S. 32 - Defense Acquisition Reform Act of 2007

S 32

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.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Defense Acquisition Reform Act of 2007'.

SEC. 2. JOINT REQUIREMENTS OVERSIGHT COUNCIL EVALUATION OF MAJOR DEFENSE ACQUISITION PROGRAMS EXPERIENCING CERTAIN COST INCREASES.

(a) In General- Chapter 144 of title 10, United States Code, is amended by inserting after section 2433 the following new section:

`Sec. 2433a. Joint Requirements Oversight Council evaluation of programs experiencing certain cost increases

`(a) In General- The Secretary concerned may not reprogram funds for a major defense acquisition program described in subsection (b), or otherwise provide or provide for additional funding for such a program, until the Joint Requirements Oversight Council submits to the Secretary an assessment of the performance requirements for the item to be procured under the contract, including the effect of such requirements on cost increases under the program.

`(b) Covered Major Defense Acquisition Programs- A major defense acquisition program described in this subsection is any major defense acquisition program as follows:

`(1) A major defense acquisition program that experiences a percentage increase in the program acquisition unit cost of--

`(A) at least 10 percent over the program acquisition unit cost for the program as shown in the current Baseline Estimate for the program; or

`(B) at least 25 percent over the program acquisition unit cost for the program as shown in the original Baseline Estimate for the program.

`(2) A major defense acquisition program that is a procurement program that experiences a percentage increase in the procurement unit cost of--

`(A) at least 10 percent over the procurement unit cost for the program as shown in the current Baseline Estimate for the program; or

`(B) at least 25 percent over the procurement unit cost for the program as shown in the original Baseline Estimate for the program.

`(c) Definitions- In this section:

`(1) The terms `program acquisition unit cost' and `procurement unit cost' have the meaning given those terms in section 2432(a) of this title.

`(2) The terms `Baseline Estimate' and `procurement program' have the meaning given those terms in section 2433(a) of this title.'.

(b) Clerical Amendment- The table of sections at the beginning of such title is amended by inserting after the item relating to section 2433 the following new item:

`2433a. Joint Requirements Oversight Council evaluation of programs experiencing certain cost increases.'.

SEC. 3. MEMBERSHIP OF THE JOINT REQUIREMENTS OVERSIGHT COUNCIL.

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

(1) in paragraph (1)--

(A) in subparagraph (D), by striking `and' at the end;

(B) in subparagraph (E), by striking the period at the end and inserting a semicolon; and

`(F) the Under Secretary of Defense for Acquisition, Technology, and Logistics; and

`(G) the Under Secretary of Defense (Comptroller).';

(2) by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively; and

(3) by inserting after paragraph (1) the following new paragraph (2):

`(2) The Director of Program Analysis and Evaluation shall be an advisor to the Council in the performance of its mission under this section.'.

SEC. 4. REQUIREMENT OF APPROVAL OF JOINT REQUIREMENTS OVERSIGHT COUNCIL FOR INITIAL OPERATIONAL TEST AND EVALUATION IN ENVIRONMENT NOT SPECIFIED IN TEST AND EVALUATION MASTER PLAN.

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

(1) by redesignating paragraphs (2) through (6) as paragraphs (3) through (7), respectively;

(2) by inserting after paragraph (1) the following new paragraph (2):

`(2) Initial operational test and evaluation of a major defense acquisition program may not be conducted in an environment other than the environment specified and defined in the test and evaluation master plan (TEMP) concerned without the approval of the Joint Requirements Oversight Council.';

(3) in paragraph (4), as redesignated by paragraph (1) of this subsection, by striking `paragraph (2)' and inserting `paragraph (3)';

(4) in paragraph (5), as so redesignated, by striking `paragraph (2)' and inserting `paragraph (3)'; and

(5) in paragraph (6), as so redesignated--

(A) by striking `paragraph (4)' and inserting `paragraph (5)'; and

(B) by striking `paragraph (2)' and inserting `paragraph (3)'.

SEC. 5. APPROVAL BY PROGRAM MANAGERS OF CERTAIN COST INCREASES IN CONTRACTS FOR THE ACQUISITION OF PROPERTY.

(a) Regulations Required-

(1) IN GENERAL- Not later than 90 days after the date of the enactment of this Act, the Secretary of Defense shall prescribe in regulations certain mechanisms that provide cost control measures in contracts for the acquisition of property for the Department of Defense that may be authorized or approved by the program manager.

