II 

110TH CONGRESS 

1ST SESSION S. 32 

To reform the acquisition process of the Department of Defense, and for 

other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 22, 2007 

Mr. MCCAIN introduced the following bill; which was read twice and referred 

to the Committee on Armed Services 

A BILL 

To reform the acquisition process of the Department of 

Defense, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Defense Acquisition 

5 Reform Act of 2007’’. 


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1 SEC. 2. JOINT REQUIREMENTS OVERSIGHT COUNCIL EVAL2 UATION OF MAJOR DEFENSE ACQUISITION 

3 PROGRAMS EXPERIENCING CERTAIN COST 

4 INCREASES. 

5 (a) IN GENERAL.—Chapter 144 of title 10, United 

6 States Code, is amended by inserting after section 2433 

7 the following new section: 

8 ‘‘§ 2433a. Joint Requirements Oversight Council eval9 uation of programs experiencing certain 

10 cost increases 

11 ‘‘(a) IN GENERAL.—The Secretary concerned may 

12 not reprogram funds for a major defense acquisition pro13 gram described in subsection (b), or otherwise provide or 

14 provide for additional funding for such a program, until 

15 the Joint Requirements Oversight Council submits to the 

16 Secretary an assessment of the performance requirements 

17 for the item to be procured under the contract, including 

18 the effect of such requirements on cost increases under 

19 the program. 

20 ‘‘(b) COVERED MAJOR DEFENSE ACQUISITION PRO21 GRAMS.—A major defense acquisition program described 

22 in this subsection is any major defense acquisition pro23 gram as follows: 

24 ‘‘(1) A major defense acquisition program that 

25 experiences a percentage increase in the program ac26 quisition unit cost of— 


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1 ‘‘(A) at least 10 percent over the program 

2 acquisition unit cost for the program as shown 

3 in the current Baseline Estimate for the pro4 gram; or 

5 ‘‘(B) at least 25 percent over the program 

6 acquisition unit cost for the program as shown 

7 in the original Baseline Estimate for the pro8 gram. 

9 ‘‘(2) A major defense acquisition program that 

10 is a procurement program that experiences a per11 centage increase in the procurement unit cost of— 

12 ‘‘(A) at least 10 percent over the procure13 ment unit cost for the program as shown in the 

14 current Baseline Estimate for the program; or 

15 ‘‘(B) at least 25 percent over the procure16 ment unit cost for the program as shown in the 

17 original Baseline Estimate for the program. 

18 ‘‘(c) DEFINITIONS.—In this section: 

19 ‘‘(1) The terms ‘program acquisition unit cost’ 

20 and ‘procurement unit cost’ have the meaning given 

21 those terms in section 2432(a) of this title. 

22 ‘‘(2) The terms ‘Baseline Estimate’ and ‘pro23 curement program’ have the meaning given those 

24 terms in section 2433(a) of this title.’’. 


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1 (b) CLERICAL AMENDMENT.—The table of sections 

2 at the beginning of such title is amended by inserting after 

3 the item relating to section 2433 the following new item: 

‘‘2433a. Joint Requirements Oversight Council evaluation of programs experiencing certain cost increases.’’. 

4 SEC. 3. MEMBERSHIP OF THE JOINT REQUIREMENTS OVER5 SIGHT COUNCIL. 

6 Section 181(c) of title 10, United States Code, is 

7 amended— 

8 (1) in paragraph (1)— 

9 (A) in subparagraph (D), by striking 

10 ‘‘and’’ at the end; 

11 (B) in subparagraph (E), by striking the 

12 period at the end and inserting a semicolon; 

13 and 

14 (C) by adding at the end the following new 

15 subparagraphs: 

16 ‘‘(F) the Under Secretary of Defense for Acqui17 sition, Technology, and Logistics; and 

18 ‘‘(G) the Under Secretary of Defense (Comp19 troller).’’; 

20 (2) by redesignating paragraphs (2) and (3) as 

21 paragraphs (3) and (4), respectively; and 

22 (3) by inserting after paragraph (1) the fol23 lowing new paragraph (2): 


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1 ‘‘(2) The Director of Program Analysis and Evalua2 tion shall be an advisor to the Council in the performance 

3 of its mission under this section.’’. 

4 SEC. 4. REQUIREMENT OF APPROVAL OF JOINT REQUIRE5 MENTS OVERSIGHT COUNCIL FOR INITIAL 

6 OPERATIONAL TEST AND EVALUATION IN EN7 VIRONMENT NOT SPECIFIED IN TEST AND 

8 EVALUATION MASTER PLAN. 

9 Section 2399(b) of title 10, United States Code, is 

10 amended— 

11 (1) by redesignating paragraphs (2) through 

12 (6) as paragraphs (3) through (7), respectively; 

13 (2) by inserting after paragraph (1) the fol14 lowing new paragraph (2): 

15 ‘‘(2) Initial operational test and evaluation of a major 

16 defense acquisition program may not be conducted in an 

17 environment other than the environment specified and de18 fined in the test and evaluation master plan (TEMP) con19 cerned without the approval of the Joint Requirements 

20 Oversight Council.’’; 

21 (3) in paragraph (4), as redesignated by para22 graph (1) of this subsection, by striking ‘‘paragraph 

23 (2)’’ and inserting ‘‘paragraph (3)’’; 


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1 (4) in paragraph (5), as so redesignated, by 

2 striking ‘‘paragraph (2)’’ and inserting ‘‘paragraph 

3 (3)’’; and 

4 (5) in paragraph (6), as so redesignated— 

5 (A) by striking ‘‘paragraph (4)’’ and in6 serting ‘‘paragraph (5)’’; and 

7 (B) by striking ‘‘paragraph (2)’’ and in8 serting ‘‘paragraph (3)’’. 

