H. R. 5122—236
(G) the service acquisition executive and the program 
manager have developed a strategy to ensure stability in 
program management until, at a minimum, the delivery 
of the initial operational capability under the acquisition 
program for the system has occurred; 
(H) the service acquisition executive, the relevant 
combatant commanders, and the program manager have 
agreed that no additional requirements that would be 
inconsistent with the agreed-upon program schedule will 
be added during the development phase of the acquisition 
program for the system; and 
(I) a planned initial operational capability will be deliv-
ered to the relevant combatant commanders within a 
defined period of time as prescribed in regulations by the 
Secretary of Defense. 
(3) TIMING OF DECISION.—The decision whether to include 
a major weapon system in the pilot program shall be made 
at the time of milestone approval for the acquisition program 
for the system. 
(d) LIMITATION ON NUMBER OF WEAPONS SYSTEMS IN PILOT 
PROGRAM.—The number of major weapon systems included in the 
pilot program at any time may not exceed six major weapon sys-
tems. 
(e) LIMITATION ON COST OF WEAPONS SYSTEMS IN PILOT PRO-
GRAM.—The Secretary of Defense may include a major weapon 
system in the pilot program only if, at the time a major weapon 
system is proposed for inclusion, the total cost for system design 
and development of the weapon system, as set forth in the cost 
estimate referred to in subsection (c)(2)(D), does not exceed 
$1,000,000,000 during the period covered by the current future-
years defense program. 
(f) SPECIAL FUNDING AUTHORITY.—
(1) AUTHORITY FOR RESERVE ACCOUNT.—Notwithstanding 
any other provision of law, the Secretary of Defense may estab-
lish a special reserve account utilizing funds made available 
for the major weapon systems included in the pilot program. 
(2) ELEMENTS.—The special reserve account may include—
(A) funds made available for any major weapon system 
included in the pilot program to cover termination liability; 
(B) funds made available for any major weapon system 
included in the pilot program for award fees that may 
be earned by contractors; and 
(C) funds appropriated to the special reserve account. 
(3) AVAILABILITY OF FUNDS.—Funds in the special reserve 
account may be used, in accordance with guidance issued by 
the Secretary for purposes of this section, for the following 
purposes: 
(A) To cover termination liability for any major weapon 
system included in the pilot program. 
(B) To pay award fees that are earned by any con-
tractor for a major weapon system included in the pilot 
program. 
(C) To address unforeseen contingencies that could pre-
vent a major weapon system included in the pilot program 
from meeting critical schedule or performance require-
ments.
H. R. 5122—237
(4) REPORTS ON USE OF FUNDS.—Not later than 30 days 
after the use of funds in the special reserve account for the 
purpose specified in paragraph (3)(C), the Secretary shall 
submit to the congressional defense committees a report on 
the use of funds in the account for such purpose. The report 
shall set forth the purposes for which the funds were used 
and the reasons for the use of the funds for such purposes. 
(5) RELATIONSHIP
TO
APPROPRIATIONS.—Nothing in this 
subsection may be construed as extending any period of time 
for which appropriated funds are made available. 
(g) ADMINISTRATION
OF PILOT PROGRAM.—The Secretary of 
Defense shall prescribe policies and procedures on the administra-
tion of the pilot program. Such policies and procedures shall—
(1) provide for the use of program status reports based 
on earned value data to track progress on a major weapon 
system under the pilot program against baseline estimates 
applicable to such system at each systems engineering technical 
review point; and 
(2) grant authority, to the maximum extent practicable, 
to the program manager for the acquisition program for a 
major weapon system to make key program decisions and trade-
offs, subject to management reviews only if cost or schedule 
deviations exceed the baselines for such acquisition program 
by 10 percent or more. 
(h) REMOVAL OF WEAPONS SYSTEMS FROM PILOT PROGRAM.—
The Secretary of Defense shall remove a major weapon system 
from the pilot program if—
(1) the weapon system receives Milestone C approval; or 
(2) the Secretary determines that the weapon system is 
no longer in substantial compliance with the criteria in sub-
section (c)(2) or is otherwise no longer appropriate for inclusion 
in the pilot program. 
(i) EXPIRATION OF AUTHORITY TO INCLUDE ADDITIONAL SYSTEMS 
IN PILOT PROGRAM.—
(1) EXPIRATION.—A major weapon system may not be 
included in the pilot program after September 30, 2012. 
(2) RETENTION
OF
SYSTEMS.—A major weapon system 
included in the pilot program before the date specified in para-
graph (1) in accordance with the requirements of this section 
may remain in the pilot program after that date. 
(j) ANNUAL REPORT.—
(1) IN GENERAL.—Not later than one year after including 
the first major weapon system in the pilot program, and 
annually thereafter, the Secretary shall submit to the congres-
sional defense committees a report on the pilot program, and 
the major weapon systems included in the pilot program, during 
the one-year period ending on the date of such report. 
(2) ELEMENTS.—Each report under this subsection shall 
include—
(A) a description of progress under the pilot program, 
and on each major weapon system included in the pilot 
program, during the period covered by such report; 
(B) a description of the use of all funds in the special 
reserve account established under subsection (f); and 
(C) such other matters as the Secretary considers 
appropriate.