(2) OBJECTIVES- In prescribing the regulations, the Secretary shall seek, to the maximum extent practicable, to achieve cost control, the stabilization of requirements, and timely delivery in accordance with contract specifications in the performance of contracts for the acquisition of property for the Department.

(b) Covered Cost Increases- The regulations required by subsection (a) shall provide that the cost increases that may be authorized or approved by a program manager under a contract shall be limited to the following:

(1) A cost increase necessary to secure or enhance safety in the property procured under the contract where the unsecure or unsafe condition or situation (as officially documented by a responsible oversight organization) is attributable to the Government.

(2) A cost increase necessary for the correction of a defect in the contract that is attributable to the Government, including a defect in contract specifications, a defect in or the unavailability of Government information necessary for the performance of the contract, or a defect in or the unavailability of Government equipment necessary for the performance of the contract.

(3) A cost increase associated with the unavailability of Government-specified, contractor-furnished equipment or components.

(4) A cost increase that is necessary for the modification of the property procured under the contract that is critical for the delivery or completion of operational testing.

(5) A cost increase resulting from a modification of applicable statutes or regulations, but only if--

(A) funds are specifically made available to implement such modification; or

(B) in the event funds are not so made available, the service acquisition executive concerned approves the cost increase.

(6) Any other cost increase approved and funded by an appropriate oversight organization that is the result of new or revised requirements or modifications that would result in an overall reduction in life cycle cost in the property procured under the contract.

(c) Availability of Change Order Funds for Cost Increases- The regulations shall provide that amounts appropriated for a program and available for change orders to contracts under the program shall be available for costs authorized or approved under subsection (b).

(d) Prohibition on Other Cost Increases- The regulations shall prohibit the authorization or approval by a program manager of any cost increase under a contract not authorized pursuant to subsection (b).

(e) Cost Reductions- The regulations shall also authorize a program manager to authorize or approve an administrative change, whether engineering or non-engineering, to a contract for the acquisition of property for the Department if the change will reduce or have no effect on the cost of the contract.

(f) Prohibition on Use of Certain Cost Reductions for Offset- The regulations shall prohibit the utilization as an offset for a cost increase in a contract under subsection (b)(6) of any reduction in the cost of the contract resulting from a cost change approved by the program manager, including a reduction attributable to a change authorized under subsection (e).

SEC. 6. MILITARY DEPUTIES TO THE ASSISTANT SECRETARIES OF THE MILITARY DEPARTMENTS FOR ACQUISITION MATTERS AND THE CHIEFS OF STAFF.

(a) Department of the Army-

(1) IN GENERAL- There is in the Army a Military Deputy for Acquisition Matters, appointed by the President, by and with the advice and consent of the Senate, from among officers in the Army who have significant experience in the areas of acquisition and program management.

(2) GRADE- The Military Deputy for Acquisition Matters has the grade of lieutenant general.

(3) DUTIES- The Military Deputy for Acquisition Matters shall have the following duties:

(A) To assist the Assistant Secretary of the Army with responsibility for acquisition matters in the supervision of acquisition matters for the Army.

(B) To report to the Chief of Staff of the Army regarding such matters.

(b) Department of the Navy-

(1) IN GENERAL- There is in the Navy a Naval Deputy for Acquisition Matters, appointed by the President, by and with the advice and consent of the Senate, from among officers in the Navy and Marine Corps who have significant experience in the areas of acquisition and program management.

(2) GRADE- The Naval Deputy for Acquisition Matters has the grade of vice admiral or lieutenant general.

(3) DUTIES- The Naval Deputy for Acquisition Matters shall have the following duties:

(A) To assist the Assistant Secretary of the Navy with responsibility for acquisition matters in the supervision of acquisition matters for the Navy.

(B) To report to the Chief of Naval Operations regarding such matters.

(1) IN GENERAL- There is in the Air Force a Military Deputy for Acquisition Matters, appointed by the President, by and with the advice and consent of the Senate, from among officers in the Air Force who have significant experience in the areas of acquisition and program management.

(2) GRADE- The Military Deputy for Acquisition Matters has the grade of lieutenant general.

(3) DUTIES- The Military Deputy for Acquisition Matters shall have the following duties:

(A) To assist the Assistant Secretary of the Air Force with responsibility for acquisition matters in the supervision of acquisition matters for the Air Force.