9 SEC. 5. APPROVAL BY PROGRAM MANAGERS OF CERTAIN 

10 COST INCREASES IN CONTRACTS FOR THE 

11 ACQUISITION OF PROPERTY. 

12 (a) REGULATIONS REQUIRED.— 

13 (1) IN GENERAL.—Not later than 90 days after 

14 the date of the enactment of this Act, the Secretary 

15 of Defense shall prescribe in regulations certain 

16 mechanisms that provide cost control measures in 

17 contracts for the acquisition of property for the De18 partment of Defense that may be authorized or ap19 proved by the program manager. 

20 (2) OBJECTIVES.—In prescribing the regula21 tions, the Secretary shall seek, to the maximum ex22 tent practicable, to achieve cost control, the sta23 bilization of requirements, and timely delivery in ac24 cordance with contract specifications in the performVerDate Aug 31 2005 19:15 May 23, 2007 Jkt 059200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S32.IS S32

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1 ance of contracts for the acquisition of property for 

2 the Department. 

3 (b) COVERED COST INCREASES.—The regulations re4 quired by subsection (a) shall provide that the cost in5 creases that may be authorized or approved by a program 

6 manager under a contract shall be limited to the following: 

7 (1) A cost increase necessary to secure or en8 hance safety in the property procured under the con9 tract where the unsecure or unsafe condition or situ10 ation (as officially documented by a responsible over11 sight organization) is attributable to the Govern12 ment. 

13 (2) A cost increase necessary for the correction 

14 of a defect in the contract that is attributable to the 

15 Government, including a defect in contract specifica16 tions, a defect in or the unavailability of Government 

17 information necessary for the performance of the 

18 contract, or a defect in or the unavailability of Gov19 ernment equipment necessary for the performance of 

20 the contract. 

21 (3) A cost increase associated with the unavail22 ability of Government-specified, contractor-furnished 

23 equipment or components. 

24 (4) A cost increase that is necessary for the 

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1 tract that is critical for the delivery or completion of 

2 operational testing. 

3 (5) A cost increase resulting from a modifica4 tion of applicable statutes or regulations, but only 

5 if— 

6 (A) funds are specifically made available to 

7 implement such modification; or 

8 (B) in the event funds are not so made 

9 available, the service acquisition executive con10 cerned approves the cost increase. 

11 (6) Any other cost increase approved and fund12 ed by an appropriate oversight organization that is 

13 the result of new or revised requirements or modi14 fications that would result in an overall reduction in 

15 life cycle cost in the property procured under the 

16 contract. 

17 (c) AVAILABILITY OF CHANGE ORDER FUNDS FOR

18 COST INCREASES.—The regulations shall provide that 

19 amounts appropriated for a program and available for 

20 change orders to contracts under the program shall be 

21 available for costs authorized or approved under sub22 section (b). 

23 (d) PROHIBITION ON OTHER COST INCREASES.—The 

24 regulations shall prohibit the authorization or approval by 


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1 a program manager of any cost increase under a contract 

2 not authorized pursuant to subsection (b). 

3 (e) COST REDUCTIONS.—The regulations shall also 

4 authorize a program manager to authorize or approve an 

5 administrative change, whether engineering or non-engi6 neering, to a contract for the acquisition of property for 

7 the Department if the change will reduce or have no effect 

8 on the cost of the contract. 

9 (f) PROHIBITION ON USE OF CERTAIN COST REDUC10 TIONS FOR OFFSET.—The regulations shall prohibit the 

11 utilization as an offset for a cost increase in a contract 

12 under subsection (b)(6) of any reduction in the cost of 

13 the contract resulting from a cost change approved by the 

14 program manager, including a reduction attributable to a 

15 change authorized under subsection (e). 

16 SEC. 6. MILITARY DEPUTIES TO THE ASSISTANT SECRE17 TARIES OF THE MILITARY DEPARTMENTS 

18 FOR ACQUISITION MATTERS AND THE 

19 CHIEFS OF STAFF. 

20 (a) DEPARTMENT OF THE ARMY.— 

21 (1) IN GENERAL.—There is in the Army a Mili22 tary Deputy for Acquisition Matters, appointed by 

23 the President, by and with the advice and consent 

24 of the Senate, from among officers in the Army who 


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1 have significant experience in the areas of acquisi2 tion and program management. 

3 (2) GRADE.—The Military Deputy for Acquisi4 tion Matters has the grade of lieutenant general. 

5 (3) DUTIES.—The Military Deputy for Acquisi6 tion Matters shall have the following duties: 

7 (A) To assist the Assistant Secretary of 

8 the Army with responsibility for acquisition 

9 matters in the supervision of acquisition mat10 ters for the Army. 

