The Defense Department Continues To Subsidize the Foreign Military Sales Program by Not Charging for Normal Inventory Losses

In 8 years, Department of Defense (DOD) sales of military items from inventory to foreign countries have risen from $953 million to $13.5 billion. DOD included the following provisions in its standard sales contract: (1) item prices set at their total cost to the government; (2) price increases of 10 percent or more announced in advance to purchasing countries; and (3) agreement by foreign governments to reimburse the United States for costs exceeding estimates in sales agreements. Besides major articles, such as tanks and planes, DOD sells secondary items to foreign governments. These are either stock fund items, low-cost, expendable articles, or nonstock fund items, generally reparable and nonexpendable, which may be purchased by foreign governments through the supply support arrangements by which nations invest in DOD inventories, or other sales agreements. DOD incurs normal inventory losses in secondary item inventories due to damage, deterioration, pilferage, disposal of excess items, and obsolescence. Normal inventory losses in articles stored for purchase are charged against the purchasing country, but surcharges have only been assessed for this purpose on stock fund sales.