(B) To report to the Chief of Staff of the Air Force regarding such matters.

(d) Exclusion of Military Deputies From Distribution and Strength in Grade Limitations-

(1) DISTRIBUTION- Section 525(b) of title 10, United States Code, is amended by adding at the end the following new paragraph:

`(9)(A) An officer while serving in a position specified in subparagraph (B) is in addition to the number that would otherwise be permitted for that officer's armed force for the grade of lieutenant general or vice admiral, as applicable.

`(B) A position specified in this subparagraph is each position as follows:

`(i) Military Deputy for Acquisition Matters of the Army.

`(ii) Naval Deputy for Acquisition Matters of the Navy.

`(iii) Military Deputy for Acquisition Matters of the Air Force.'.

(2) AUTHORIZED STRENGTH- Section 526 of such title is amended by adding at the end the following new subsection:

`(g) Exclusion of Military Deputies to Assistant Secretaries of the Military Departments for Acquisition Matters- The limitations of this section do not apply to a general or flag officer who is covered by the exclusion under section 525(b)(9) of this title.'.

SEC. 7. COMMITTEE ON STRATEGIC INVESTMENT IN MAJOR DEFENSE ACQUISITION PROGRAMS.

(a) In General- The Secretary of Defense shall establish within the Department of Defense a committee to ensure the effective allocation within major defense acquisition programs of the financial resources available for such programs.

(b) Members-

(1) IN GENERAL- The committee established under subsection (a) shall be composed of the following:

(A) The Under Secretary of Defense for Acquisition, Technology, and Logistics.

(B) The Vice Chairman of the Joint Chiefs of Staff.

(D) Any other officials of the Department of Defense jointly agreed upon by the Under Secretary and the Vice Chairman.

(2) CHAIRS- The officials referred to in subparagraphs (A) through (C) of paragraph (1) shall serve as joint chairs of the committee.

(1) IN GENERAL- The committee established under subsection (a) shall, at each point in the acquisition of a major defense acquisition program specified in paragraph (2), determine the most effective allocation among such program of the financial resources available to such program at such point. In making such determinations, the committee shall balance requirements, technological maturities, and available resources under such program utilizing solutions bounded by a time-certain and available resources (commonly referred to as `bounded solutions'), portfolio management techniques, and other appropriate investment evaluation techniques to identify the most appropriate allocation of financial resources to meet requirements.

(2) POINTS WITHIN ACQUISITION PROCESS- The points in the acquisition of a major defense acquisition program specified in this paragraph are the points as follows:

(A) At an appropriate point early in the acquisition jointly specified by the Under Secretary and the Vice Chairman.

(B) At such other point in the acquisition as the Under Secretary and the Vice Chairman shall jointly specify for purposes of this section or otherwise jointly specify for purposes of the program.

(d) Major Defense Acquisition Program Defined- In this section, the term `major defense acquisition program' means a major defense acquisition program for purposes of chapter 144 of title 10, United States Code.

SEC. 8. COMPTROLLER GENERAL REPORT ON DEPARTMENT OF DEFENSE ORGANIZATION AND STRUCTURE FOR THE ACQUISITION OF MAJOR DEFENSE ACQUISITION PROGRAMS.

(a) Report Required- Not later than one year after the date of the enactment of this Act, the Comptroller General of the United States shall submit to the congressional defense committees a report on potential modifications of the organization and structure of the Department of Defense for the acquisition of major defense acquisition programs.

(b) Elements- The report required by subsection (a) shall include the results of a review, conducted by the Comptroller General for purposes of the report, regarding the feasibility and advisability of, at a minimum, the following:

(1) Establishing system commands within each military department, each of which commands would be headed by a 4-star general officer, to whom the program managers and program executive officers for major defense acquisition programs would report.

(2) Revising the acquisition process for major defense acquisition programs by establishing shorter, more frequent acquisition program milestones.

(3) Requiring certifications of program status to the defense acquisition executive and Congress prior to milestone approval for major defense acquisition programs.

(4) Establishing a new office (to be known as the `Office of Independent Assessment') to provide independent cost estimates and performance estimates for major defense acquisition programs.

(5) Establishing a milestone system for major defense acquisition programs utilizing the following milestones (or such other milestones as the Comptroller General considers appropriate for purposes of the review):

(A) MILESTONE 0- The time for the development and approval of a mission need statement for a major defense acquisition program.