11 (B) To report to the Chief of Staff of the 

12 Army regarding such matters. 

13 (b) DEPARTMENT OF THE NAVY.— 

14 (1) IN GENERAL.—There is in the Navy a 

15 Naval Deputy for Acquisition Matters, appointed by 

16 the President, by and with the advice and consent 

17 of the Senate, from among officers in the Navy and 

18 Marine Corps who have significant experience in the 

19 areas of acquisition and program management. 

20 (2) GRADE.—The Naval Deputy for Acquisition 

21 Matters has the grade of vice admiral or lieutenant 

22 general. 

23 (3) DUTIES.—The Naval Deputy for Acquisi24 tion Matters shall have the following duties: 


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1 (A) To assist the Assistant Secretary of 

2 the Navy with responsibility for acquisition 

3 matters in the supervision of acquisition mat4 ters for the Navy. 

5 (B) To report to the Chief of Naval Oper6 ations regarding such matters. 

7 (c) DEPARTMENT OF THE AIR FORCE.— 

8 (1) IN GENERAL.—There is in the Air Force a 

9 Military Deputy for Acquisition Matters, appointed 

10 by the President, by and with the advice and consent 

11 of the Senate, from among officers in the Air Force 

12 who have significant experience in the areas of ac13 quisition and program management. 

14 (2) GRADE.—The Military Deputy for Acquisi15 tion Matters has the grade of lieutenant general. 

16 (3) DUTIES.—The Military Deputy for Acquisi17 tion Matters shall have the following duties: 

18 (A) To assist the Assistant Secretary of 

19 the Air Force with responsibility for acquisition 

20 matters in the supervision of acquisition mat21 ters for the Air Force. 

22 (B) To report to the Chief of Staff of the 

23 Air Force regarding such matters. 

24 (d) EXCLUSION OF MILITARY DEPUTIES FROM DIS25 TRIBUTION AND STRENGTH IN GRADE LIMITATIONS.— 


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1 (1) DISTRIBUTION.—Section 525(b) of title 10, 

2 United States Code, is amended by adding at the 

3 end the following new paragraph: 

4 ‘‘(9)(A) An officer while serving in a position speci5 fied in subparagraph (B) is in addition to the number that 

6 would otherwise be permitted for that officer’s armed force 

7 for the grade of lieutenant general or vice admiral, as ap8 plicable. 

9 ‘‘(B) A position specified in this subparagraph is each 

10 position as follows: 

11 ‘‘(i) Military Deputy for Acquisition Matters of 

12 the Army. 

13 ‘‘(ii) Naval Deputy for Acquisition Matters of 

14 the Navy. 

15 ‘‘(iii) Military Deputy for Acquisition Matters 

16 of the Air Force.’’. 

17 (2) AUTHORIZED STRENGTH.—Section 526 of 

18 such title is amended by adding at the end the fol19 lowing new subsection: 

20 ‘‘(g) EXCLUSION OF MILITARY DEPUTIES TO ASSIST21 ANT SECRETARIES OF THE MILITARY DEPARTMENTS FOR

22 ACQUISITION MATTERS.—The limitations of this section 

23 do not apply to a general or flag officer who is covered 

24 by the exclusion under section 525(b)(9) of this title.’’. 


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1 SEC. 7. COMMITTEE ON STRATEGIC INVESTMENT IN MAJOR 

2 DEFENSE ACQUISITION PROGRAMS. 

3 (a) IN GENERAL.—The Secretary of Defense shall es4 tablish within the Department of Defense a committee to 

5 ensure the effective allocation within major defense acqui6 sition programs of the financial resources available for 

7 such programs. 

8 (b) MEMBERS.— 

9 (1) IN GENERAL.—The committee established 

10 under subsection (a) shall be composed of the fol11 lowing: 

12 (A) The Under Secretary of Defense for 

13 Acquisition, Technology, and Logistics. 

14 (B) The Vice Chairman of the Joint Chiefs 

15 of Staff. 

16 (C) The Director of Program Analysis and 

17 Evaluation. 

18 (D) Any other officials of the Department 

19 of Defense jointly agreed upon by the Under 

20 Secretary and the Vice Chairman. 

21 (2) CHAIRS.—The officials referred to in sub22 paragraphs (A) through (C) of paragraph (1) shall 

23 serve as joint chairs of the committee. 

24 (c) DUTIES.— 

25 (1) IN GENERAL.—The committee established 

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1 quisition of a major defense acquisition program 

2 specified in paragraph (2), determine the most effec3 tive allocation among such program of the financial 

4 resources available to such program at such point. 

5 In making such determinations, the committee shall 

6 balance requirements, technological maturities, and 

7 available resources under such program utilizing so8 lutions bounded by a time-certain and available re9 sources (commonly referred to as ‘‘bounded solu10 tions’’), portfolio management techniques, and other 

11 appropriate investment evaluation techniques to 

12 identify the most appropriate allocation of financial 

13 resources to meet requirements. 

14 (2) POINTS WITHIN ACQUISITION PROCESS.— 

15 The points in the acquisition of a major defense ac16 quisition program specified in this paragraph are the 

17 points as follows: 

18 (A) At an appropriate point early in the 

19 acquisition jointly specified by the Under Sec20 retary and the Vice Chairman. 

21 (B) At such other point in the acquisition 

22 as the Under Secretary and the Vice Chairman 

23 shall jointly specify for purposes of this section 

24 or otherwise jointly specify for purposes of the 

25 program. 


