1. 1 Foreign Procurement Group Perspectives Tri-Service Security Cooperation Conference 4 November 2009 Jennifer Stewart, Ph.D Director General, Defence Procurement, Canadian Embassy and Chairman of the Foreign Procurement Group

2. 22 Topics  Overall customer perspectives  The international networks and their priorities  Successes and future challenges

3. 33 Overall Perspectives “The good”  Department of Defense and industry associations’ support of global defense cooperation and trade  Accelerated process for coalition requirements  Partnership and progress in FMS improvements  Initiatives by the Department of State and its stakeholders to modernize and improve U.S. export controls, including the Administration’s recently announced inter-agency review

4. 44 Overall Perspectives (cont’d) “The bad and the ugly”  Protectionist thinking and “Buy American” legislation  The “unintended consequences” of U.S. export controls, in particular the International Traffic in Arms Regulations (ITAR)

5. 5 Navy ILCO, PA Major FMS Customers The International Customer Environment MoU/DoP Countries Defense MoU Attachés’ Group Foreign Procurement Group International Customers’ User Group

6. 66 Defense MOU Attachés Group  21 countries with reciprocal defense procurement agreements with the US  Founded in 1986  “Parent” of the Foreign Procurement Group

7. 77 DMAG Member Nations France Germany Greece Israel Italy Luxemburg Netherlands Australia Austria Belgium Canada Denmark Egypt Finland Norway Portugal Spain Sweden Switzerland Turkey United Kingdom

8. 88 DMAG Priorities  Advocacy against protectionist thinking and legislation  “Buy American” provisions in defense legislation since 2004 – removed or mitigated  Identifying and suggesting solutions to problems with U.S. export controls  Significant reductions in processing times for licenses since 2007  Other improvements within the existing ITAR regime  Export controls modernization on the radar screen

9. 99 The Foreign Procurement Group  Washington DC-based group of countries that participate in Security Assistance and/or buy from U.S. suppliers  Mix of uniformed & civilian Defense Cooperation/Logistics/Procurement officials  Founded Feb 1999 as a result of ‘FMS Reinvention’ (‘Hamre’ Memo 1999)  Provides the international customer viewpoint to FMS re-engineering and reform

10. 10 FPG Member Nations 1999 – 17 members, 2009 – 33 members Argentina Australia Austria Belgium Brazil Canada Chile Denmark Egypt Finland France Germany Greece Indonesia Israel Italy Japan Korea Netherlands New Zealand Norway Pakistan Poland Portugal Saudi Arabia Singapore Spain Sweden Switzerland Taiwan Turkey UK Yemen

11. 11 Work of the International Networks  The Defense MOU Attachés Group and the Foreign Procurement Group have developed a number of presentations and white papers as input to initiatives to promote international defense trade and modernize export controls  These include:  Conference on Myths and Facts of Global Defense Trade and Cooperation – co-organized with CSIS (April 2005)  Briefings to Departments of Defense and State, Government Accountability Office, Defense Industry Associations, Heritage Foundation, etc.

12. 12 Work of the International Networks (cont’d)  Greater use of ITAR exemptions (2006)  Redefining “agent” for FMS Retransfers (2006)  An Integrated International Export Controls Regime (Sept 2009)  Examples of issues with U.S. Export Controls (August 2009)  A paper of proposals on the 2009 Defense Trade Controls Performance Improvement Act (June 2009)

13. 13 FPG Stakeholders  Defense Security Cooperation Agency and Military Departments  Security Cooperation Business Forum  Defense Institute for Security Assistance Management  Acquisition, Technology and Logistics, Department of Defense  Defense Trade Controls and Regional Security, Department of State  Government Accountability Office  Industry associations (NDIA, AIA, ALESA)

14. 14 Partnership in FMS Improvements  A decade of cooperation on FMS reform  DSCA’s active invitation to participate in FMS reengineering (1999) and transformation (2003) initiatives  DSCA Policy Memo on Enhancing Partnership through Team International (July 2001)  Policy guidance by Deputy Secretary of Defense on customer involvement in LOA process (January 2002); DFARS rule change (November 2002)

