 emphasizes the 

importance of quantifying both costs 

and benefits, of reducing costs, of 

harmonizing rules, and of promoting 

flexibility. This is not a significant 

regulatory action and, therefore, was not 

subject to review under section 6(b) of 

E.O. 12866, Regulatory Planning and 

Review, dated September 30, 1993. This 

rule is not a major rule under 5 U.S.C. 

804. 

V. Executive Order 13771 

This rule is not an E.O. 13771, 

Reducing Regulation and Controlling 

Regulatory Costs, regulatory action, 

because this rule is not significant under 

E.O. 12866. 

VI. Regulatory Flexibility Act 

A final regulatory flexibility analysis 

has been performed and is summarized 

as follows: 

The objective of this rule is to 

incorporate the requirements of section 

812 of the National Defense 

Authorization Act of 2016 to provide 

clarification to contracting officers when 

indirect offsets are a condition of an 

FMS acquisition. This rule revises 

DFARS 225.7303–2, ‘‘Cost of doing 

business with a foreign government or 

an international organization’’ by 

adding paragraph (a)(3)(iii) to provide 

guidelines to contracting officers when 

an indirect offset is a condition of a 

Foreign Military Sales (FMS) 

acquisition. This rule specifically 

addresses indirect offsets as they are 

applied to the Defense Security 

Cooperation Agency’s FMS cases. This 

rule is necessitated by the recent and 

foreseeable trend of increasing numbers 

and complexity of indirect offsets 

desired by DoD FMS customers. 

DoD administers FMS programs with 

partner nations to maintain and 

strengthen relationships with nations 

that if not nurtured through these 

partnerships may threaten national 

security. The Department’s FMS 

program allows foreign customers to 

request, and pay for, through inclusion 

of the cost in the FMS Letter of Offer 

and Acceptance (LOA) and DoD 

contract, offsets that are directly related 


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30828 Federal Register / Vol. 83, No. 126 / Friday, June 29, 2018 / Rules and Regulations 

to the FMS end items (i.e., ‘‘direct 

offsets’’), as well as offsets that are not 

directly related to the end item (i.e., 

‘‘indirect offsets’’). 

DoD recognizes the need to have 

offsets embedded in DoD FMS contracts. 

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 pursuant 

to FAR part 15. 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 for the purposes of FAR part 

31. 

There were no significant issues 

raised by the public in response to the 

initial regulatory flexibility analysis. 

DoD does not expect this rule to have 

a significant impact on the small 

businesses that may be affected by this 

rule, because the DFARS amendments 

merely clarify that contracting officers 

are not responsible for making a 

determination of price reasonableness 

for indirect offset agreements for which 

they have no purview. 

DoD does not expect this rule to have 

a significant economic impact on a 

substantial number of small entities 

within the meaning of the Regulatory 

Flexibility Act, 5 U.S.C. 601, et seq. 

There is no change to reporting or 

recordkeeping as a result of this rule. 

The rule does not duplicate, overlap, or 

conflict with any other Federal rules, 

and there are no known significant 

alternative approaches to the rule that 

would meet the requirements. 

VII. Paperwork Reduction Act 

The rule does not contain any 

information collection requirements that 

require the approval of the Office of 

Management and Budget under the 

Paperwork Reduction Act (44 U.S.C. 

chapter 35). 

List of Subjects in 48 CFR Parts 202, 

215, 225, and 252 

Government procurement. 

Amy G. Williams, 

Deputy, Defense Acquisition Regulations 

System. 

Therefore, 48 CFR parts 202, 215, 225, 

and 252 are amended as follows: 

■ 1. The authority citation for 48 CFR 

parts 202, 215, 225, and 252 continues 

to read as follows: 

Authority: 41 U.S.C. 1303 and 48 CFR 

chapter 1. 

PART 202—DEFINITIONS OF WORDS 

AND TERMS 

■ 2. In section 202.101, add, in 

alphabetical order, definitions of 

‘‘Offset’’ and ‘‘Offset costs’’ to read as 

follows: 

202.101 Definitions. 

* * * * * 

Offset means a benefit or obligation 

agreed to by a contractor and a foreign 

government or international 

organization as an inducement or 

condition to purchase supplies or 

services pursuant to a foreign military 

sale (FMS). There are two types of 

offsets: Direct offsets and indirect 

offsets. 

(1) A direct offset involves benefits or 

obligations, including supplies or 

services that are directly related to the 

item(s) being purchased and are integral 

to the deliverable of the FMS contract. 

For example, as a condition of a foreign 

military sale, the contractor may require 

or agree to permit the customer to 

produce in its country certain 

components or subsystems of the item 

being sold. Generally, direct offsets 

must be performed within a specified 

period, because they are integral to the 

deliverable of the FMS contract. 

(2) An indirect offset involves benefits 

or obligations, including supplies or 

services that are not directly related to 

the specific item(s) being purchased and 

are not integral to the deliverable of the 

FMS contract. For example, as a 

condition of a foreign military sale, the 

contractor may agree to purchase certain 

manufactured products, agricultural 

commodities, raw materials, or services, 

or make an equity investment or grant 

of equipment required by the FMS 

customer, or may agree to build a 

school, road or other facility. Indirect 

offsets would also include projects that 

are related to the FMS contract but not 

purchased under said contract (e.g., a 

project to develop or advance a 

capability, technology transfer, or knowhow in a foreign company). Indirect 

offsets may be accomplished without a 

clearly defined period of performance. 

Offset costs means the costs to the 

contractor of providing any direct or 

indirect offsets required (explicitly or 

implicitly) as a condition of a foreign 

military sale. 

* * * * * 

PART 215—CONTRACTING BY 

NEGOTIATION 

■ 3. In section 215.403–1, revise 

paragraph (b) to read as follows: 

215.403–1 Prohibition on obtaining 

certified cost or pricing data (10 U.S.C. 