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1 (d) MAJOR DEFENSE ACQUISITION PROGRAM DE2 FINED.—In this section, the term ‘‘major defense acquisi3 tion program’’ means a major defense acquisition program 

4 for purposes of chapter 144 of title 10, United States 

5 Code. 

6 SEC. 8. COMPTROLLER GENERAL REPORT ON DEPART7 MENT OF DEFENSE ORGANIZATION AND 

8 STRUCTURE FOR THE ACQUISITION OF 

9 MAJOR DEFENSE ACQUISITION PROGRAMS. 

10 (a) REPORT REQUIRED.—Not later than one year 

11 after the date of the enactment of this Act, the Comp12 troller General of the United States shall submit to the 

13 congressional defense committees a report on potential 

14 modifications of the organization and structure of the De15 partment of Defense for the acquisition of major defense 

16 acquisition programs. 

17 (b) ELEMENTS.—The report required by subsection 

18 (a) shall include the results of a review, conducted by the 

19 Comptroller General for purposes of the report, regarding 

20 the feasibility and advisability of, at a minimum, the fol21 lowing: 

22 (1) Establishing system commands within each 

23 military department, each of which commands would 

24 be headed by a 4-star general officer, to whom the 


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1 program managers and program executive officers 

2 for major defense acquisition programs would report. 

3 (2) Revising the acquisition process for major 

4 defense acquisition programs by establishing shorter, 

5 more frequent acquisition program milestones. 

6 (3) Requiring certifications of program status 

7 to the defense acquisition executive and Congress 

8 prior to milestone approval for major defense acqui9 sition programs. 

10 (4) Establishing a new office (to be known as 

11 the ‘‘Office of Independent Assessment’’) to provide 

12 independent cost estimates and performance esti13 mates for major defense acquisition programs. 

14 (5) Establishing a milestone system for major 

15 defense acquisition programs utilizing the following 

16 milestones (or such other milestones as the Comp17 troller General considers appropriate for purposes of 

18 the review): 

19 (A) MILESTONE 0.—The time for the de20 velopment and approval of a mission need state21 ment for a major defense acquisition program. 

22 (B) MILESTONE 1.—The time for the de23 velopment and approval of a capability need 

24 definition for a major defense acquisition pro25 gram, including development and approval of a 


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1 certification statement on the characteristics re2 quired for the system under the program and a 

3 determination of the priorities among such 

4 characteristics. 

5 (C) MILESTONE 2.—The time or tech6 nology development and assessment for a major 

7 defense acquisition program, including develop8 ment and approval of a certification statement 

9 on technology maturity of elements under the 

10 program. 

11 (D) MILESTONE 3.—The time for system 

12 development and demonstration for a major de13 fense acquisition program, including develop14 ment and approval of a certification statement 

15 on design proof of concept. 

16 (E) MILESTONE 4.—The time for final de17 sign, production prototyping, and testing of a 

18 major defense acquisition program, including 

19 development and approval of a certification 

20 statement on cost, performance, and schedule in 

21 advance of initiation of low-rate production of 

22 the system under the program. 

23 (F) MILESTONE 5.—The time for limited 

24 production and field testing of the system under 

25 a major defense acquisition program. 


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1 (G) MILESTONE 6.—The time for initiation 

2 of full-rate production of the system under a 

3 major defense acquisition program. 

4 (6) Requiring the Milestone Decision Authority 

5 for a major defense acquisition program to specify, 

6 at the time of Milestone B approval, or Key Decision 

7 Point B approval, as applicable, the period of time 

8 that will be required to deliver an initial operational 

9 capability to the relevant combatant commanders. 

10 (7) Establishing a materiel solutions process for 

11 addressing identified gaps in critical warfighting ca12 pabilities, under which process the Under Secretary 

13 of Defense for Acquisition, Technology, and Logis14 tics circulates among the military departments and 

15 appropriate Defense Agencies a request for pro16 posals for technologies and systems to address such 

17 gaps. 

18 (c) CONSULTATION.—In conducting the review re19 quired under subsection (b) for the report required by sub20 section (a), the Comptroller General shall obtain the views 

21 of the following: 

22 (1) Senior acquisition officials currently serving 

23 in the Department of Defense. 

24 (2) Individuals who formerly served as senior 

25 acquisition officials in the Department of Defense. 


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1 (3) Participants in previous reviews of the orga2 nization and structure of the Department of Defense 

3 for the acquisition of major weapon systems, includ4 ing the President’s Blue Ribbon Commission on De5 fense Management in 1986. 

6 (4) Other experts on the acquisition of major 

7 weapon systems. 

8 (5) Appropriate experts in the Government Ac9 countability Office. 

10 SEC. 9. CHANGES TO MILESTONE B CERTIFICATIONS. 

11 Section 2366a of title 10, United States Code, is 

12 amended— 

13 (1) by redesignating subsections (b), (c), (d), 

14 and (e) as subsections (c), (d), (e), and (f), respec15 tively; 

16 (2) by inserting after subsection (a) the fol17 lowing new subsection (b): 

18 ‘‘(b) CHANGES TO CERTIFICATION.—(1) The pro19 gram manager for a major defense acquisition program 

20 that has received certification under subsection (a) shall 

21 immediately notify the milestone decision authority of any 

22 changes to the program that are— 

23 ‘‘(A) inconsistent with such certification; or 


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1 ‘‘(B) deviate significantly from the material 

2 provided to the milestone decision authority in sup3 port of such certification. 