(B) MILESTONE 1- The time for the development and approval of a capability need definition for a major defense acquisition program, including development and approval of a certification statement on the characteristics required for the system under the program and a determination of the priorities among such characteristics.

(C) MILESTONE 2- The time or technology development and assessment for a major defense acquisition program, including development and approval of a certification statement on technology maturity of elements under the program.

(D) MILESTONE 3- The time for system development and demonstration for a major defense acquisition program, including development and approval of a certification statement on design proof of concept.

(E) MILESTONE 4- The time for final design, production prototyping, and testing of a major defense acquisition program, including development and approval of a certification statement on cost, performance, and schedule in advance of initiation of low-rate production of the system under the program.

(F) MILESTONE 5- The time for limited production and field testing of the system under a major defense acquisition program.

(G) MILESTONE 6- The time for initiation of full-rate production of the system under a major defense acquisition program.

(6) Requiring the Milestone Decision Authority for a major defense acquisition program to specify, at the time of Milestone B approval, or Key Decision Point B approval, as applicable, the period of time that will be required to deliver an initial operational capability to the relevant combatant commanders.

(7) Establishing a materiel solutions process for addressing identified gaps in critical warfighting capabilities, under which process the Under Secretary of Defense for Acquisition, Technology, and Logistics circulates among the military departments and appropriate Defense Agencies a request for proposals for technologies and systems to address such gaps.

(c) Consultation- In conducting the review required under subsection (b) for the report required by subsection (a), the Comptroller General shall obtain the views of the following:

(1) Senior acquisition officials currently serving in the Department of Defense.

(2) Individuals who formerly served as senior acquisition officials in the Department of Defense.

(3) Participants in previous reviews of the organization and structure of the Department of Defense for the acquisition of major weapon systems, including the President's Blue Ribbon Commission on Defense Management in 1986.

(4) Other experts on the acquisition of major weapon systems.

(5) Appropriate experts in the Government Accountability Office.

SEC. 9. CHANGES TO MILESTONE B CERTIFICATIONS.

Section 2366a of title 10, United States Code, is amended--

(1) by redesignating subsections (b), (c), (d), and (e) as subsections (c), (d), (e), and (f), respectively;

(2) by inserting after subsection (a) the following new subsection (b):

`(b) Changes to Certification- (1) The program manager for a major defense acquisition program that has received certification under subsection (a) shall immediately notify the milestone decision authority of any changes to the program that are--

`(A) inconsistent with such certification; or

`(B) deviate significantly from the material provided to the milestone decision authority in support of such certification.

`(2) Upon receipt of information under paragraph (1), the milestone decision authority may withdraw the certification concerned or rescind Milestone B approval (or Key Decision Point B approval in the case of a space program) if the milestone decision authority determines that such action is in the best interest of the national security of the United States.';

(3) in subsection (c), as redesignated by paragraph (1)--

(A) by inserting `(1)' before `The certification'; and

(B) by adding at the end the following new paragraph (2):

`(2) Any information provided to the milestone decision authority pursuant to subsection (b) shall be summarized in the first Selected Acquisition Report submitted under section 2432 of this title after such information is received by the milestone decision authority.'; and

(4) in subsection (e), as so redesignated, by striking `subsection (c)' and inserting `subsection (d)'.

SEC. 10. BUSINESS CASE ANALYSIS FOR CERTAIN MAJOR DEFENSE ACQUISITION PROGRAMS.

(a) Analysis Before Milestone B Approval- The milestone decision authority for a major defense acquisition program may not grant Milestone B approval for the program until the milestone decision authority obtains from a federally funded research and development center (FFRDC) a business case analysis for the program meeting the requirements of subsection (c).

(b) Analysis Following Deviations From Milestone B Approval Certification- If the milestone decision authority for a major defense acquisition program determines that information provided to the milestone decision authority by the program manager reveals changes to the program that are inconsistent with the certification for Milestone B approval with respect to the program under section 2366a(a) of title 10, United States Code, or that significantly deviate from the material provided to the milestone decision authority in support of such certification, the milestone decision authority shall require the conduct by a federally funded research and development center of a new business case analysis for the program meeting the requirements of subsection (c).

(c) Elements of Business Case Analysis- The business case analysis for a major defense acquisition program under this section shall ensure the following:

(1) That the needs of the user for the system under the program have been accurately defined.

