B-201450.OM, DEC 16, 1981

B-201450.OM: Dec 16, 1981

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SUCH DECISION IS LEGALLY IMPROPER. RELATED TRANSFER OF AIR FORCE PRIOR-YEAR EXPIRED APPROPRIATIONS TO ADMINISTRATIVE SURCHARGE ACCOUNT WAS ALSO LEGALLY IMPROPER. WE CONCLUDE THAT DSAA'S DECISION TO ADOPT THE VARIABLE COST METHOD WAS LEGALLY IMPROPER SINCE THE ARMS EXPORT CONTROL ACT CLEARLY REQUIRES THE CHARGING OF ADMINISTRATIVE EXPENSES ON A FULL COST BASIS. IT IS ALSO OUR OPINION THAT THE AIR FORCE COULD NOT LEGALLY TRANSFER PRIOR-YEAR EXPIRED APPROPRIATIONS BASED ON THE VARIABLE COST METHOD. REVENUES GENERATED FROM THE ADMINISTRATIVE SURCHARGE ARE DEPOSITED INTO A SEPARATE ACCOUNT WITHIN THE FMS TRUST FUND. WHICH IS RESPONSIBLE FOR ADMINISTERING THE FUND. WERE INDIRECTLY SUPPORTING SUCH PROGRAM.

B-201450.OM, DEC 16, 1981

SUBJECT: FUNDING OF DEFENSE SECURITY ASSISTANCE AGENCY'S ADMINISTRATIVE SURCHARGE ACCOUNT (FILE B-201450; CODE 903020) DIGEST: CONCERNING PROPRIETY OF DEFENSE SECURITY ASSISTANCE AGENCY'S DECISION TO CHARGE FOREIGN COUNTRIES THE VARIABLE VERSUS FULL COSTS OF ADMINISTERING FOREIGN MILITARY SALES PROGRAM, SUCH DECISION IS LEGALLY IMPROPER, AS THE ARMS EXPORT CONTROL ACT CLEARLY REQUIRES THE CHARGING OF THE FULL ADMINISTRATIVE COSTS OF THE PROGRAM. GIVEN THIS CONCLUSION, RELATED TRANSFER OF AIR FORCE PRIOR-YEAR EXPIRED APPROPRIATIONS TO ADMINISTRATIVE SURCHARGE ACCOUNT WAS ALSO LEGALLY IMPROPER.

ACTING DIRECTOR, AFMD - WILBUR D. CAMPBELL:

THIS RESPONDS TO YOUR REQUEST FOR OUR OPINION ON THE PROPRIETY OF A DECISION BY THE DEFENSE SECURITY ASSISTANCE AGENCY (DSAA) TO CHARGE FOREIGN COUNTRIES FOR ADMINISTRATIVE SERVICES UNDER THE FOREIGN MILITARY SALES (FMS) PROGRAM ON A "VARIABLE COST" RATHER THAN A "FULL COST" BASIS. YOU ALSO QUESTIONED A RELATED TRANSFER OF FUNDS FROM PRIOR-YEAR EXPIRED AIR FORCE APPROPRIATIONS TO THE ADMINISTRATIVE SURCHARGE ACCOUNT, WHICH REFLECTED IN PART ADJUSTMENTS TO IMPLEMENT THE "VARIABLE COST" METHOD.

FOR THE REASONS DISCUSSED BELOW, WE CONCLUDE THAT DSAA'S DECISION TO ADOPT THE VARIABLE COST METHOD WAS LEGALLY IMPROPER SINCE THE ARMS EXPORT CONTROL ACT CLEARLY REQUIRES THE CHARGING OF ADMINISTRATIVE EXPENSES ON A FULL COST BASIS. GIVEN THIS CONCLUSION, IT IS ALSO OUR OPINION THAT THE AIR FORCE COULD NOT LEGALLY TRANSFER PRIOR-YEAR EXPIRED APPROPRIATIONS BASED ON THE VARIABLE COST METHOD.

I. BACKGROUND:

THE ARMS EXPORT CONTROL ACT (22 U.S.C. SEC. 2751 ET. SEQ.) AUTHORIZES THE SALE OF DEFENSE ARTICLES AND SERVICES TO ELIGIBLE FOREIGN COUNTRIES ON A COST-REIMBURSEMENT BASIS. AS A MEANS OF RECOVERING THE INDIRECT COSTS OF THESE SALES, SUBSECTION 2761(E)(1) REQUIRES THAT APPROPRIATE CHARGES BE INCLUDED FOR "ADMINISTRATIVE SERVICES, CALCULATED ON AN AVERAGE PERCENTAGE BASIS, TO RECOVER THE FULL ESTIMATED COSTS OF ADMINISTRATION OF THE SALES *** TO ALL PURCHASERS."