4 ‘‘(2) Upon receipt of information under paragraph 

5 (1), the milestone decision authority may withdraw the 

6 certification concerned or rescind Milestone B approval (or 

7 Key Decision Point B approval in the case of a space pro8 gram) if the milestone decision authority determines that 

9 such action is in the best interest of the national security 

10 of the United States.’’; 

11 (3) in subsection (c), as redesignated by para12 graph (1)— 

13 (A) by inserting ‘‘(1)’’ before ‘‘The certifi14 cation’’; and 

15 (B) by adding at the end the following new 

16 paragraph (2): 

17 ‘‘(2) Any information provided to the milestone deci18 sion authority pursuant to subsection (b) shall be summa19 rized in the first Selected Acquisition Report submitted 

20 under section 2432 of this title after such information is 

21 received by the milestone decision authority.’’; and 

22 (4) in subsection (e), as so redesignated, by 

23 striking ‘‘subsection (c)’’ and inserting ‘‘subsection 

24 (d)’’. 


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1 SEC. 10. BUSINESS CASE ANALYSIS FOR CERTAIN MAJOR 

2 DEFENSE ACQUISITION PROGRAMS. 

3 (a) ANALYSIS BEFORE MILESTONE B APPROVAL.— 

4 The milestone decision authority for a major defense ac5 quisition program may not grant Milestone B approval for 

6 the program until the milestone decision authority obtains 

7 from a federally funded research and development center 

8 (FFRDC) a business case analysis for the program meet9 ing the requirements of subsection (c). 

10 (b) ANALYSIS FOLLOWING DEVIATIONS FROM MILE11 STONE B APPROVAL CERTIFICATION.—If the milestone 

12 decision authority for a major defense acquisition program 

13 determines that information provided to the milestone de14 cision authority by the program manager reveals changes 

15 to the program that are inconsistent with the certification 

16 for Milestone B approval with respect to the program 

17 under section 2366a(a) of title 10, United States Code, 

18 or that significantly deviate from the material provided to 

19 the milestone decision authority in support of such certifi20 cation, the milestone decision authority shall require the 

21 conduct by a federally funded research and development 

22 center of a new business case analysis for the program 

23 meeting the requirements of subsection (c). 

24 (c) ELEMENTS OF BUSINESS CASE ANALYSIS.—The 

25 business case analysis for a major defense acquisition pro26 gram under this section shall ensure the following: 


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1 (1) That the needs of the user for the system 

2 under the program have been accurately defined. 

3 (2) That alternative approaches to satisfying 

4 such needs have been properly analyzed, and that 

5 the quantities of the system required are well under6 stood. 

7 (3) That the system developed or, in the case 

8 of a new developmental program, the system to be 

9 developed, is producible at a cost that matches the 

10 expectations and financial resources of the system 

11 user. 

12 (4) That the developer has the resources to de13 sign the system with the features that the user 

14 wants and to deliver the system when the user needs 

15 the system. 

16 (d) SUBMITTAL TO CONGRESS.—Each business case 

17 analysis conducted under this section shall be submitted 

18 to the congressional defense committees not later than 

19 seven days after the date on which such business case 

20 analysis is submitted to the milestone decision authority 

21 under this section. 

22 (e) DEFINITIONS.—In this section: 

23 (1) The term ‘‘major defense acquisition pro24 gram’’ means a major defense acquisition program 


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1 for purposes of chapter 144 of title 10, United 

2 States Code. 

3 (2) The term ‘‘Milestone B approval’’, with re4 spect to a major defense acquisition program, has 

5 the meaning given that term in section 2366(e)(7) 

6 of title 10, United States Code. 

7 SEC. 11. GUIDANCE ON UTILIZATION OF AWARD FEES IN 

8 CONTRACTS UNDER DEPARTMENT OF DE9 FENSE ACQUISITION PROGRAMS. 

10 (a) REGULATIONS REQUIRED.—Not later than 180 

11 days after the date of the enactment of this Act, the Sec12 retary of Defense shall prescribe in regulations guidance 

13 on the appropriate use of award fees in contracts under 

14 Department of Defense acquisition programs. 

15 (b) UTILIZATION OF OBJECTIVE CRITERIA IN AS16 SESSMENT OF CONTRACTOR PERFORMANCE.— 

17 (1) IN GENERAL.—The regulations required by 

18 subsection (a) shall provide that, to the extent prac19 ticable, objective criteria are utilized in the assess20 ment of contractor performance in Department ac21 quisition programs. 

22 (2) MIXED UTILIZATION OF OBJECTIVE AND

23 SUBJECTIVE CRITERIA.—The regulations shall pro24 vide that, in any case in which objective criteria are 

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1 ance, the program manager and contracting officer 

2 concerned may elect to assess contractor perform3 ance through an appropriate mixture of objective cri4 teria and such subjective criteria as the program 

5 manager and contracting officer jointly consider ap6 propriate under a contract providing both incentive 

7 fees and awards fees, including a cost-plus-incentive/ 

8 award fee contract or a fixed-price-incentive/award 

9 fee contract. 

