Foreign Military Sales (FMS)

Foreign Military Sales (FMS) is the U.S. government's primary mechanism for selling defense articles, defense services, and military training to foreign governments and international organizations, conducted through formal government-to-government agreements managed by the Defense Security Cooperation Agency (DSCA) under the Arms Export Control Act (AECA).

What is Foreign Military Sales?

Under the FMS process, the U.S. government acts as the intermediary between the foreign buyer and U.S. defense contractors. The purchasing government submits a Letter of Request (LOR) to the U.S. government; DoD evaluates the request and issues a Letter of Offer and Acceptance (LOA), also called a "FMS case," that specifies what will be provided, at what price, and on what timeline. When the foreign government accepts the LOA, the U.S. government procures from U.S. defense contractors using standard DoD acquisition procedures and delivers to the foreign customer.

The FMS program totaled approximately $318B in FMS agreements over the decade from 2011-2021, with agreements typically ranging between $40B and $80B annually. Key purchasing nations include Saudi Arabia, Japan, Australia, Taiwan, Israel, and South Korea. The Ukraine conflict significantly elevated FMS demand starting in 2022.

From a defense contractor's perspective, FMS contracts are awarded by the DoD contracting organization (not directly by the foreign customer), priced using standard DoD cost-plus or fixed-price mechanisms, and governed by the same DFARS requirements as domestic defense contracts. Contractors receive payment from the U.S. government; the U.S. government is reimbursed by the foreign customer under the LOA. This arrangement means contractors face U.S. government oversight and contract requirements regardless of who is the ultimate user of the system.

FMS programs for major weapon systems often generate decades of follow-on spare parts, maintenance, and upgrade contracts as the foreign military operates the equipment. These sustainment contracts, known as Follow-on Support, can be more valuable in aggregate than the original system sale.

Why FMS matters for government contractors

FMS provides defense contractors with significant international revenue through the established U.S. government acquisition framework, avoiding the complexities of direct foreign government contracting while leveraging existing DoD contract vehicles. Companies with weapons systems, aircraft, ships, and advanced technologies approved for export generate substantial FMS revenue alongside their domestic DoD programs.

Example

Saudi Arabia submits an LOR for 50 F-15SA advanced fighter aircraft. DSCA works with the Air Force to develop an LOA covering the aircraft, weapons, training, logistics, and initial spare parts, total package value of $29.4B. Saudi Arabia accepts the LOA. The Air Force contracts directly with Boeing using standard defense acquisition procedures; Boeing delivers aircraft to the Air Force, which transfers them to Saudi Arabia under the FMS case terms.

Frequently Asked Questions

What is the difference between FMS and Direct Commercial Sales (DCS)?

FMS routes the sale through the U.S. government as intermediary; Direct Commercial Sales (DCS) are direct contractual relationships between U.S. defense companies and foreign governments, licensed under the State Department's International Traffic in Arms Regulations (ITAR). DCS may offer lower cost and more direct customer relationships but requires separate export licensing and lacks the U.S. government's guarantee.

Does FAR apply to FMS contracts?

Yes. FMS contracts are DoD contracts governed by FAR and DFARS. The foreign customer's requirements are translated into U.S. government contract requirements by the case-managing military service's contracting office. Contractors deal with the U.S. government, not the foreign customer, on all contract administration matters.

Who pays for FMS cases?

Foreign governments pay for FMS cases in advance, depositing funds with DSCA before the U.S. government obligates contract funds to acquire the items. This advance payment structure eliminates credit risk for the U.S. government and provides upfront working capital for the program.

Can classified systems be sold through FMS?

Yes, with appropriate export authorization. Many classified defense systems are sold through FMS to close allies, subject to ITAR controls, technology transfer agreements, and classified information sharing agreements. Export of classified systems requires both a State Department export license and a DoD classified disclosure authorization.