DEPARTMENT OF DEFENSE (DOD) IMPLEMENTING INSTRUCTIONS (FORMERLY DOD INSTRUCTION 2140.1, NOW FMS FINANCIAL MANAGEMENT MANUAL 7290.3-M) REQUIRE THE IMPOSITION OF AN ADMINISTRATIVE SURCHARGE ON ALL SALES (E.G., 3 PERCENT OF THE CONTRACT PRICE). THE INSTRUCTIONS ALSO REQUIRE THAT THE MILITARY DEPARTMENTS PREPARE ANNUAL BUDGETS FOR THEIR ANTICIPATED ADMINISTRATIVE EXPENSES IN SUPPORT OF THE FMS PROGRAM. REVENUES GENERATED FROM THE ADMINISTRATIVE SURCHARGE ARE DEPOSITED INTO A SEPARATE ACCOUNT WITHIN THE FMS TRUST FUND, A GENERAL FUND DOD ESTABLISHED TO FACILITATE THE FINANCING OF FMS SALES. DSAA, WHICH IS RESPONSIBLE FOR ADMINISTERING THE FUND, ALLOCATES THE SURCHARGE REVENUE TO THE MILITARY DEPARTMENTS IN ACCORDANCE WITH THEIR APPROVED BUDGETS FOR FMS ADMINISTRATIVE EXPENSES.

THE DOD INSTRUCTIONS DO NOT REQUIRE THE USE OF ANY ONE COST METHOD (E.G., "FULL COST" VS. "VARIABLE COST") FOR THE CALCULATION OF THE ADMINISTRATIVE EXPENSES OF THE FMS PROGRAM. UNTIL RECENTLY THE AIR FORCE USED THE SO- CALLED "FULL COST" METHOD IN CALCULATING ITS ANTICIPATED ADMINISTRATIVE EXPENSES IN SUPPORT OF THE FMS PROGRAM. UNDER THIS METHOD THE AIR FORCE INCLUDED VARIOUS ADMINISTRATIVE COSTS THAT, WHILE REMAINING SUBSTANTIALLY UNCHANGED IRRESPECTIVE OF THE LEVEL OF FMS PROGRAM ACTIVITIES, WERE INDIRECTLY SUPPORTING SUCH PROGRAM.

DSAA BELIEVES THAT THE MILITARY DEPARTMENTS SHOULD USE THE SO-CALLED "VARIABLE" (INCREMENTAL) COST METHOD IN CALCULATING THEIR FMS ADMINISTRATIVE EXPENSES. THAT IS, THE DEPARTMENTS SHOULD INCLUDE ONLY THOSE ADMINISTRATIVE COSTS THAT CLEARLY VARY WITH THE LEVEL OF FMS PROGRAM ACTIVITIES. APPLICATION OF THE VARIABLE COST METHOD HAS RESULTED IN THE EXCLUSION OF CERTAIN INDIRECT OVERHEAD COSTS (E.G., BASE OPERATING SUPPORT, FACILITY RENTAL, COMMUNICATIONS, OPERATING SUPPLIES).

APPARENTLY THE AIR FORCE AND DSAA AGREED TO USE DSAA'S VARIABLE COST METHOD FOR FISCAL YEAR 1980 AND THEREAFTER. IN ADDITION, DSAA INVITED THE AIR FORCE TO RECALCULATE ITS PRIOR YEAR CHARGES (FISCAL YEARS 1977, 1978, AND 1979) TO FMS ADMINISTRATIVE FUNDS, USING THE VARIABLE COST METHOD. THE EXTENT "ERRONEOUS CHARGES" WERE IDENTIFIED (APPROXIMATELY $8.3 MILLION), FUNDS WERE RETURNED TO THE ADMINISTRATIVE SURCHARGE ACCOUNT ON THE THEORY THAT AIR FORCE APPROPRIATED FUNDS IMPROPERLY OBTAINED REIMBURSEMENT FROM THAT ACCOUNT. WE UNDERSTAND THAT THE SPECIFIC SOURCE OF THESE FUNDS WAS THE UNOBLIGATED BALANCE OF EXPIRED OPERATION AND MAINTENANCE (O&M) ACCOUNTS.