10 (3) UTILIZATION OF SUBJECTIVE CRITERIA.— 

11 (A) IN GENERAL.—The regulations shall 

12 provide that, if it is determined that objective 

13 criteria do not exist and it is appropriate to use 

14 a cost-plus-award-fee contract, the head of the 

15 contracting activity concerned shall find that 

16 the work to be performed under the contract is 

17 such that it is not feasible or effective to estab18 lish objective incentive criteria for the contract. 

19 (B) DELEGATION.—The authority to make 

20 a determination and finding under subpara21 graph (A) may be delegated by the head of a 

22 contracting activity but only to an official in the 

23 contracting activity who is one level lower in the 

24 contracting chain of authority than the head of 

25 the contracting activity. 


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1 (c) SCHEDULE FOR AWARD FEES.— 

2 (1) IN GENERAL.—The regulations required by 

3 subsection (a) shall set forth a schedule of ratings 

4 of contractor performance for award fees in con5 tracts under Department acquisition programs, in6 cluding— 

7 (A) a range of authorized ratings; 

8 (B) the contractor performance required 

9 for each authorized rating; and 

10 (C) the percentage of potential award fees 

11 payable as a result of the achievement of each 

12 authorized rating. 

13 (2) AUTHORIZED RATINGS AND PERFORM14 ANCE.—The schedule shall set forth a range of au15 thorized ratings and associated contractor perform16 ance as follows: 

17 (A) Outstanding, for a contractor who 

18 meets— 

19 (i) the minimum essential require20 ments of the contract; and 

21 (ii) at least 90 percent of the criteria 

22 for the award of award fees under the con23 tract. 

24 (B) Excellent, for a contractor who 

25 meets— 


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1 (i) the minimum essential require2 ments of the contract; and 

3 (ii) at least 75 percent of the criteria 

4 for the award of award fees under the con5 tract. 

6 (C) Good, for a contractor who meets— 

7 (i) the minimum essential require8 ments under the contract; and 

9 (ii) at least 50 percent of the criteria 

10 for the award of award fees under the con11 tract. 

12 (D) Satisfactory, for a contractor who 

13 meets the minimum essential requirements 

14 under the contract but does not meet at least 

15 50 percent of the criteria for the award of 

16 award fees under the contract. 

17 (E) Unsatisfactory, for a contractor who 

18 does not meet the minimum essential require19 ments under the contract. 

20 (3) AWARD FEES PAYABLE.—The schedule shall 

21 provide that the amount payable from amounts 

22 available for the payment of award fees under a con23 tract (commonly referred to as an ‘‘award fee pool’’) 

24 to a contractor who achieves a particular rating 

25 under the schedule shall be the percentage of such 


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1 amounts, as determined appropriate by the con2 tracting officer, from the percentages as follows: 

3 (A) In the case of outstanding, 90 percent 

4 to 100 percent. 

5 (B) In the case of excellent, 75 percent to 

6 90 percent. 

7 (C) In the case of good, 50 percent to 75 

8 percent. 

9 (D) In the case of satisfactory, not more 

10 than 50 percent. 

11 (E) In the case of unsatisfactory, 0 per12 cent. 

13 (d) ESTABLISHMENT OF AWARD FEE REQUIRE14 MENTS.—The regulations required by subsection (a) shall 

15 provide that the requirements to be satisfied for the award 

16 of award fees under a contract shall be determined by the 

17 contracting officer, in consultation with the program man18 ager concerned and the fee determining official for the 

19 contract. The specification of such requirements in the 

20 contract may be referred to as the ‘‘Award Fee Plan’’ for 

21 the contract. 

22 (e) ROLLOVER OF AWARD FEES TO LATER AWARD

23 PERIODS.— 

24 (1) IN GENERAL.—The regulations required by 

25 subsection (a) shall establish a negative presumption 


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1 against the rollover of amounts available for the pay2 ment of award fees under a contract from one award 

3 fee period under the contract to another award fee 

4 period under the contract unless the rollover of such 

5 amounts is specifically set forth in the acquisition 

6 strategy under which the contract is entered into. 

7 (2) LIMITATION ON AMOUNT OF ROLLOVER.— 

8 The regulations shall set forth specific limits on the 

9 amount available for the payment of award fees 

10 under a contract that may be rolled over from one 

11 award fee period under the contract to another 

12 award fee period under the contract. Such limits 

13 may be expressed as specific dollar amounts or as 

14 percentages of the amount available for payment of 

15 award fees under the contract concerned. 

16 (3) DOCUMENTATION OF ROLLOVER.—The reg17 ulations shall require that any determination by the 

18 fee determining official to roll over amounts avail19 able for the payment of award fees under a contract 

20 from one award fee period under the contract to an21 other award fee period under the contract shall be 

22 included in writing in the contract file for the con23 tract. 


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1 SEC. 12. SUBSTANTIAL SAVINGS UNDER MULTIYEAR CON2 TRACTS. 

3 (a) DEFINITION IN REGULATIONS OF SUBSTANTIAL

4 SAVINGS UNDER MULTIYEAR CONTRACTS.— 

5 (1) IN GENERAL.—Not later than 60 days after 

6 the date of the enactment of this Act, the Secretary 

7 of Defense shall modify the regulations prescribed 

8 pursuant to subsection (b)(2)(A) of section 2306b of 

9 title 10, United States Code, to define the term 

10 ‘‘substantial savings’’ for purposes of subsection 

11 (a)(1) of such section. Such regulations shall specify 

12 the following: 

13 (A) Savings that exceed 10 percent of the 

14 total anticipated costs of carrying out a pro15 gram through annual contracts shall be consid16 ered to be substantial. 

