Opinion ID: 4531267
Heading Depth: 2
Heading Rank: 1

Heading: Regulation of Foreign Military Sales

Text: To support U.S. foreign-policy and national-security objectives, the Arms Export Control Act restricts sales of U.S.-manufactured military goods to foreign governments. See 22 U.S.C. §§ 2751–2799aa-2. The level of restriction depends on the sensitivity of the “defense articles” being purchased. See id. § 2778. Approved foreign governments may purchase certain lesssensitive defense articles directly from private contractors with relatively minimal direct government oversight via what are known as “Direct Commercial Sales” transactions. See id.; U.S. DEP’T OF DEF., DEF. SEC. COOPERATION AGENCY, DoD 5105.38-M, SECURITY ASSISTANCE MANAGEMENT MANUAL §§ C4.3.6 (2003) [hereinafter “2003 SAMM”]. 1 Defense articles of greater military sensitivity, including the F-16 fighter jets that are the subject of this suit, are subject to substantially more government oversight and control and may be purchased only through the “Foreign Military Sales” (FMS) program, which is administered by the Department of Defense. See 22 U.S.C. §§ 2761–62; see also 2003 SAMM §§ C4.1, C4.3. 2 FMS transactions begin with a “Letter of Request” from a foreign government identifying the defense articles or services the government wishes to purchase. 2003 SAMM § C5.1.1. The 1 The parties stipulated to the applicability of both the 1988 version of the SAMM and the 2003 version. 2 Foreign governments may choose to utilize the FMS program with respect to articles that could otherwise be purchased through Direct Commercial Sales transactions. See 2003 SAMM §§ C4.5.8, C4.5.10. 2 foreign government and the U.S. government then enter into a formal “Letter of Offer and Acceptance” (LOA) that itemizes the defense articles or services the foreign government intends to procure and the terms and conditions of the sale. See id. §§ C4.1.1, C5.4.1. LOAs may be “implemented” in one of two ways. First, under certain circumstances the Department of Defense may fulfill the order from its existing stocks. 22 U.S.C. § 2761. Second, the U.S. government may “enter into contracts for the procurement of defense articles” from private contractors. Id. § 2762; see also 2003 SAMM § C4.3.1 (explaining that the Department may enter into procurement contracts “on behalf of eligible foreign countries”). The second “procurement” pathway is at issue here. Under that pathway, a signed LOA identifies the foreign buyer, sets out the precise design specifications requested, and includes plans for delivery to the buyer. See 2003 SAMM fig.C5.F2. The price of the items is set at “the total cost” to the U.S. government of procuring the items, regardless of whether that cost exceeds the LOA’s estimate. 3 Id. fig.C5.F3; see 22 U.S.C. § 2762 (providing that in an FMS sale to a foreign government, the foreign government must provide the U.S. government “with a dependable undertaking (1) to pay the full amount of such contract which will assure the United States Government against any loss on the contract, and (2) to make funds available in such amounts and at such times as may be required to meet the payments required by the contract, and any damages and costs that may accrue from the cancellation of such contract”). Once an LOA is finalized and the foreign buyer remits the initial payment or assurance of payment, the U.S. government is responsible for procuring the items “under terms and conditions consistent 3 The standard LOA terms and conditions include a statement that the buyer “recognizes that the [U.S. government] will procure and furnish the items in this LOA on a non-profit basis for the benefit of the Purchaser.” 2003 SAMM fig.C5.F3. 3 with [Department] regulations and procedures.” 2003 SAMM figs.C5.F2–.F3. The U.S. government then contracts with a private contractor to produce the items specified in the LOA.4 BAE Sys. Tech. Solution & Servs., Inc. v. Republic of Korea’s Def. Acquisition Program Admin., 884 F.3d 463, 467 (4th Cir. 2018). The LOA allows the United States to terminate or take other action with respect to those contracts without affecting the LOA. 5 The U.S. Court of Appeals for the Fourth Circuit describes the FMS program as “requir[ing] the intermediation of the United States and a back-to-back contract structure.” Secretary of State for Def. v. Trimble Navigation Ltd., 484 F.3d 700, 707 (4th Cir. 2007). The structure “reflects the national security interests of the United States” and forecloses implying a direct contractual relationship between the domestic contractor and the foreign purchaser. See id.; see also BAE Sys. Tech., 884 F.3d at 467 (“The U.S. government ‘determines the contract type, selects the contract source, and negotiates prices and contract terms with individual contractors.’” (quoting DEF. INST. OF SEC. COOPERATION STUDIES, THE MANAGEMENT OF SECURITY COOPERATION (GREEN BOOK) 15-8 (37.1 ed. 2017))). 6 Thus, a procurement purchaser claiming defective items, rather than complaining directly to the contractor, is directed to submit a “supply discrepancy report” to the U.S. government, which “may be able to resolve the problem by seeking 4 The foreign buyer may coordinate and negotiate with a specific U.S. contractor in advance of the LOA and may urge the U.S. government to enter a sole-source contract with the designated contractor. BAE Sys. Tech., 884 F.3d at 468. The U.S. government may, but is not required to, agree to do so. Id. 5 The U.S. government has the power to halt export deliveries of military equipment to foreign purchasers in Direct Commercial Sales as well as FMS transactions. See DEF. INST. OF SEC. COOPERATION STUDIES, THE MANAGEMENT OF SECURITY COOPERATION (GREEN BOOK) 15-6 (39.0 ed. 2019). 6 The Green Book is published by “the agency responsible for providing research support to advance U.S. foreign policy through security assistance.” Trimble Navigation, 484 F.3d at 704 n.2. It does not set official policy but “is an attempt to summarize security assistance programs and is based on the [Arms Export Control Act] and the SAMM, among other sources.” Id. 4 resolution through the contractor under the provisions of the . . . procurement contract.” Trimble Navigation, 484 F.3d at 704 (quoting 37.1 GREEN BOOK 8-11).