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LCD-78-432 1 (1978-08-28)

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07237 - [B2427476j
[Zrmy Underpricing of Machine Guns Sold to Foreign Governments].
LCD-78-432; B-183318. August 28. 1978. 3 pp.

Report to Secretaryp Department of Defense; ty Richard 9.
Gutmann, Director, Logistics and Conmunicaticns Eiv.

Issue irea: Procedures to Assure Sufficient. lot Excessive,
    Material Requisitioning. (719); International Economic and
    military Programs: Foreign Military Sales (605).
C-ntact: Logist..cs and Communications Div.
Budget FuDtioL: National Defense: Department of Defense -
    Milita 1 (except procurement & contracts) (051).
Organization Concerned: Department of the Army.
Congressional Relevance: House Committee on Armed Services;
    Senate Committee on Armed Services.
Authority: Arms Export antrol Act of 1976 (22 U.S.C. 2761).
    Army Regulation 795-14. DOD Instruction 2140.1.

         An October 1977 report ecommended that the Army rebill
foreign military salas customers approximately $60.7 million for
the value of M-2 50-caliber machine guns sold at less than
replacement prices. These contracts were made in 1973 and 1974v
and deliveries to customers took place from September 1974 to
May 1977. The Department of Defense (DOD) took the position that
replacement ptices should be charged only ,a machine guns sold
since December 1974. This would preclude any repricing on the
above sales since all offers and acceptances took place before
December 1974. A review of pertinent laws and regulations
indicated that: (1) under Army Regulation 795-14, issued June 3,
1974, the Army apparently had the option of determining the
standard price either at the time the offer was prepared with a
reasonable £pecified acceptance date or at th- time the item was
dropped frcs inventory; and (2) the ambiguity regardiag the time
of determination of price was not clarified by DOD until Jun 17,
1975. Therefore, charges fnr machine guns shipped after June
1975 should have reflected thair replacement cost. The Secretary
of Defense should &ttempt collection action and establish
mechanisms to immediately notify foreign military sales
customers of price changes when asset positions indicate future
replacement procurement of U.S. stocks. (SRS)

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