17 (B) Savings that exceed 8 percent of the 

18 total anticipated costs of carrying out a pro19 gram through annual contracts, but do not ex20 ceed 10 percent of such costs, shall not be con21 sidered to be substantial unless the following 

22 conditions are satisfied: 

23 (i) The program has not breached any 

24 threshold under section 2433 of title 10, 

25 United States Code, during the two-year 

26 period ending on the date on which the 


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1 military department concerned first sub2 mits to Congress a multiyear procurement 

3 proposal with respect to the program. 

4 (ii) The program is estimated to save 

5 at least $500,000,000 under a multiyear 

6 contract, as compared to annual contracts 

7 (C) Savings that do not exceed 8 percent 

8 of the total anticipated costs of carrying out a 

9 program through annual contracts shall not be 

10 considered to be substantial. 

11 (2) DETERMINATION OF SAVINGS.—The regula12 tions required under this subsection shall require 

13 that the determination of the amount of savings to 

14 be achieved under a multiyear contract, including 

15 whether or not such savings are treatable as sub16 stantial savings for purposes of subsection (a)(1) of 

17 section 2306b of title 10, United States Code, shall 

18 be made by the Cost Analysis Improvement Group 

19 (CAIG) of the Department of Defense. 

20 (3) EFFECTIVE DATE.—The modification re21 quired by paragraph (1) shall apply with regard to 

22 any multiyear contract that is authorized after the 

23 date that is 60 days after the date of the enactment 

24 of this Act. 

25 (b) REPORTS ON SAVINGS ACHIEVED.— 


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1 (1) REPORTS REQUIRED.—Not later than Janu2 ary 15 of 2008, 2009, and 2010, the Secretary shall 

3 submit to the congressional defense committees a re4 port on the savings achieved through the use of 

5 multiyear contracts that were entered under the au6 thority of section 2306b of title 10, United States 

7 Code, and the performance of which was completed 

8 in the preceding fiscal year. 

9 (2) ELEMENTS.—Each report under paragraph 

10 (1) shall specify, for each multiyear contract covered 

11 by such report— 

12 (A) the savings that the Department of 

13 Defense estimated it would achieve through the 

14 use of the multiyear contract at the time such 

15 contract was awarded; and 

16 (B) the best estimate of the Department 

17 on the savings actually achieved under such 

18 contract. 

19 SEC. 13. INVESTMENT STRATEGY FOR MAJOR DEFENSE AC20 QUISITION PROGRAMS. 

21 (a) REPORT REQUIRED.—Not later than 180 days 

22 after the date of the enactment of this Act, the Secretary 

23 of Defense shall submit to the congressional defense com24 mittees an investment strategy for the allocation of funds 


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1 and other resources among major defense acquisition pro2 grams. 

3 (b) ELEMENTS.—The strategy required by subsection 

4 (a) shall do the following: 

5 (1) Establish priorities among needed capabili6 ties under major defense acquisition programs, and 

7 to assess the resources (including funds, tech8 nologies, time, and personnel) needed to achieve 

9 such capabilities. 

10 (2) Balance cost, schedule, and requirements 

11 for major defense acquisition programs to ensure the 

12 most efficient use of Department of Defense re13 sources. 

14 (3) Ensure that the budget, requirements, and 

15 acquisition processes of the Department of Defense 

16 work in a complementary manner to achieve desired 

17 results. 

18 (c) RECOMMENDATIONS.—In submitting the strategy 

19 required by subsection (a), the Secretary shall include any 

20 recommendations, including recommendations for legisla21 tive action, that the Secretary considers appropriate to im22 plement the strategy. 

23 (d) UTILIZATION FOR BUDGET PURPOSES.—The 

24 Secretary shall utilize the strategy required by subsection 

25 (a) in developing requests for funding and other resources 


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1 to be allocated to major defense acquisition programs 

2 under the budget of the President to be submitted to Con3 gress each fiscal year under section 1105(a) of title 31, 

4 United States Code. 

5 (e) CURRENT PROGRAMS BEYOND MILESTONE B AP6 PROVAL.—Pending completion of the strategy required by 

7 subsection (a), the Secretary shall, to the extent prac8 ticable, establish priorities in the allocation of funds and 

9 other resources for major defense acquisition programs 

10 that have Milestone B approval in order to ensure the ac11 quisition of items under such programs in the most cost12 effective and efficient manner. 

13 (f) DEFINITIONS.—In this section: 

14 (1) The term ‘‘major defense acquisition pro15 gram’’ has the meaning given that term in section 

16 2430 of title 10, United States Code. 

17 (2) The term ‘‘Milestone B approval’’ has the 

18 meaning given that term in section 2366(e)(7) of 

19 title 10, United States Code. 