15. 15 Partnership in FMS Improvements (cont’d)  Security Cooperation Business Forum (SCBF)  FPG proposals for improvements to DSCA metrics (March 2003) and SCBF response  Issues of importance to the FMS Customer (December 2004) and DSCA/Services’ response  DISAM Curriculum Reviews  FPG guest lecturers at selected DISAM courses  International Customer Symposium (Oct. 2004)  Annual FMS Case Closure and Reconciliation Conferences (2002-06)

16. 16 Many Successes  Increased transparency and customer participation  Resolution of transportation issues  Resolution of case closure problems  Progress on FMS as a commercial alternative  Redefinition of what constitutes an agent in FMS third party transfers (well, almost…)

17. 17 Future Challenges  “Top 10” priority list with DSCA and the Services  Stakeholder/sounding board in the major culture change associated with the changes to the Administrative Surcharge and related initiatives  Ensuring customer access to critical security cooperation tools and information

18. 18 FPG Top 10 Priorities 1.Transparency in FMS charging/Standard Level of Service 2.Transparency in delivery listings 3.Other Administrative Surcharge changes 4.Processing times 5.Third party transfers  DSCA/MILDEPs  DSCA  DSCA/MILDEPs/FPG Metrics WG  State Stakeholders Priority

19. 19 FPG Top 10 Priorities 6.FMS as a commercial alternative/quantify and define the value- added of FMS 7.Transportation 8.Country specific cost and schedule performance measures 9.Access to contracting documentation 10.Blanket authorizations  Foreign Commercial Procurement WG  DSCA/Customs/State  DSCA/MILDEPs/FPG Metrics WG  DSCA  State Priority Stakeholders

20. 20 1. Transparency and Standard Level of Service  An objective of the Administrative Surcharge changes has been increased transparency  This builds on past initiatives (e.g., increased customer participation in LOA preparation)  The implementation of the new policy on Standard Level of Service (SLS), including the replacement of hidden program management lines with well-defined LOA lines, goes a long way towards meeting this objective  Increased visibility is leading to savings – some customers are already seeing differences in the bottom-line of certain cases

21. 21 1. Transparency and SLS (cont’d)  However, the application of SLS has raised new issues which need to be resolved  Chief among these is the need for greater clarity and consistency among the MILDEPs in terms of what activities are covered under SLS and what are “incremental” costs – to be customer funded

22. 22 1. Transparency and SLS (cont’d)  Other issues to be resolved include:  Incidences of “double billing” – i.e., charging customers for services that should be covered under SLS  Examples of countries being denied information  Complaints from staff in the MILDEPS that they are not receiving Admin funding for SLS activities  Perception that the SLS is being eroded (e.g., cancellation of Navy CRRs)

23. 23 2. Transparency in Delivery Listings  Need to relate invoiced amount to delivered items/services in current delivery listings  Currently not the case:  One line in the delivery listing may include a number of different services rendered  Can easily take 6 to 9 months before a delivery gets invoiced on the delivery listing  Impossible to verify charges made on an FMS case against received deliveries and ensure financial control  Requisite information is available in the various US systems; this information needs to be made available to the customer

24. 24 3. Other Administrative Surcharge Initiatives  Small Case Management Line  Fee should be waived when USG says “no” to a country’s proposed consolidation  Case writing consolidation  Concerns that this consolidation has led to increased processing times appear unfounded and will be addressed under Priority # 4

25. 25 4. Processing Times  Except for OIF and OEF requirements and requirements from smaller agencies (NGA, NSA), the target of 120 days from LOR to LOA 80% of the time is often not being met  Important to have a reliable estimate to manage expectations of our capitals - but the solution should not be a longer timeframe  Recognize work underway throughout the community in general, and in the Security Cooperation Business Forum in particular, to examine LOA milestones and identify causes of delays; Metrics Working Group developing recommendations on how the customer can help reduce these delays  Need a plan and timeframe from DSCA for resolution