II. LEGAL PROBLEM:

AFMD QUESTIONS DSAA'S DECISION TO ADOPT A VARIABLE COST METHOD ON THE GROUNDS THAT THE ARMS EXPORT CONTROL ACT REQUIRES THE RECOVERY OF ADMINISTRATIVE EXPENSES ON A FULL COST BASIS. AS TO THE AIR FORCE'S TRANSFER OF APPROXIMATELY $8.3 MILLION OF PRIOR YEAR APPROPRIATED FUNDS TO THE ADMINISTRATIVE SURCHARGE ACCOUNT, AFMD AGREES WITH THE TRANSFER OF $3.4 MILLION, SINCE THIS AMOUNT APPEARS TO REFLECT ERRORS IN PRIOR BILLINGS TO FOREIGN COUNTRIES. HOWEVER, AFMD QUESTIONS THE TRANSFER OF THE REMAINING $4.9 MILLION (REPRESENTING MOSTLY "FIXED" BASE OPERATING SUPPORT COSTS) ON THE GROUNDS THAT THE UNDERLYING COST ITEMS ARE REQUIRED TO BE CHARGED UNDER THE ARMS EXPORT CONTROL ACT. IN THIS CONTEXT AFMD HAS SUBMITTED TWO QUESTIONS WHICH, AS MODIFIED BY OUR SUBSEQUENT DISCUSSIONS, ARE DISCUSSED BELOW.

QUESTION 1: WHICH COST METHOD (VARIABLE VERSUS FULL) DOES THE ARMS EXPORT CONTROL ACT REQUIRE TO BE APPLIED IN DETERMINING MILITARY DEPARTMENTS' ADMINISTRATIVE COSTS THAT ARE TO BE CHARGED TO THE FMS PROGRAM?

QUESTION 2: COULD THE DEPARTMENT OF THE AIR FORCE LEGALLY TRANSFER $4.9 MILLION FROM THE UNOBLIGATED BALANCES OF PRIOR-YEAR O&M ACCOUNTS TO THE FMS ADMINISTRATIVE SURCHARGE ACCOUNT ON THE GROUNDS THAT THE O&M FUNDS HAD BEEN IMPROPERLY REIMBURSED FROM THAT ACCOUNT THROUGH THE USE OF THE FULL COST METHOD FOR CALCULATING ADMINISTRATIVE EXPENSE?

ANSWER:THE ARMS EXPORT CONTROL ACT CLEARLY REQUIRES THE APPLICATION OF THE FULL COST METHOD IN CHARGING FOR THE ADMINISTRATIVE COSTS OF THE FMS PROGRAM. GIVEN THIS CONCLUSION, WE DO NOT BELIEVE THAT THE AIR FORCE COULD LEGALLY TRANSFER PRIOR-YEAR EXPIRED APPROPRIATIONS ON THE GROUNDS THAT THE VARIABLE COST METHOD SHOULD HAVE BEEN USED IN THOSE PRIOR YEARS.

DISCUSSION:

SECTION 21(E)(1) OF THE ARMS EXPORT CONTROL ACT, AS AMENDED, 22 U.S.C. SEC. 2761(E)(1), REQUIRES THE IMPOSITION OF CERTAIN CHARGES, INCLUDING CHARGES FOR ADMINISTRATIVE SERVICES, IN CONNECTION WITH FMS TRANSACTIONS AS FOLLOWS:

"AFTER SEPTEMBER 30, 1976, LETTERS OF OFFER FOR THE SALE OF DEFENSE ARTICLES OR FOR THE SALE OF DEFENSE SERVICES THAT ARE ISSUED PURSUANT TO THIS SECTION OR PURSUANT TO SECTION 22 OF THIS ACT SHALL INCLUDE APPROPRIATE CHARGES FOR -

"(A) ADMINISTRATIVE SERVICES, CALCULATED ON AN AVERAGE PERCENTAGE BASIS TO RECOVER THE FULL ESTIMATED COSTS OF ADMINISTRATION OF SALES MADE UNDER THIS ACT TO ALL PURCHASERS OF SUCH ARTICLES AND SERVICES;

"(B) ANY USE OF PLANT AND PRODUCTION EQUIPMENT IN CONNECTION WITH SUCH DEFENSE ARTICLES;

"(C) A PROPORTIONATE AMOUNT OF ANY NONRECURRING COSTS OF RESEARCH, DEVELOPMENT, AND PRODUCTION OF MAJOR DEFENSE EQUIPMENT; AND

"(D) THE RECOVERY OF ORDINARY INVENTORY LOSSES ASSOCIATED WITH THE SALE FROM STOCK OF DEFENSE ARTICLES THAT ARE BEING STORED AT THE EXPENSE OF THE PURCHASER OF SUCH ARTICLES."

