01/31/08 FMS Financial Management Pricing

01/31/08 FMS Pricing Concepts SAMM C9.T1  SECTION 21 Sales from stock  SECTION 22 Sales from procurement

01/31/08 FMS Pricing Concepts  "General USG pricing policy"  Fair  Understandable  Recover total cost  AECA - statutory pricing requirements  Uniform DoD pricing procedures

01/31/08 DEPARTMENT OF DEFENSE FINANCIAL MANAGEMENT REGULATION DoD R *** VOLUME 15 *** SECURITY ASSISTANCE POLICY AND PROCEDURES Uniform DOD Pricing Procedures  Single selling price ("roll-up")  Price quotations  Estimates only  Subject to future adjustment  Add-on percentages not shown  Letter of Offer and Acceptance (LOA)

01/31/08 FMS Price Formula FMS PRICE BASE PRICE Training Stock Catalog/Spares Major Item Excess Services New Procurement LOA BILLING STATEMENT DD-645 AUTHORIZED CHARGES Operating Costs Contract Admin. Services (CAS %) Small Case Management Line (cases less than $400,000) Packing (PCH 3.5%) Transportation (3.75%-22.25%) Administrative costs (2.5%-5%) Investment Costs Nonrecurring Cost

01/31/08 Pricing Procedure  Prices computed annually  Training MASL published by MILDEP  In effect for full year (w/adjustments)  Multi-tier pricing structure Security Cooperation Training FMR, DoD R, Vol. 15

01/31/08  Military (composite standard pay rates)  Civilian (standard pay rates)  OSD compound inflation factor  Acceleration factors  Leave and holidays  Fringe benefits  Unfunded retirement  Travel (PCS/TDY)  Materials  Type of funding (Cash/FMFP) Factors to Be Considered in Pricing Services

01/31/08 Direct Labor hours 100 hours Hourly Rate ($38,039/2087) Direct Labor $1, Leave & Holiday (18%) Sub total $2, Unfunded Ret (14.7%) Fringe benefits (15.8%) Pay Cost / with acceleration $2, Plus TDY and other associated cost to discern the FMS selling price Example Civ Pay Pricing Rate YA-02, $38,039, 100 Hours

01/31/08 Direct Labor1 year Salary$38, Sub total$38, Unfunded Ret (14.7%) $5, Fringe benefits (15.8%) $6, Pay Cost / with acceleration$49, Plus TDY and other associated cost to discern the FMS selling price Example Civ Pay Pricing Rate YA-02, $38,039

01/31/08 Working Capital Fund Pricing Formerly DBOF/Stock Fund Most spares/parts covered Catalog price Doesn’t include Ammo CAD/PAD TRAP Classified Crypto Publications Maps&Charts Contract price Stock funds Overhead O & M funds $4.00 $2.00 $6.00

01/31/08 To be, or not to be: that is the question? William Shakespeare - Hamlet Non-Excess Major Item From Inventory

01/31/08 Pricing Non-Excess Major Item From Inventory Most Recent Acquisition Cost Estimated Procurement Cost Modification/Improvement Costs Remaining Service Life (cost adjusted) Nonrecurring Charges (adjust) Overhaul Costs (prorated) Most Recent Acquisition Cost Estimated Procurement Cost Modification/Improvement Costs Remaining Service Life (cost adjusted) Nonrecurring Charges (adjust) Overhaul Costs (prorated) Not to be replaced? To be replaced?

01/31/08 Example MDE Pricing 20 Years life span 10 Years Remaining $100, , , , , $69, Latest Acq Cost New Item Cost Mods SVC Life ADJ* NC (adj)* Overhaul (adj)** FMS Cost $500, , , $251, NTBR ***TBR*** * Adjust by remaining life of item ** Adjust by remaining life until next required overhaul *** NTBR=Not To be Replaced, TBR= To Be Replaced

01/31/08 Pricing Excess Materials From Inventory  Above the force acquisition objective  Sold in "as is, where is" condition  Use highest value of:  Market value + nc (prorated)  Scrap value + nc/overhaul (prorated)  Fair value % rate + nc/overhaul (prorated)  Never sold for less than scrap value

01/31/08 Excess – Fair Value Condition Percent Price Serviceable: Unused good 50 Serviceable: Used good 40 Serviceable: Unused fair / Used good 30 Serviceable with qualification 20 Serviceable / Unserviceable: Poor10 Unserviceable: Major repair required 5