2306a and 41 U.S.C. chapter 35). 

(b) Exceptions to certified cost or 

pricing data requirements. (i) Follow the 

procedures at PGI 215.403–1(b). 

(ii) Submission of certified cost or 

pricing data shall not be required in the 

case of a contract, subcontract, or 

modification of a contract or subcontract 

to the extent such data relates to an 

indirect offset. 

* * * * * 

■ 4. In section 215.408, add paragraph 

(7) to read as follows: 

215.408 Solicitation provisions and 

contract clauses. 

* * * * * 

(7) Use the clause at 252.215–7014, 

Exception from Certified Cost or Pricing 

Data Requirements for Foreign Military 

Sales Indirect Offsets, in solicitations 

and contracts that contain the provision 

at FAR 52.215–20, Requirements for 

Certified Cost or Pricing Data and Data 

Other Than Certified Cost or Pricing 

Data, when it is reasonably certain 

that— 

(i) The contract is expected to include 

costs associated with an indirect offset; 

and 

(ii) The submission of certified cost or 

pricing data or data other than certified 

cost or pricing data will be required. 

PART 225—FOREIGN ACQUISITION 

■ 5. In section 225.7303–2, revise 

paragraph (a)(3) to read as follows: 

225.7303–2 Cost of doing business with a 

foreign government or an international 

organization. 

(a) * * * 

(3) Offsets. For additional information 

see 225.7306. 

(i) An offset agreement is the 

contractual arrangement between the 

FMS customer and the U.S. defense 

contractor that identifies the offset 

obligation imposed by the FMS 

customer that has been accepted by the 

U.S. defense contractor as a condition of 

the FMS customer’s purchase. These 


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agreements are distinct and 

independent of the LOA and the FMS 

contract. Further information about 

offsets and LOAs may be found in the 

Defense Security Cooperation Agency 

(DSCA) Security Assistance 

Management Manual (DSCA 5105.38– 

M), chapter 6, paragraph 6.3.9. (http:// 

samm.dsca.mil/chapter/chapter-6). 

(ii) A U.S. defense contractor may 

recover all costs incurred for offset 

agreements with a foreign government 

or international organization if the LOA 

is financed wholly with foreign 

government or international 

organization customer cash or repayable 

foreign military finance credits. 

(iii) The U.S. Government assumes no 

obligation to satisfy or administer the 

offset agreement or to bear any of the 

associated costs. 

(iv) Indirect offset costs are deemed 

reasonable for purposes of FAR parts 15 

and 31 with no further analysis 

necessary on the part of the contracting 

officer, provided that the U.S. defense 

contractor submits to the contracting 

officer a signed offset agreement or other 

documentation showing that the FMS 

customer has made the provision of an 

indirect offset a condition of the FMS 

acquisition. FMS customers are placed 

on notice through the LOA that indirect 

offset costs are deemed reasonable 

without any further analysis by the 

contracting officer. 

* * * * * 

PART 252—SOLICITATION 

PROVISIONS AND CONTRACT 

CLAUSES 

■ 6. Add section 252.215–7014 to read 

as follows: 

252.215–7014 Exception from Certified 

Cost or Pricing Data Requirements for 

Foreign Military Sales Indirect Offsets. 

As prescribed in 215.408(8), use the 

following clause: 

Exception From Certified Cost or Pricing 

Data Requirements for Foreign Military 

Sales Indirect Offsets (JUN 2018) 

(a) Definition. As used in this clause— 

Offset means a benefit or obligation agreed 

to by a contractor and a foreign government 

or international organization as an 

inducement or condition to purchase 

supplies or services pursuant to a foreign 

military sale (FMS). There are two types of 

offsets: Direct offsets and indirect offsets. 

(i) A direct offset involves benefits or 

obligations, including supplies or services 

that are directly related to the item being 

purchased and are integral to the deliverable 

of the FMS contract. For example, as a 

condition of a foreign military sale, the 

contractor may require or agree to permit the 

customer to produce in its country certain 

components or subsystems of the item being 

sold. Generally, direct offsets must be 

performed within a specified period, because 

they are integral to the deliverable of the 

FMS contract. 

(ii) An indirect offset involves benefits or 

obligations, including supplies or services 

that are not directly related to the specific 

item(s) being purchased and are not integral 

to the deliverable of the FMS contract. For 

example, as a condition of a foreign military 

sale, the contractor may agree to purchase 

certain manufactured products, agricultural 

commodities, raw materials, or services, or 

make an equity investment or grant of 

equipment required by the FMS customer, or 

may agree to build a school, road or other 

facility. Indirect offsets would also include 

projects that are related to the FMS contract 

but not purchased under said contract (e.g., 

a project to develop or advance a capability, 

technology transfer, or know-how in a foreign 

company). Indirect offsets may be 

accomplished without a clearly defined 

period of performance. 

(b) Exceptions from certified cost or pricing 

data requirements. Notwithstanding the 

requirements of Federal Acquisition 

Regulation (FAR) 52.215–20, Requirements 

for Certified Cost or Pricing Data and Data 

Other Than Certified Cost or Pricing Data, in 

the case of this contract or a subcontract, and 

FAR 52.215–21, Requirements for Certified 

Cost or Pricing Data and Data Other Than 

Certified Cost or Pricing Data— 

Modifications, in the case of modification of 

this contract or a subcontract, submission of 

certified cost or pricing data shall not be 

required to the extent such data relates to an 

indirect offset (10 U.S.C. 2306a(b)(1)). 

(End of clause) 

[FR Doc. 2018–14045 Filed 6–28–18; 8:45 am] 

BILLING CODE 5001–06–P 


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