The Foreign Military Sales system involves a LOT of acronyms – even for the military! Today I want to talk more in detail about the FMS process and specifically about the Letter of Request (LOR), Price and Availability (P&A) and Letter of Offer and Acceptance (LOA). In FMS sales, these may be the most common acronyms that get tossed around. Let’s clear up what they mean.
The first stages of the FMS process are the following:
- Preliminary Phase: The Customer determines their procurement requirements.
- Definition Phase: Customer and U.S. DoD exchange technical information.
- Request: Customer prepares and submits a Letter of Request (LOR). The LOR will request either Price and Availability (P&A) data or a Letter of Offer and Acceptance (LOA).
- Development of Offer: The USG has 120 days to respond to the LOR with Price and Availability (P&A) data or a Letter of Offer and Acceptance (LOA). Congressional review may be required, which takes and additional 15 – 50 days.
The preliminary, definition, and request phase, by definition, are all part of the Pre-LOR processes, which we talked about in detail in my post on Pre-LOR Consultations. Once the customer has defined their requirements, they submit a formal request to the U.S. DoD with a Letter of Request (LOR).
The Letter of Request (LOR) usually takes the form of a letter or even an email. The request should also be as specific as possible so that the DoD knows exactly what the customer is requesting. Per the Green Book (pdf):
There is no standard or prescribed format for an LOR. The key to a good LOR is that it provides sufficient information to adequately communicate the customer’s requirements to the USG. A complete and comprehensive LOR is essential so the IA can prepare a cost estimate that accurately reflects those customer requirements.
For companies seeking to sell through FMS, the LOR may be the most crucial step in the process. The LOR is analogous to a request for proposals in that it defines the customers’ requirements and the basic specs for the project. Obviously, to be considered for the FMS case, your product must qualify under the specs in the LOR. On the other hand, if the customer wants to make a sole-source request, this information should be included in the LOR. Thus, pre-LOR consultations are crucial for ensuring that the customer’s requirements are accurately reflected in the LOR.
Upon receiving a LOR, the DoD has 120 days to respond. They will respond with one of the following:
- Price and Availability data,
- A Letter of Offer and Acceptance, or
- A Lease agreement.
Let’s take a quick look at P&As and LOAs. Lease agreements are much less common, so we’ll overlook them for now.
A Price and Availability (P&A) letter is exactly what it sounds like – a letter to inform the customer about the price and availability of the goods the customer is interested in. The DoD takes pains to emphasize that this number is only an estimate. The final cost of the sale will appear in the Letter of Offer and is often different from the initial estimate in the P&A. Again, per the DSCA Green Book:
P&A is a rough order of magnitude (ROM) estimate reflecting projected cost and availability for defense articles and services identified in an LOR. … P&A is intended for planning purposes only and should not be used by the customer for budgeting purposes.
One thing I’ve noticed with P&As is that the DoD often includes items they think the customer needs, but these “extras” may add significantly to the overall cost. For example, some equipment systems come with standard accessories in the U.S., but the foreign customer may wish to omit these accessories or purchase different ones. The customer should carefully review the P&A to ensure that it reflects their specific requirements. In fact, DSCA encourages the customer to be closely involved in the LOA process to ensure that the agreement is a good “fit” for the customer.
The Letter of Offer and Acceptance (LOA) is the actual contract between the US DoD and the customer for the FMS sale. Per the Green Book:
The LOA represents a bona fide offer by the USG to sell the described items identified in the document. The LOA becomes an agreement when the customer accepts (signs) it and provides the initial deposit payment specified in the LOA. While P&A and LOA data are both estimates, an LOA is developed based on the customer’s specific requirements and contains the most precise data available at the time the document is prepared.
An LOA includes an “offer expiration date,” and is usually valid for 60 days following its issuance. The customer must sign the LOA and make the initial deposit within those 60 days, or the LOA is automatically cancelled. If this happens, the customer has to request a new LOA and the price may have changed. The customer may also request an extension within the 60 days to prevent the LOA from expiring.
What questions do you still have about LORs, P&As, and LOAs?
For an overview of the entire FMS process, see my FMS timeline.
And for more FMS how-to information, check out these posts:
- FMS Sole Source Requirements Updated
- FMS How-To: Pre-LOR Consultations
- Military Exports: What are NSNs?