THUS ADMINISTRATIVE SERVICES ARE TO BE CHARGED ON THE BASIS OF "FULL ESTIMATED COST." THE ACT DOES NOT DEFINE THIS TERM; HOWEVER, IT IS CLEAR THAT CONGRESS INTENDED TO APPLY THE TRADITIONAL CONCEPT OF FULL COSTING FOR ADMINISTRATIVE SERVICES. THE SENATE FOREIGN RELATIONS COMMITTEE REPORT ON ITS VERSION OF THE LEGISLATION (PUB.L. NO. 94-329) THAT ENACTED THIS COST-RECOVERY REQUIREMENT STATES:

"THE NEW SUBSECTION (E) IS DESIGNED TO INSURE THAT ALL GOVERNMENT-TO-GOVERNMENT SALES SHALL INCLUDE A FAIR SHARE OF ALL INDIRECT COSTS SO THAT THERE ARE NO LONGER ANY ELEMENTS OF SUBSIDY IN THE PROGRAM ***." S.REP. NO. 94-876, AT 29 (1976).

WHILE DIFFERENCES MAY ARISE OVER THE TREATMENT OF PARTICULAR COST ITEMS, THERE IS A CLEAR AND FUNDAMENTAL DIFFERENCE BETWEEN THE ACCOUNTING CONCEPTS OF "FULL" AND "VARIABLE" COST RECOVERY. FOR EXAMPLE, THESE CONCEPTS ARE CONTRASTED IN KIESO AND WEYGANDT, INTERMEDIATE ACCOUNTING (3D ED, 1980), AT 342:

"FIXED MANUFACTURING OVERHEAD COSTS PRESENT A SPECIAL PROBLEM IN COSTING INVENTORIES BECAUSE TWO CONCEPTS EXIST RELATIVE TO THE COSTS THAT ATTACH TO THE PRODUCT AS IT FLOWS THROUGH THE MANUFACTURING PROCESS. THESE TWO CONCEPTS ARE VARIABLE COSTING, FREQUENTLY CALLED DIRECT COSTING, AND ABSORPTION COSTING, ALSO CALLED FULL COSTING.

"IN A VARIABLE COST SYSTEM ALL COST MUST BE CLASSIFIED AS VARIABLE OR FIXED. VARIABLE COSTS ARE THOSE THAT FLUCTUATE IN DIRECT PROPORTION TO CHANGES IN OUTPUT, AND FIXED COSTS ARE THOSE THAT REMAIN CONSTANT IN SPITE OF CHANGES IN OUTPUT. UNDER VARIABLE COSTING ONLY COSTS THAT VARY DIRECTLY WITH THE VOLUME OF PRODUCTION ARE CHARGED TO PRODUCTS AS MANUFACTURING TAKES PLACE. ONLY DIRECT MATERIAL, DIRECT LABOR, AND THE VARIABLE COSTS IN MANUFACTURING OVERHEAD ARE CHARGED TO WORK IN PROCESS AND FINISHED GOODS INVENTORIES AND APPEAR AS COST OF GOODS SOLD. ***

"UNDER ABSORPTION COSTING, ALL MANUFACTURING COSTS, VARIABLE AND FIXED, DIRECT AND INDIRECT, INCURRED IN THE FACTORY OR PRODUCTION PROCESS ATTACH TO THE PRODUCT AND ARE INCLUDED IN THE COST OF INVENTORY. DIRECT MATERIAL, DIRECT LABOR, AND ALL MANUFACTURING OVERHEAD - FIXED AS WELL AS VARIABLE - ARE CHARGED TO OUTPUT AND INVENTORIES."

SEE ALSO, ANTHONY, MANAGEMENT ACCOUNTING (4TH ED., 1970), AT 376-77.

