Consistent with the Arms Export Control Act and DOD policy, foreign  governments may request that nonrecurring costs be waived based on  one of three justifications:
To achieve equipment standardization with NATO and select allies  (Australia, Israel, Japan, Jordan, New Zealand, and the Republic of  Korea). Determining Nonrecurring Costs for Sales of Major Defense Equipment under the FMS Program

The Arms Export Control Act requires recovery of a proportionate amount  of nonrecurring research, development, and production costs for foreign  sales of major defense equipment. DOD Approved Nonrecurring Cost Waivers Valued at Billions of Dollars over the Past 6 Years

From fiscal years 2012 through 2017, DOD approved nonrecurring cost  waivers valued at nearly $16 billion that it might otherwise have collected  from foreign governments as part of its major defense equipment sales. Over this period, DSCA approved 810 of the 813 waiver requests it  received, resulting in an approval rate of more than 99 percent. The value of approved waivers  increased more in fiscal year 2017 than in prior years, as shown in figure  4. The increase is primarily due to 2 approved waivers totaling nearly $3.5 billion for sales of missiles and related support systems. Under the Arms Export Control Act and its implementing  regulations, DSCA has considerable latitude to approve all waivers that  meet the criteria for each justification. DOD offices  that play a role in reviewing and deciding on waiver requests may also  consider these factors. Interoperability helps strengthen relationships with allies and  advances U.S. and allied security interests in these regions. DOD Could Take Steps to Enhance Efficiency of Waiver Review Process

DOD’s waiver review process is, at times, inefficient, includes repetitive  steps, and does not account for the value of the waiver request. DOD  has taken steps to reduce the time for a few offices to review waivers, but  we found there are opportunities for additional efficiencies to be realized. Once the waiver is requested by the  foreign government, DSCA and OUSD (AT&L) officials review the waiver  request to assess these benefits, even though military officials stated an  assessment has already been conducted to determine how the proposed  sale will advance U.S. national security objectives within the region. In light of the  significant growth in the FMS program in recent years, as well as the  resulting workload for DSCA and other cognizant DOD components,  continuing to streamline the waiver review process would better position  DSCA and the military departments in maximizing efficiencies in the FMS  process. Recommendation for Executive Action

We are making the following recommendation to DSCA:  The DSCA Director should continue to identify opportunities to streamline  the review process for nonrecurring cost waiver requests. Appendix I: Objectives, Scope and Methodology

In this report, we addressed the (1) nonrecurring cost waivers approved  by the Department of Defense (DOD) from fiscal years 2012 through  2017, (2) factors DOD considers when reviewing waivers, and (3)  efficiency of the waiver review process. To address all objectives, we analyzed data from the Defense Security  Cooperation Agency (DSCA) on requests made by foreign governments  to waive nonrecurring costs on purchases of major defense equipment  under the Foreign Military Sales (FMS) program. To identify the extent to which DOD approved nonrecurring cost waivers  for fiscal years 2012 through 2017, we analyzed data on nonrecurring  cost waiver requests, which included: the country requesting the waiver,  the justification under which the waiver was requested, the requested  amount of the waiver, whether or not the waiver was approved, the  approved value of the waiver, and the military department responsible for  managing the procurement of the major defense equipment associated  with the requested waiver. We compared these offices’ practices to review the  waivers with the Standards for Internal Control in the Federal  Government, which calls for agencies to assign and delegate  responsibilities in a manner that maximizes efficiency and effectiveness.
Why GAO Did This Study

Under the Arms Export Control Act and its implementing regulations, DOD is required to recover nonrecurring costs—unique one-time program-wide expenditures—for certain major defense equipment sold under the FMS program. These costs include research, development, and one-time production costs, such as expenses for testing equipment. The Act also permits those costs to be waived under certain circumstances, such as to standardize equipment with select allies or to avoid a loss of sale.
GAO was asked to review DOD's use of nonrecurring cost waivers. This report addresses the (1) nonrecurring cost waivers approved by DOD from fiscal years 2012 through 2017, (2) factors DOD considers when reviewing waivers, and (3) efficiency of the waiver review process.
To conduct this work, GAO analyzed DOD data of nonrecurring cost waivers for fiscal years 2012 through 2017, the most recent and complete data, to identify the value of waivers. GAO then reviewed a non-generalizable sample of 24 of these waivers that included a mix of justifications and geographic regions. GAO reviewed relevant DOD policy and interviewed DOD officials about the process to assess these waivers.

What GAO Found

In the past 6 years, the Department of Defense (DOD) approved waivers valued at nearly $16 billion that it might otherwise have collected from foreign governments as part of its sales of major defense equipment through the Foreign Military Sales (FMS) program. The Arms Export Control Act, as delegated, authorizes the Defense Security Cooperation Agency (DSCA) within DOD to waive nonrecurring costs under certain circumstances, such as to standardize equipment with allies. From fiscal years 2012 through 2017, DSCA reviewed 813 waivers and denied 3, resulting in an approval rate of 99 percent. As shown in the figure below, the value of approved waivers significantly increased to nearly $6 billion last year, which is due to 2 waivers totaling nearly $3.5 billion for sales of missiles and related support systems.
Total Value of Approved Foreign Military Sales Nonrecurring Cost Waivers from Fiscal Years 2012 through 2017
When reviewing waivers, DSCA considers foreign policy and national security factors, such as interoperability with allies, and economic factors, such as support for the U.S. defense industrial base. Agency officials stated that approving waivers helps ensure sales go through and such broader benefits are realized. DSCA's practice to approve waivers is consistent with the authority it has been delegated under the Arms Export Control Act and is influenced by these benefits.
The process DOD has established to consider waivers is, at times, inefficient and repetitive. DSCA has final approval authority; however, multiple DOD offices must review and provide input on each waiver, with some offices reviewing waivers for the same purpose. Federal standards for internal control call for agencies to allocate resources and assign responsibilities to achieve efficiency and effectiveness. DOD has already taken steps to improve the efficiency of the waiver review process; for example, by reducing the time a few offices take to review the waivers. Nonrecurring cost waivers are one part of the larger FMS process, and continuing to streamline the waiver review process would better position DSCA and the military departments to identify opportunities to maximize efficiencies.

What GAO Recommends

DSCA should continue to identify opportunities to streamline the waiver review process. DSCA concurred with GAO's recommendation.