01/31/08 Excess Example $50, , , % 5, , $8, Standard Inventory Price Nonrecurring charges per unit Overhaul costs before sale date Condition - A-3 (serviceable, unused, poor) Standard Price $50,000 x 10% Nonrecurring charge x 10% Overhaul costs before sale date FMS Selling Price

01/31/08 Factors to Be Considered in Pricing an Item From New Procurement  Prime contract cost  GFM from inventory  Precious metals  DoD funded services  GFM from another contractor

01/31/08 FMS Price Formula Green Book 12-14, Figure 12-3 FMS PRICE BASE PRICE Training Stock Catalog/Spares Major Item Excess Services New Procurement LOA BILLING STATEMENT DD-645 AUTHORIZED CHARGES Operating Costs Contract Admin. Services (CAS %) Small Case Management Line (cases less than $400,000) Packing (PCH 3.5%) Transportation (3.75%-22.25%) Administrative costs (2.5%-5%) Investment Costs Nonrecurring Cost

01/31/08 Recoupment of Nonrecurring Costs (NC)  Non-USG purchasers shall pay fair price for DoD investment (DODD )  Basis for Waivers:  Standardization with NATO, JA, AT, NZ, RoK  Loss of Sale  Cost reduction for DoD - EOQ  Blanket waivers not authorized  Need concurrence of DSCA, USD(C), and USD(AT&L)  Not retroactive

01/31/08 Contract Administration Services (CAS) 0.65%- Contract admin 0.65%- Quality control 0.2%- Contract audit 0.2%- OCONUS

01/31/08 Accessorial Charge

01/31/08 PC&H Rates ≤ $50,000 PORTION > $50,000 UNIT PRICE = $62,000 $50,000 = 1,750 $12,000 = 120 $62,000 = $1,870

01/31/08 Transportation Pricing Methods  Directly Fund Transportation  Separate LOA line  Transportation Look-up Table  SAMM Appendix 2

01/31/08 Transportation Cost Look-up Table

01/31/08 Transportation Pricing Matrix

01/31/08 Accessorial Charges (GBL/DTS Transportation) Applicable percentage rate times <= $10,000 (unit price) 25% of applicable rate times > $10,000 Example:Delivery to: -Country in rate area 2 -In-country destination (DTC 7) -Unit price = $40, % x $10,000 = $2, % x $30,000 = $1,668 $40,000 $3,893

01/31/08 Administrative Charges  3.0% prior to 1 JUN 99  2.5% 1 JUN AUG 06  3.8% after 1 AUG 06  5.0% for CLSSA (FMSO I)  Funds the following (not inclusive):  Standard Level of Service  Headquarters’ functions  Security Cooperation Offices (SCOs)  Information technology initiatives

01/31/08  $15,000 Minimum Admin Fee  Affects Cases < $400,000  Separate SCM Line Added  SCML value adjusted as case value changes via Amend. or Mod.  No SCM Fee once Case Value > $400,000 Small Case Management Line (SCML)

01/31/08 $394,737 X 3.8% $ 15,000 Small Case Management Line (SCML)

01/31/08 Original Case Value$300,000 X 3.8% Calculated Admin$ 11,400 SCML$ 3,600 Total Admin$ 15,000 Small Case Management Line (SCML)

01/31/08 Increase case value$310,000 Modification 1 X 3.8% Increased calculated Admin$ 11,780 Reduced SCML$ 3,220 Total Admin$ 15,000 Small Case Management Line (SCML)

01/31/08 Reduce case value$275,000 Modification 2 X 3.8% Reduce calculated Admin$ 10,450 Increase SCML$ 4,550 Total Admin$ 15,000 Small Case Management Line (SCML)

01/31/08 Increase case value$410,000 Modification 3 X 3.8% Increase calculated Admin$ 15,580 Zero out SCML$ 0 Total Admin$ 15,580 Small Case Management Line (SCML)

01/31/08 FMS Price Formula Green Book 12-14, Figure 12-3 FMS PRICE BASE PRICE Training Stock Catalog/Spares Major Item Excess Services New Procurement LOA BILLING STATEMENT DD-645 AUTHORIZED CHARGES Operating Costs Contract Admin. Services (CAS %) Small Case Management Line (cases less than $400,000) Packing (PCH 3.5%) Transportation (3.75%-22.25%) Administrative costs (2.5%-5%) Investment Costs Nonrecurring Cost

01/31/08 FMS Financial Management Pricing