(2) That alternative approaches to satisfying such needs have been properly analyzed, and that the quantities of the system required are well understood.

(3) That the system developed or, in the case of a new developmental program, the system to be developed, is producible at a cost that matches the expectations and financial resources of the system user.

(4) That the developer has the resources to design the system with the features that the user wants and to deliver the system when the user needs the system.

(d) Submittal to Congress- Each business case analysis conducted under this section shall be submitted to the congressional defense committees not later than seven days after the date on which such business case analysis is submitted to the milestone decision authority under this section.

(e) Definitions- In this section:

(1) The term `major defense acquisition program' means a major defense acquisition program for purposes of chapter 144 of title 10, United States Code.

(2) The term `Milestone B approval', with respect to a major defense acquisition program, has the meaning given that term in section 2366(e)(7) of title 10, United States Code.

SEC. 11. GUIDANCE ON UTILIZATION OF AWARD FEES IN CONTRACTS UNDER DEPARTMENT OF DEFENSE ACQUISITION PROGRAMS.

(a) Regulations Required- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall prescribe in regulations guidance on the appropriate use of award fees in contracts under Department of Defense acquisition programs.

(b) Utilization of Objective Criteria in Assessment of Contractor Performance-

(1) IN GENERAL- The regulations required by subsection (a) shall provide that, to the extent practicable, objective criteria are utilized in the assessment of contractor performance in Department acquisition programs.

(2) MIXED UTILIZATION OF OBJECTIVE AND SUBJECTIVE CRITERIA- The regulations shall provide that, in any case in which objective criteria are available for the assessment of contractor performance, the program manager and contracting officer concerned may elect to assess contractor performance through an appropriate mixture of objective criteria and such subjective criteria as the program manager and contracting officer jointly consider appropriate under a contract providing both incentive fees and awards fees, including a cost-plus-incentive/award fee contract or a fixed-price-incentive/award fee contract.

(3) UTILIZATION OF SUBJECTIVE CRITERIA-

(A) IN GENERAL- The regulations shall provide that, if it is determined that objective criteria do not exist and it is appropriate to use a cost-plus-award-fee contract, the head of the contracting activity concerned shall find that the work to be performed under the contract is such that it is not feasible or effective to establish objective incentive criteria for the contract.

(B) DELEGATION- The authority to make a determination and finding under subparagraph (A) may be delegated by the head of a contracting activity but only to an official in the contracting activity who is one level lower in the contracting chain of authority than the head of the contracting activity.

(1) IN GENERAL- The regulations required by subsection (a) shall set forth a schedule of ratings of contractor performance for award fees in contracts under Department acquisition programs, including--

(A) a range of authorized ratings;

(B) the contractor performance required for each authorized rating; and

(2) AUTHORIZED RATINGS AND PERFORMANCE- The schedule shall set forth a range of authorized ratings and associated contractor performance as follows:

(A) Outstanding, for a contractor who meets--

(i) the minimum essential requirements of the contract; and

(ii) at least 90 percent of the criteria for the award of award fees under the contract.

(B) Excellent, for a contractor who meets--

(i) the minimum essential requirements of the contract; and

(ii) at least 75 percent of the criteria for the award of award fees under the contract.

(i) the minimum essential requirements under the contract; and

(ii) at least 50 percent of the criteria for the award of award fees under the contract.

(D) Satisfactory, for a contractor who meets the minimum essential requirements under the contract but does not meet at least 50 percent of the criteria for the award of award fees under the contract.

(E) Unsatisfactory, for a contractor who does not meet the minimum essential requirements under the contract.

(3) AWARD FEES PAYABLE- The schedule shall provide that the amount payable from amounts available for the payment of award fees under a contract (commonly referred to as an `award fee pool') to a contractor who achieves a particular rating under the schedule shall be the percentage of such amounts, as determined appropriate by the contracting officer, from the percentages as follows:

(A) In the case of outstanding, 90 percent to 100 percent.

(B) In the case of excellent, 75 percent to 90 percent.

(D) In the case of satisfactory, not more than 50 percent.

(E) In the case of unsatisfactory, 0 percent.

(d) Establishment of Award Fee Requirements- The regulations required by subsection (a) shall provide that the requirements to be satisfied for the award of award fees under a contract shall be determined by the contracting officer, in consultation with the program manager concerned and the fee determining official for the contract. The specification of such requirements in the contract may be referred to as the `Award Fee Plan' for the contract.