20 SEC. 14. ETHICS COMPLIANCE BY DEPARTMENT OF DE21 FENSE CONTRACTORS. 

22 (a) IN GENERAL.—Not later than 180 days after the 

23 date of the enactment of this Act, the Secretary of Defense 

24 shall prescribe in regulations a requirement that a con25 tracting officer of the Department of Defense may not deVerDate Aug 31 2005 19:15 May 23, 2007 Jkt 059200 PO 00000 Frm 00033 Fmt 6652 Sfmt 6201 E:\BILLS\S32.IS S32

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1 termine a contractor to be responsible for purposes of the 

2 award of a new covered contract for the Department, or 

3 an agency or component of the Department, unless the 

4 entity to be awarded the contract has in place, by the 

5 deadline specified in subsection (c), an internal ethics com6 pliance program, including a code of ethics and internal 

7 controls, to facilitate the timely detection and disclosure 

8 of improper conduct in connection with the award or per9 formance of the covered contract and to ensure that ap10 propriate corrective action is taken with respect to such 

11 conduct. 

12 (b) ELEMENTS OF ETHICS COMPLIANCE PRO13 GRAM.—Each ethics compliance program required of a 

14 contractor under subsection (a) shall include the following: 

15 (1) Requirements for periodic reviews of the 

16 program for which the covered contract concerned is 

17 awarded to ensure compliance of contractor per18 sonnel with applicable Government contracting re19 quirements, including laws, regulations, and contrac20 tual requirements. 

21 (2) Internal reporting mechanisms, such as a 

22 hot-line, for contractor personnel to report suspected 

23 improper conduct among contractor personnel. 

24 (3) Audits of the program for which the covered 

25 contract concerned is awarded. 


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1 (4) Mechanisms for disciplinary actions against 

2 contractor personnel found to have engaged in im3 proper conduct, including the exclusion of such per4 sonnel from the exercise of substantial authority. 

5 (5) Mechanisms for the reporting to appro6 priate Government officials, including the con7 tracting officer and the Office of the Inspector Gen8 eral of the Department of Defense, of suspected im9 proper conduct among contractor personnel, includ10 ing suspected conduct involving corruption of a Gov11 ernment official or individual acting on behalf of the 

12 Government, not later than 30 days after the date 

13 of discovery of such suspected conduct. 

14 (6) Mechanisms to ensure full cooperation with 

15 Government officials responsible for investigating 

16 suspected improper conduct among contractor per17 sonnel and for taking corrective actions. 

18 (7) Mechanisms to ensure the recurring provi19 sion of training to contractor personnel on the re20 quirements and mechanisms of the program. 

21 (8) Mechanisms to ensure the oversight of the 

22 program by contractor personnel with substantial 

23 authority within the contractor. 

24 (c) DEADLINE FOR PROGRAM.—The deadline speci25 fied in this subsection for a contractor having in place an 


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1 ethics compliance program required under subsection (a) 

2 for purposes of a covered contract is 30 days after the 

3 date of the award of the contract. 

4 (d) DETERMINATION OF EXISTENCE OF PROGRAM.— 

5 In determining whether or not contractor has in place an 

6 ethics compliance program required under subsection (a), 

7 a contracting officer of the Department may utilize the 

8 assistance of the Office of the Inspector General of the 

9 Department of Defense. 

10 (e) SUSPENSION OR DEBARMENT.—The regulations 

11 prescribed under subsection (a) shall provide that any con12 tractor under a covered contract whose personnel are de13 termined not to have reported suspected improper conduct 

14 in accordance with the requirements and mechanisms of 

15 the ethics compliance program concerned may, at the elec16 tion of the Secretary of Defense, be suspended from the 

17 contract or debarred from further contracting with the 

18 Department of Defense. 

19 (f) COVERED CONTRACT DEFINED.—In this section, 

20 the term ‘‘covered contract’’ means any contract to be 

21 awarded to a contractor of the Department of Defense if, 

22 in the year before the contract is to be awarded, the total 

23 amount of contracts of the contractor with the Federal 

24 Government exceeded $5,000,000. 


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1 SEC. 15. REPORT ON IMPLEMENTATION OF RECOMMENDA2 TIONS ON TOTAL OWNERSHIP COSTS AND 

3 READINESS RATES FOR MAJOR WEAPON SYS4 TEMS. 

5 (a) REPORT REQUIRED.—Not later than 180 days 

6 after the date of the enactment of this Act, the Secretary 

7 of Defense shall submit to the congressional defense com8 mittees a report on the extent of the implementation of 

9 the recommendations set forth in the February 2003 re10 port of the Government Accountability Office entitled 

11 ‘‘Setting Requirements Differently Could Reduce Weapon 

12 Systems’ Total Ownership Costs’’. 

13 (b) ELEMENTS.—The report required by subsection 

14 (a) shall include the following: 

15 (1) For each recommendation described in sub16 section (a) that has been implemented, or that the 

17 Secretary plans to implement— 

18 (A) a summary of all actions that have 

19 been taken to implement such recommendation; 

20 and 

21 (B) a schedule, with specific milestones, 

22 for completing the implementation of such rec23 ommendation. 

24 (2) For each recommendation that the Sec25 retary has not implemented and does not plan to im26 plement— 


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1 (A) the reasons for the decision not to im2 plement such recommendation; and 

3 (B) a summary of any alternative actions 

4 the Secretary plans to take to address the pur5 poses underlying such recommendation. 

6 (3) A summary of any additional actions the 

7 Secretary has taken or plans to take to ensure that 

8 total ownership cost is appropriately considered in 

9 the requirements process for major weapon systems. 

Æ 


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