H. R. 5122—238
(k) MAJOR WEAPON SYSTEM DEFINED.—In this section, the term 
‘‘major weapon system’’ means a weapon system that is treatable 
as a major system under section 2302(5) of title 10, United States 
Code. 
SEC. 813. ESTABLISHMENT OF PANEL ON CONTRACTING INTEGRITY. 
(a) ESTABLISHMENT.—
(1) IN GENERAL.—The Secretary of Defense shall establish 
a panel to be known as the ‘‘Panel on Contracting Integrity’’. 
(2) COMPOSITION.—The panel shall be composed of the fol-
lowing: 
(A) A representative of the Under Secretary of Defense 
for Acquisition, Technology, and Logistics, who shall be 
the chairman of the panel. 
(B) A representative of the service acquisition executive 
of each military department. 
(C) A representative of the Inspector General of the 
Department of Defense. 
(D) A representative of the Inspector General of each 
military department. 
(E) A representative of each Defense Agency involved 
with contracting, as determined appropriate by the Sec-
retary of Defense. 
(F) Such other representatives as may be determined 
appropriate by the Secretary of Defense. 
(b) DUTIES.—In addition to other matters assigned to it by 
the Secretary of Defense, the panel shall—
(1) conduct reviews of progress made by the Department 
of Defense to eliminate areas of vulnerability of the defense 
contracting system that allow fraud, waste, and abuse to occur; 
(2) review the report by the Comptroller General required 
by section 841 of the National Defense Authorization Act for 
Fiscal Year 2006 (Public Law 109–163; 119 Stat. 3389), relating 
to areas of vulnerability of Department of Defense contracts 
to fraud, waste, and abuse; and 
(3) recommend changes in law, regulations, and policy that 
it determines necessary to eliminate such areas of vulnerability. 
(c) MEETINGS.—The panel shall meet as determined necessary 
by the Secretary of Defense but not less often than once every 
six months. 
(d) REPORT.—
(1) REQUIREMENT.—The panel shall prepare and submit 
to the Secretary of Defense and the congressional defense 
committees an annual report on its activities. The report shall 
be submitted not later than December 31 of each year and 
contain a summary of the panel’s findings and recommendations 
for the year covered by the report. 
(2) FIRST REPORT.—The first report under this subsection 
shall be submitted not later than December 31, 2007, and 
shall contain an examination of the current structure in the 
Department of Defense for contracting integrity and rec-
ommendations for any changes needed to the system of adminis-
trative safeguards and disciplinary actions to ensure account-
ability at the appropriate level for any violations of appropriate 
standards of behavior in contracting.
H. R. 5122—239
(3) INTERIM REPORTS.—The panel may submit such interim 
reports to the congressional defense committees as the Sec-
retary of Defense considers appropriate. 
(e) TERMINATION.—The panel shall terminate on December 31, 
2009. 
SEC. 814. LINKING OF AWARD AND INCENTIVE FEES TO ACQUISITION 
OUTCOMES. 
(a) GUIDANCE
ON LINKING
OF AWARD
AND INCENTIVE FEES 
TO ACQUISITION OUTCOMES.—Not later than 180 days after the 
date of the enactment of this Act, the Secretary of Defense shall 
issue 
guidance, 
with 
detailed 
implementation 
instructions 
(including definitions), for the Department of Defense on the appro-
priate use of award and incentive fees in Department of Defense 
acquisition programs. 
(b) ELEMENTS.—The guidance under subsection (a) shall—
(1) ensure that all new contracts using award fees link 
such fees to acquisition outcomes (which shall be defined in 
terms of program cost, schedule, and performance); 
(2) establish standards for identifying the appropriate level 
of officials authorized to approve the use of award and incentive 
fees in new contracts; 
(3) provide guidance on the circumstances in which con-
tractor performance may be judged to be ‘‘excellent’’ or ‘‘supe-
rior’’ and the percentage of the available award fee which 
contractors should be paid for such performance; 
(4) establish standards for determining the percentage of 
the available award fee, if any, which contractors should be 
paid for performance that is judged to be ‘‘acceptable’’, ‘‘aver-
age’’, ‘‘expected’’, ‘‘good’’, or ‘‘satisfactory’’; 
(5) ensure that no award fee may be paid for contractor 
performance that is judged to be below satisfactory performance 
or performance that does not meet the basic requirements 
of the contract; 
(6) provide specific direction on the circumstances, if any, 
in which it may be appropriate to roll over award fees that 
are not earned in one award fee period to a subsequent award 
fee period or periods; 
(7) ensure consistent use of guidelines and definitions 
relating to award and incentive fees across the military depart-
ments and Defense Agencies; 
(8) ensure that the Department of Defense—
(A) collects relevant data on award and incentive fees 
paid to contractors; and 
(B) has mechanisms in place to evaluate such data 
on a regular basis; 
(9) include performance measures to evaluate the effective-
ness of award and incentive fees as a tool for improving con-
tractor performance and achieving desired program outcomes; 
and 
(10) provide mechanisms for sharing proven incentive 
strategies for the acquisition of different types of products 
and services among contracting and program management offi-
cials. 
(c) ASSESSMENT OF INDEPENDENT EVALUATION MECHANISMS.—
(1) IN
GENERAL.—The Secretary of Defense shall select 
a federally funded research and development center to assess