(e) Rollover of Award Fees to Later Award Periods-

(1) IN GENERAL- The regulations required by subsection (a) shall establish a negative presumption against the rollover of amounts available for the payment of award fees under a contract from one award fee period under the contract to another award fee period under the contract unless the rollover of such amounts is specifically set forth in the acquisition strategy under which the contract is entered into.

(2) LIMITATION ON AMOUNT OF ROLLOVER- The regulations shall set forth specific limits on the amount available for the payment of award fees under a contract that may be rolled over from one award fee period under the contract to another award fee period under the contract. Such limits may be expressed as specific dollar amounts or as percentages of the amount available for payment of award fees under the contract concerned.

(3) DOCUMENTATION OF ROLLOVER- The regulations shall require that any determination by the fee determining official to roll over amounts available for the payment of award fees under a contract from one award fee period under the contract to another award fee period under the contract shall be included in writing in the contract file for the contract.

SEC. 12. SUBSTANTIAL SAVINGS UNDER MULTIYEAR CONTRACTS.

(a) Definition in Regulations of Substantial Savings Under Multiyear Contracts-

(1) IN GENERAL- Not later than 60 days after the date of the enactment of this Act, the Secretary of Defense shall modify the regulations prescribed pursuant to subsection (b)(2)(A) of section 2306b of title 10, United States Code, to define the term `substantial savings' for purposes of subsection (a)(1) of such section. Such regulations shall specify the following:

(A) Savings that exceed 10 percent of the total anticipated costs of carrying out a program through annual contracts shall be considered to be substantial.

(B) Savings that exceed 8 percent of the total anticipated costs of carrying out a program through annual contracts, but do not exceed 10 percent of such costs, shall not be considered to be substantial unless the following conditions are satisfied:

(i) The program has not breached any threshold under section 2433 of title 10, United States Code, during the two-year period ending on the date on which the military department concerned first submits to Congress a multiyear procurement proposal with respect to the program.

(ii) The program is estimated to save at least $500,000,000 under a multiyear contract, as compared to annual contracts

(C) Savings that do not exceed 8 percent of the total anticipated costs of carrying out a program through annual contracts shall not be considered to be substantial.

(2) DETERMINATION OF SAVINGS- The regulations required under this subsection shall require that the determination of the amount of savings to be achieved under a multiyear contract, including whether or not such savings are treatable as substantial savings for purposes of subsection (a)(1) of section 2306b of title 10, United States Code, shall be made by the Cost Analysis Improvement Group (CAIG) of the Department of Defense.

(3) EFFECTIVE DATE- The modification required by paragraph (1) shall apply with regard to any multiyear contract that is authorized after the date that is 60 days after the date of the enactment of this Act.

(b) Reports on Savings Achieved-

(1) REPORTS REQUIRED- Not later than January 15 of 2008, 2009, and 2010, the Secretary shall submit to the congressional defense committees a report on the savings achieved through the use of multiyear contracts that were entered under the authority of section 2306b of title 10, United States Code, and the performance of which was completed in the preceding fiscal year.

(2) ELEMENTS- Each report under paragraph (1) shall specify, for each multiyear contract covered by such report--

(A) the savings that the Department of Defense estimated it would achieve through the use of the multiyear contract at the time such contract was awarded; and

(B) the best estimate of the Department on the savings actually achieved under such contract.

SEC. 13. INVESTMENT STRATEGY FOR MAJOR DEFENSE ACQUISITION PROGRAMS.

(a) Report Required- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall submit to the congressional defense committees an investment strategy for the allocation of funds and other resources among major defense acquisition programs.

(b) Elements- The strategy required by subsection (a) shall do the following:

(1) Establish priorities among needed capabilities under major defense acquisition programs, and to assess the resources (including funds, technologies, time, and personnel) needed to achieve such capabilities.

(2) Balance cost, schedule, and requirements for major defense acquisition programs to ensure the most efficient use of Department of Defense resources.

(3) Ensure that the budget, requirements, and acquisition processes of the Department of Defense work in a complementary manner to achieve desired results.

(c) Recommendations- In submitting the strategy required by subsection (a), the Secretary shall include any recommendations, including recommendations for legislative action, that the Secretary considers appropriate to implement the strategy.

(d) Utilization for Budget Purposes- The Secretary shall utilize the strategy required by subsection (a) in developing requests for funding and other resources to be allocated to major defense acquisition programs under the budget of the President to be submitted to Congress each fiscal year under section 1105(a) of title 31, United States Code.