LIKEWISE GAO TRADITIONALLY HAS APPLIED THE FULL COST CONCEPT TO FMS PRICING BOTH UNDER THE ARMS EXPORT CONTROL ACT AND PREDECESSOR LEGISLATION. SEE, FOR EXAMPLE, OUR REPORT "SUMMARY OF EFFORTS TO RECOVER U. S. GOVERNMENT COSTS IN FOREIGN MILITARY SALES" (ID-77-56, SEPTEMBER 27, 1978), WHICH STATES AT PAGE 7:

"ON THE BASIS OF DOD'S ESTABLISHED PRICING POLICIES, THERE HAS BEEN BASIC AGREEMENT DURING THE PAST DECADE THAT FMS LEGISLATION GENERALLY REQUIRES THE RECOVERY OF ALL COSTS THAT MAY BE IDENTIFIED WITH A GIVEN SALE OF A DEFENSE ARTICLE OR A DEFENSE SERVICE (THAT IS, THE FULL COST). WE FIRST TOOK THIS POSITION CONCERNING DEFENSE SERVICES IN 1969 IN A REPORT TO THE CONGRESS ENTITLED 'OMISSION OF SIGNIFICANT COSTS FROM CHARGES TO THE FEDERAL REPUBLIC OF GERMANY FOR PILOT TRAINING' (B-167363), WHERE WE STATED:

'ALTHOUGH NEITHER THE FAA (FOREIGN ASSISTANCE ACT) NOR ITS LEGISLATIVE HISTORY DEFINES VALUE AS IT RELATES TO DEFENSE SERVICES, WE BELIEVE THAT THE FAA CONTEMPLATES RECOVERY OF FULL COSTS FOR DEFENSE SERVICES WHICH ARE SOLD TO FOREIGN CUSTOMERS. WE BELIEVE THEREFORE THAT THE SELLING PRICES FOR DEFENSE SERVICES SHOULD BE ESTABLISHED ON THE BASIS OF THE FULL COST PRICING METHOD AND THAT FAILURE TO ADOPT THAT METHOD PROVIDES DOD WITH MANY OPTIONS FOR PRICING TRAINING SERVICES. PRICING UNDER THE FULL COST PRICING METHOD, IN OUR OPINION, WOULD ESTABLISH A SELLING PRICE FOR DEFENSE SERVICES THAT RECOVERS ALL COSTS INCURRED, WHETHER OF A DIRECT OR AN INDIRECT NATURE.'"

CLEARLY THE DEFENSE DEPARTMENT ALSO RECOGNIZES THE DISTINCTION BETWEEN FULL AND VARIABLE COSTING. THUS THE DEFENSE AUDIT SERVICE'S "REPORT ON THE REVIEW OF FOREIGN MILITARY SALES ADMINISTRATIVE BUDGET AT SELECTED AIR FORCE ACTIVITIES" (NO. 80-115, JUNE 20, 1980), NOTES AT PAGE 1:

"THE AIR FORCE BUDGET ESTIMATES WERE PREPARED UNDER FULL COSTING CONCEPTS. USED VARIABLE COSTING CONCEPTS. CURRENT DIRECTIVES AND REGULATIONS ARE SUFFICIENTLY AMBIGUOUS TO SUPPORT AN ARGUMENT FOR EITHER CONCEPT. HOWEVER, THE 3-PERCENT SURCHARGE RATE IS NOT SUFFICIENT TO PROVIDE FUNDING FOR FULL COSTING. ***"

IN SUM, SECTION 21(E) OF THE ARMS EXPORT CONTROL ACT BY ITS TERMS REQUIRES THAT THE FULL ESTIMATED COSTS OF ADMINISTRATIVE SERVICES BE RECOVERED. BOTH THE LEGISLATIVE HISTORY OF SECTION 21(E) AND GENERALLY RECOGNIZED ACCOUNTING CONCEPTS SUGGEST THAT THIS LANGUAGE WAS MEANT TO REQUIRE APPLICATION OF FULL COSTING RATHER THAN VARIABLE COSTING.

THE ONLY STATUTORY LANGUAGE THAT MIGHT BE READ TO SUPPORT VARIABLE COSTING IS SECTION 43(B) OF THE ARMS EXPORT CONTROL ACT, AS AMENDED, 22 U.S.C. SEC. 2792(B), WHICH PROVIDES:

"CHARGES FOR ADMINISTRATIVE SERVICES CALCULATED UNDER SECTION 21(E)(1)(A) OF THIS ACT SHALL INCLUDE RECOVERY OF ADMINISTRATIVE EXPENSES INCURRED BY ANY DEPARTMENT OR AGENCY OF THE UNITED STATES GOVERNMENT, INCLUDING ANY MISSION OR GROUP THEREOF, IN CARRYING OUT FUNCTIONS UNDER THIS ACT WHEN -

"(1) SUCH FUNCTIONS ARE PRIMARILY FOR THE BENEFIT OF ANY FOREIGN COUNTRY; AND "(2) SUCH EXPENSES ARE NOT DIRECTLY AND FULLY CHARGED TO, AND REIMBURSED FROM AMOUNTS RECEIVED FOR, SALE OF DEFENSE SERVICES UNDER SECTION 21(A) OF THIS ACT."