26. 26 Reality of outsourcing needs to be better addressed in FMS agreements  Existing FMS case terms provide rights to transfer and use intellectual property and materiel to customer government and/or its agents  Agents are freight forwarders only. Contractors are not considered as agents  Given increased reliance on outsourcing – government employees working with a contingent workforce of contractors – the FPG has been advocating since 2004 to change the FMS definition of agent to include licensed, in-country contractors 5. Third Party Transfers

27. 27 5. Third Party Transfers (cont’d)  In May 2007, State briefed the FPG on a proposed redefinition of agent and associated streamlined third party transfer process to include a country’s registered, in house contractors  In April 2009, they notified the international networks that the proposal had been approved by State Legal Counsel  Briefings given to the FPG and DMAG – new process to be operational by September 2009

28. 28 6.1. FMS as a Commercial Alternative  Major issue = how to level playing field so an FMS proposal can compete with a direct commercial sales proposal  How to provide for firm delivery dates, fixed prices and performance guarantees, when required by a country's competitive procurement regime  These are not included in the FMS framework

29. 29 6.1. FMS as a Commercial Alternative (cont’d)  Past solutions involve approval for a waiver or a hybrid (part DCS, part FMS), where the contractor "underwrites" FMS  The Foreign Commercial Procurement Group will take on this issue, determine methodologies for comparing/competing FMS and DCS alternatives and report back to the FPG and DSCA

30. 30 6.2. Quantify and Define the Value-added of FMS  This is part of the business case for comparing DCS and FMS  DSCA has provided a paper on benefits of using the FMS process in general terms  Need specifics related to individual cases for a true DCS/FMS business case analysis  Will be studied by the FCPWG and a more specific list of requirements presented to the FPG and DSCA

31. 31 7. Transportation  Good progress has been made by the Interagency Working Group in identifying documents required for repair and returns, upgrades and modifications and classified shipments  Still issues with export seizures but improved communication flow between Customs and DSCA results in quicker resolutions  Still a need for formal published guidance

32. 32 8. Country-specific Cost/schedule Performance  At the Security Cooperation Business Forum, members are briefed on cost and schedule performance at an aggregate level  Need to have this data at a country specific level – at least for major FMS cases – to be able to report on whether a case is:  Tracking to budget  Reflecting a financial overrun of <5% of case value

33. 33 8. Cost/schedule Performance (cont’d)  Reflecting a financial overrun of >5% of case value  Meeting the agreed (LOA) schedule  Reflecting a schedule slip of <3 months  Reflecting a schedule slip of >3 months  Major hurdle to overcome  Required information must be collected manually

34. 34 9. Access to Contracting Documentation  Need to gain better insight into the final form of contract between the US and the Vendor  Requested to better understand the performance obligations of the vendor for things such as warranty provisions, transportation clauses and price sensitivities in support contracts

35. 35 10. Blanket Export Authorizations  Defined as: pre-clearing of nations, or communities of US military system users, for certain categories of requirements, or securing "blanket" export authorization for lower risk defense articles  Would streamline the procurement process and speed up approvals, particularly for urgent operational requirements

36. 36 10. Blanket Authorizations (cont’d) Examples:  Broadened existing blanket end-use and retransfer assurances to provide for transfers among user communities of US military systems – suggested by Belgium  A blanket case waiver for certain routine, in service munitions requirements - suggested by New Zealand  Blanket export authorization for CF-18 system support and munitions - suggested by Canada; could also be applied to other US military systems  A provision in the “Defense Trade Controls Performance Improvement Act of 2007” - HR 4246 (introduced into the House 15 Nov 07, but never passed) would have allowed US manufacturers to export spare and replacement parts without a license to the governments of NATO allies, Australia, New Zealand and Japan, for defense articles that were previously lawfully exported

37. 37 10. Blanket Authorizations (cont’d)  “If the Departments of State and Defense have approved the export of a major defense article to one of our closest allies, why are we requiring licenses for nuts, bolts and brackets to keep these items working?”  Representative Don Manzullo (R-IL), Chairman of the Congressional Export Controls Working Group and one of the bill’s sponsors.

38. 38 In Summary  Many success stories  Some challenges remain in areas such as transparency and access to security cooperation information, export controls, FMS versus commercial alternatives  Excellent partnership with DSCA and the Services will be instrumental in addressing the challenges