Friday, March 30, 2018

What are Direct Commercial Contracts (DCCs)?

Get ready for a truckload of acronyms.

The Defense Security Cooperation Agency (DSCA) is the organization responsible for directing, administering, and supervising the Security Assistance Program. Its responsibilities are defined and authorized by the:
  • Foreign Assistance Act (FAA) of 1961 (as amended)
  • Arms Export Control Act (AECA) (as amended)
  • Other applicable statutes.
  • Executive Orders
  • Directives
 Included within the Security Assistance Program is (i) the Foreign Military Financing (FMF) Program which provides loan and grant financing for Foreign Military Sales  and (ii) purchases from U.S. firms. The latter are considered Direct Commercial Contracts (DCCs). Under the FMS program, the Department of Defense acts as the agent for the purchasing country. These procurements are fully subject to the Federal Acquisition Regulations (FAR), including audit oversight.

In contract DCCs are procurements between foreign Governments and U.S. companies where DoD performs reviews, approvals, and audits as a function of providing the financing. These are not typical contracts and are not subject to the FAR or Cost Accounting Standards (CAS). The agreements are called "Contractor's Certification and Agreements" and are executed between the foreign governments and DSCA. DSCA publishes Guidelines for Foreign Military Financing of Direct Commercial Contract. The most current Guidelines can be downloaded here. An example of a Contractor's Certification and Agreement can be downloaded here.

What kind of "oversight" can a company expect if it enters into one of these DCCs?

In general, the Government will review contractors' compliance with the terms of the Certification and Agreement. This would include:

  1. Flowdown of terms and conditions to subcontractors.
  2. Assurance that no bribes, rebates, gifts, kickbacks or gratuities intended to secure the agreement were offered (directly or indirectly) contrary to US law or regulation.
  3. Materials and components were manufactured and assembled in the US etc.
  4. Disclosure of any advance payments received.
  5. Export transportation will be paid only to companies of US registry.
  6. Travel costs paid by purchaser.
  7. Any refunds or reimbursements received by the contractor are passed back to the US Government.

The good news is that these instruments are exempt from FAR (and CAS) and as such do not include the rules and regulations that sometimes make Government contracting onerous.

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