IT COULD BE ARGUED THAT THE PHRASE EMPHASIZED ABOVE QUALIFIES AND LIMITS THE RECOVERY OF ADMINISTRATIVE EXPENSES BY REQUIRING THAT EACH INDIVIDUAL COST ELEMENT BE INCLUDED ONLY IF IT IS INCURRED "PRIMARILY FOR THE BENEFIT OF" THE FMS CUSTOMER.

THE LEGISLATIVE HISTORY OF SECTION 43(B) DOES NOT ELABORATE ON THE "PRIMARILY FOR THE BENEFIT" PHRASE. HOWEVER, IT IS NOT TENABLE, IN OUR VIEW, TO CONCLUDE THAT THIS PHRASE, OR ANYTHING ELSE IN SECTION 43, WAS INTENDED TO REJECT OR LIMIT APPLICATION OF THE FULL COST METHOD FOR RECOVERY OF ADMINISTRATIVE SERVICES UNDER SECTION 21(E). FIRST, THE LANGUAGE OF SECTION 43(B) ITSELF SUGGESTS A DESIGN TO COMPLEMENT, NOT QUALIFY, SECTION 21(E)(1)(A). BOTH THE ORIGINAL VERSIONS OF SECTION 21 AND 43(B) WERE ENACTED AT THE SAME TIME BY PUB.L. NO. 94-329. SECOND, THE LEGISLATIVE HISTORY OF SECTION 43(B) INDICATES (AS DOES THE HISTORY OF SECTION 21(E), DISCUSSED PREVIOUSLY) A BASIC INTENT TO MAXIMIZE, RATHER THAN LIMIT, COST RECOVERY. THUS THE HOUSE INTERNATIONAL RELATIONS COMMITTEE REPORT ON THE LEGISLATION ENACTED AS PUB.L. NO. 94-329 STATES THAT THE PURPOSE OF SECTION 43(B) "IS TO MAKE SALES AND EXPORT CONTROL OPERATIONS SELF-SUPPORTING TO THE MAXIMUM EXTENT POSSIBLE." H.R.REP. NO. 94-1144 (1976), AT 39; SEE ALSO, S.REP. NO. 94-876 (1976), AT 45.

GIVEN THE ABOVE CONSIDERATIONS, WE DO NOT READ SECTION 43(B) AS LIMITING OR QUALIFYING IN ANY WAY THE COST RECOVERY METHOD APPLICABLE UNDER SECTION 21(E)(1)(A). ON THE CONTRARY, IT SEEMS MOST LIKELY THAT SECTION 43 IS CONCERNED WITH THE IDENTIFICATION OF ADMINISTRATIVE FUNCTIONS WHICH MIGHT NOT OTHERWISE BE REIMBURSABLE UNDER SECTION 21(E) (E.G., FUNCTIONS CARRIED OUT UNDER THE ACT THAT ARE NOT PART OF SALES TRANSACTIONS, BUT NEVERTHELESS ARE PRIMARILY FOR THE BENEFIT OF FOREIGN COUNTRIES.)

THUS SECTION 43 DOES NOT ESTABLISH OR OTHERWISE AFFECT THE METHOD BY WHICH INDIVIDUAL COST COMPONENTS OF SUCH FUNCTIONS ARE TO BE CALCULATED UNDER SECTION 21. IN OTHER WORDS, ONCE IT IS ESTABLISHED THAT ANY FEDERAL AGENCY INCURS ADMINISTRATIVE COSTS IN CARRYING OUT FUNCTIONS UNDER THE ARMS EXPORT CONTROL ACT PRIMARILY FOR THE BENEFIT OF ANY FOREIGN COUNTRY, SECTION 43 REQUIRES THAT THE COSTS OF SUCH FUNCTIONS BE RECOVERED. THE CALCULATION OF HOW MUCH TO RECOVER, AND WHAT SPECIFIC COST ELEMENTS TO INCLUDE, IS MADE BY APPLICATION OF FULL COSTING UNDER SECTION 21(E).