LOA Standard Terms & Conditions

1. LOA StandardTerms &Conditions

2. Background What is a Letter of Offer and Acceptance (LOA)?

3. Background What is a LOA? The FMS program is conducted using formalcontractsbetween the USG and an authorized foreign purchaser.ThesecontractsareLOAs. SAMM C4.1

4. Background What is a contract? An agreement with specific termsin which there is a promise to do something in return for a valuable benefit known as consideration. Bilateral contractinvolves exchanging a promise for a promise. Law.com Dictionary

5. Basic Contractual Elements • 1. OFFER • 2. ACCEPTANCE • 3. CONSIDERATION • 4. COMPETENT PARTIES • 5. LAWFUL PURPOSE • 6. TERMS & CONDITIONS

6. Offer A proposal to enter a contract • Must intend to contract • Must communicate to offeree • Must be definite and certain in its terms

7. Acceptance • Can only be made by offeree • Must be communicated in a reasonable manner • Must be identical with terms of offer • Absolute & Unconditional

8. Consideration Price paid for a promise • Must have value

9. Competent Parties • Must possess legal capacity to contract • Legal incapacity • Not authorized agent • Duress • Contract voidable by incompetent party

10. Lawful Purpose A contract is not recognized if its purpose is unlawful or criminal

11. Terms and Conditions • Terms must be clear enough to specify agreement on: • WHO • WHAT • WHERE • WHEN • HOW

12. Standard Terms and Conditions Standard Terms and Conditions are an official part of eachFMS Letter of Offer and Acceptance (LOA) SAMM C5.4.8.1

13. Standard Terms and Conditions • Conditions -- USG Obligations • Conditions -- General Purchaser Agreements • 3. Indemnification And Assumption Of Risks • 4. Financial Terms And Conditions • 5. Transportation And Discrepancy Provisions • 6. Warranties • 7. Dispute Resolution

14. Revised – 01 Jan 2011 • Anti-tamper • EUM – Verify reports of unauthorized use • Missile Technology Control Regime • EUM – Permit inspections • Offsets • FMF – Pay any costs in excess of avail FMF • SDRs – Clarifies dollar values and time limits

15. 1. Conditions - USG Obligations 1.1 Unless otherwise specified, items will be standard to DoD without regard to make or model

16. Acquisition Policy • LOA Standard Terms & Conditions, Sec 1.2 • The USG will furnish the items from its stocks and resources, or will procure them under terms and conditions consistent with DoD regulations and procedures. • When procuring for the Purchaser, DoD will, in general, employ the same contract clauses, the same contract administration, and the same quality and audit inspection procedures as would be used in procuring for itself.

17. 1 - USG Obligations 1.3 USG may incorporate anti-tamper protection. AT protection will not impact operations, maintenance, or logistics.

18. 1 - USG Obligations 1.4 USG will use “best efforts” to provide items for dollar amount and within availability cited

19. 1.5 Under unusual and compelling circumstances, USG may cancel orsuspend all or part of LOA prior to delivery USG responsible for termination costs USG termination of contracts with suppliers should not to be construed as cancellation or suspension of LOA 1. Conditions - USG Obligations

20. Buyer/Seller Relationships United States Government 1 2 LOA CONTRACT Foreign Government Defense Contractor

21. 1 - USG Obligations 1.6 U.S. personnel will not perform duties of a combat nature 1.7 U.S. personnel assignments will not take into account race, religion, national origin, or gender 1.8 LOA could be available for public inspection consistent with U.S. national security • SAMM C3.6.1

22. 2 - General Purchaser Agreements 2.1 Purchaser may cancel LOA or delete items prior to delivery • Purchaser responsible for cancellation costs 2.2 Purchaser agrees to use defense articles sold only for: • Internal security • Self-defense • Preventing weapons of mass destruction • Regional activities consistent with UN • Public works • Fulfilling defense agreements with US

23. 2 - General Purchaser Agreements 2.3 Purchaser agrees that the USG retains right to verify reports of unauthorized use End Use Monitoring - #1

24. 2 - General Purchaser Agreements 2.4 Purchaser will NOT, without prior USG written consent, • Transfer title • Transfer possession • Permit unauthorized use Purchaser will respect proprietary rights

25. 2 - General Purchaser Agreements 2.5 Purchaser agrees NOT to divert articles and services for other purposes to include acquisition, design, development or production of a missile. Missile Technology Control Regime

26. 2 - General Purchaser Agreements 2.6 Purchaser will provide substantially the same securityas the USG. For classified, maintain similar classification level and equivalent security measures per security agreements • Responsibility extends to items furnished to purchaser’s contractors • Purchaser agrees to use appropriately cleared commercial transportation agents

