Last month, the Department of Defense Inspector General announced that it was undertaking an audit of the Foreign Military Sales (FMS) Agreement Development Process.  The audit will assess how the Defense Security Cooperation Agency (DSCA), Military Departments, and other organizations coordinate foreign government requirements for defense articles and services and whether DoD maximizes the results of the FMS agreement development process.

The audit is in response to a congressional reporting requirement included in the House Report to the National Defense Authorization Act for Fiscal Year 2019.  The House Report noted Congressional concern that the FMS process is “slow, cumbersome, and overly complicated,” and that the acquisition decisions supporting the FMS process are “stovepiped,” leading to an FMS program that is “not coordinated holistically across [DoD] to prioritize resources and effort in support of U.S. national security objectives and the defense industrial base.”  Consequently, Congress directed DoD to conduct this audit of the FMS program and submit a final report to Congress.  The tone and language of the House Report indicates that Congress is seeking to streamline the process for all stakeholders, including the U.S. military, foreign partners, and industry.  The House Report specifically calls out precision guided munitions as a focal point for additional foreign military sales that may mitigate risk to the U.S. industrial base.

Congress’ focus on the efficient and effective use of the FMS program comes at a time when FMS sales continue to grow at a remarkable rate.  The DSCA’s annual report for FY 2018 showed foreign military sales of $55.66 billion.  This amount is a 33 percent increase over FY 2017.  Rather than relying on the one-year increase, DSCA points to the three-year rolling average of $43.7 billion in sales to demonstrate the significant and continued increase in arms sales over the past three years.  With numerous major sales announced thus far in FY 2019, including sales of precision guided munitions that Congress has focused on, it appears likely that foreign military sales will remain quite robust moving forward.

The audit also comes on the heels of a recent GAO report on “DOD’s Approach to Developing Price and Availability Estimates for Foreign Customers.”  GAO found that from FY 2014 – 2018, DoD received 3,038 requests for FMS price and availability from 93 countries.  Given the volume and complexity of the requests received, DoD at times took well over 45 days to respond, the time period suggested by DoD guidance.  Out of a sample of five requests, DoD took on average 199 days to respond, with the longest taking 320 days.  GAO noted that “[l]engthy response times could result in customers missing opportunities to consider potential requests in upcoming budget cycles.”  While GAO was careful to acknowledge that many factors beyond DoD’s control impacted these response times, this GAO report may add to concerns on the Hill regarding the efficiency of the FMS process.

It remains to be seen what changes DoD and/or Congress may seek to make concerning the FMS program.  The FMS program largely escaped the scrutiny of the Section 809 Panel Report, but this audit may shed light on FMS-specific process improvements that may be possible.  We will continue to monitor developments related to this audit and potential changes to the FMS program.

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Photo of Nooree Lee Nooree Lee

Nooree advises government contractors and financial investors regarding the regulatory aspects of corporate transactions and restructurings. His experience includes preparing businesses for sale, negotiating deal documents, coordinating large-scale diligence processes, and navigating pre- and post-closing regulatory approvals and integration. He has advised on…

Nooree advises government contractors and financial investors regarding the regulatory aspects of corporate transactions and restructurings. His experience includes preparing businesses for sale, negotiating deal documents, coordinating large-scale diligence processes, and navigating pre- and post-closing regulatory approvals and integration. He has advised on 35+ M&A deals involving government contractors totaling over $30 billion in combined value. This includes Veritas Capital’s acquisition of Cubic Corp. for $2.8 billion; the acquisition of Perspecta Inc. by Veritas Capital portfolio company Peraton for $7.1 billion; and Cameco Corporation’s strategic partnership with Brookfield Renewable Partners to acquire Westinghouse Electric Company for $7.8+ billion.

Nooree also counsels clients navigating the Foreign Military Sales (FMS) program and Foreign Military Financing (FMF) arrangements. Nooree has advised both U.S. and ex-U.S. companies in connection with defense sales to numerous foreign defense ministries, including those of Australia, Israel, Singapore, South Korea, and Taiwan.

Over the past several years, Nooree’s practice has expanded to include advising on the intersection of government procurement and artificial intelligence. Nooree counsels clients on the negotiation of AI-focused procurement and non-procurement agreements with the U.S. government and the rollout of procurement regulations and policy stemming from the Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence.

Nooree maintains an active pro bono practice focusing on appeals of denied industrial security clearance applications and public housing and housing discrimination matters. In addition to his work within the firm, Nooree is an active member of the American Bar Association’s Section of Public Contract Law and has served on the Section Council and the Section’s Diversity Committee. He also served as the firm’s Fellow for the Leadership Council on Legal Diversity program in 2023.

Photo of Scott A. Freling Scott A. Freling

Scott is sought after for his regulatory expertise and his ability to apply that knowledge to the transactional environment. Scott has deep experience leading classified and unclassified due diligence reviews of government contractors, negotiating transaction documents, and assisting with integration and other post-closing…

Scott is sought after for his regulatory expertise and his ability to apply that knowledge to the transactional environment. Scott has deep experience leading classified and unclassified due diligence reviews of government contractors, negotiating transaction documents, and assisting with integration and other post-closing activities. He has been the lead government contracts lawyer in dozens of M&A deals, with a combined value of more than $76 billion. This has included Advent’s acquisition of Maxar Technologies for $6.4 billion, Aptiv’s acquisition of Wind River for $3.5 billion, Veritas Capital’s sale of Alion Science and Technology to Huntington Ingalls for $1.65 billion, and Peraton’s acquisition of Perspecta for $7.1 billion.

Scott also represents contractors at all stages of the procurement process and in their dealings with federal, state, and local government customers. He handles a wide range of government contracts matters, including compliance counseling, claims, disputes, audits, and investigations. In addition, Scott counsels clients on risk mitigation strategies, including obtaining SAFETY Act liability protection for anti-terrorism technologies.

Scott has been recognized by Law360 as a MVP in government contracts. He is a past co-chair of the Mergers and Acquisitions Committee of the ABA’s Public Contract Law Section.