27. 2 - General Purchaser Agreements 2.7 USG will be permitted to conduct EUM verification. Purchaser agrees to permit inspections or inventories and make accountability records available. End Use Monitoring - #2

28. 2 - General Purchaser Agreements 2.8 USG is NOT a party to any offset agreements. USG has no obligation to administer or satisfy any offset or to bear any offset cost. Offset costs may be included in this LOA. Offset USG Contractor + Customer

29. 3 - Indemnification & Assumption of Risks 3.1 USG provides items on a non-profit basis for the benefit of the Purchaser; therefore: • Purchaser indemnifies and holds harmless USG, its agents, officers, and employees for loss or liability 3.2 Subject to contractual warranties, purchaser relieves USG contractors and subcontractors from liability for loss or damage To the same extent USG would assume for its property if it were procuring items for itself

30. FMS Case BN-D-YCY Internal Level of USG Financial Risk Exposure 2011 2014 = Before FMS Sale After FMS Sale

31. 4. Financial Terms and Conditions 4.1 Billed at total cost. LOA price is an estimate 4.2 USG refunds excess payments 4.3 Timely payments required to prevent work stoppage 4.4 Pay total cost in U.S. dollars even if in excess of LOA estimate - Pay cost above avail FMF

32. 5. Transportation and Discrepancy Provisions 5.1 Delivery & passage of title normally occurs at initial point of shipment 5.2 Purchaser provides shipping instructions 5.3 Purchaser is responsible for insurance and customs clearance 5.4 Billing statement serves as evidence of title passage. Outlines supply discrepancy process

33. 6. Warranties • Procurement: • No USG warranty except for clear title • Stock: • Repair or replace if damaged existed prior to passage of title

34. WarrantiesSAMM C6.3.8 • DoD acquires the same warranties for FMS as it does for DoD • Routine FMS warranty rights exercised by the supply discrepancy process • No special actions required by purchaser • Exceptional warranties obtained on purchaser request will: • Be described in a supplemental LOA note • Note will include information on process necessary to exercise warranty rights

35. 7. Dispute Resolution • 7.1 LOA subject to U.S. law and regulation including U.S. federal procurement law • 7.2 Disagreements between USG/purchaser regarding LOA resolved without referral to any international tribunal or third party for settlement

36. InternationalSalesContractualInstruments Revisions and Other Documents

37. Government-to-Government Agreements • Amendment to LOA • Modification to LOA • Lease • International Agreement • Loan

38. LOA Items Subject to Changes • Price • Quantity • Configuration • Delivery Date • Training Requirements • Transportation Code • Financial Terms • LOA Notes

39. The basic intention, goal, or purpose of the agreement Definition of Scope

40. LOA Changes – SAMM C6.7 Major Scope Change Minor Scope Change No Scope Change LOA Modification New LOA LOA Amendment Purchaser Acceptance Required Purchaser Acceptance Not Required

41. New LOA BN-D-YCW • Major changes in scope • Require purchaser acceptance • Examples: Addition or deletion of Significant Military Equipment or a substantial program expansion

42. Amendment to LOA • Minor changes in scope • Require purchaser acceptance • Examples: Increases or decreases in blanket order cases, changes in performance periods, configuration changes, quantity changes

43. Modification to LOA • Changes not affecting scope • Purchaser already agreed to these type changes in LOA 4.1 • Purchaser signature only to acknowledge receipt • Examples: price increase or reduction, payment schedule change

44. Lease FMS is norm, Lease is exception • Recipient eligible for FMS • Compelling foreign policy or national security reasons for lease vs. sale • Articles not currently needed for public use • Effect on U.S. technology/industrial base considered

45. Lease • Fixed duration – Min of 1 month to max of 5 years • Title does NOT transfer • U.S. may terminate at any time for immediate return • Reimburse USG if article lost or destroyed while leased • Congressional notification - Lease 1 year or more: • 15 days for NATO, NATO members, Australia, New Zealand and Japan • 30 days all others

46. Lease • Recipient pays: • Lease – Depreciation rental fee • Initial Deposit • Quarterly payments • LOA – packing, crating, handling, transportation, support, repair, damage, loss • Related LOA referenced in lease agreement

47. International Agreement • LOA typically sufficient for most FMS sales agreements • For complex transfers, broader agreements are necessary to reflect interests of parties • Cooperative Projects • Coproduction/Licensed Production • Agreement content negotiated by parties • Binds parties in international law • SAMM C11.9 relates use to security cooperation • DoDD 5530.3 “International Agreements” applies

48. Loan • AECA, Section 65 permits loans to NATO and major non-NATO allies for cooperative research and development purposes • USD (AT&L) is lead for loan agreements • Must be mutual benefit • Terms & Conditions similar to the LOA apply • Test report provided at no charge • DoDD 5530.3 “International Agreements” applies