(e) Current Programs Beyond Milestone B Approval- Pending completion of the strategy required by subsection (a), the Secretary shall, to the extent practicable, establish priorities in the allocation of funds and other resources for major defense acquisition programs that have Milestone B approval in order to ensure the acquisition of items under such programs in the most cost-effective and efficient manner.

(f) Definitions- In this section:

(1) The term `major defense acquisition program' has the meaning given that term in section 2430 of title 10, United States Code.

(2) The term `Milestone B approval' has the meaning given that term in section 2366(e)(7) of title 10, United States Code.

SEC. 14. ETHICS COMPLIANCE BY DEPARTMENT OF DEFENSE CONTRACTORS.

(a) In General- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall prescribe in regulations a requirement that a contracting officer of the Department of Defense may not determine a contractor to be responsible for purposes of the award of a new covered contract for the Department, or an agency or component of the Department, unless the entity to be awarded the contract has in place, by the deadline specified in subsection (c), an internal ethics compliance program, including a code of ethics and internal controls, to facilitate the timely detection and disclosure of improper conduct in connection with the award or performance of the covered contract and to ensure that appropriate corrective action is taken with respect to such conduct.

(b) Elements of Ethics Compliance Program- Each ethics compliance program required of a contractor under subsection (a) shall include the following:

(1) Requirements for periodic reviews of the program for which the covered contract concerned is awarded to ensure compliance of contractor personnel with applicable Government contracting requirements, including laws, regulations, and contractual requirements.

(2) Internal reporting mechanisms, such as a hot-line, for contractor personnel to report suspected improper conduct among contractor personnel.

(3) Audits of the program for which the covered contract concerned is awarded.

(4) Mechanisms for disciplinary actions against contractor personnel found to have engaged in improper conduct, including the exclusion of such personnel from the exercise of substantial authority.

(5) Mechanisms for the reporting to appropriate Government officials, including the contracting officer and the Office of the Inspector General of the Department of Defense, of suspected improper conduct among contractor personnel, including suspected conduct involving corruption of a Government official or individual acting on behalf of the Government, not later than 30 days after the date of discovery of such suspected conduct.

(6) Mechanisms to ensure full cooperation with Government officials responsible for investigating suspected improper conduct among contractor personnel and for taking corrective actions.

(7) Mechanisms to ensure the recurring provision of training to contractor personnel on the requirements and mechanisms of the program.

(8) Mechanisms to ensure the oversight of the program by contractor personnel with substantial authority within the contractor.

(c) Deadline for Program- The deadline specified in this subsection for a contractor having in place an ethics compliance program required under subsection (a) for purposes of a covered contract is 30 days after the date of the award of the contract.

(d) Determination of Existence of Program- In determining whether or not contractor has in place an ethics compliance program required under subsection (a), a contracting officer of the Department may utilize the assistance of the Office of the Inspector General of the Department of Defense.

(e) Suspension or Debarment- The regulations prescribed under subsection (a) shall provide that any contractor under a covered contract whose personnel are determined not to have reported suspected improper conduct in accordance with the requirements and mechanisms of the ethics compliance program concerned may, at the election of the Secretary of Defense, be suspended from the contract or debarred from further contracting with the Department of Defense.

(f) Covered Contract Defined- In this section, the term `covered contract' means any contract to be awarded to a contractor of the Department of Defense if, in the year before the contract is to be awarded, the total amount of contracts of the contractor with the Federal Government exceeded $5,000,000.

SEC. 15. REPORT ON IMPLEMENTATION OF RECOMMENDATIONS ON TOTAL OWNERSHIP COSTS AND READINESS RATES FOR MAJOR WEAPON SYSTEMS.

(a) Report Required- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall submit to the congressional defense committees a report on the extent of the implementation of the recommendations set forth in the February 2003 report of the Government Accountability Office entitled `Setting Requirements Differently Could Reduce Weapon Systems' Total Ownership Costs'.

(b) Elements- The report required by subsection (a) shall include the following:

(1) For each recommendation described in subsection (a) that has been implemented, or that the Secretary plans to implement--

(A) a summary of all actions that have been taken to implement such recommendation; and

(B) a schedule, with specific milestones, for completing the implementation of such recommendation.

(2) For each recommendation that the Secretary has not implemented and does not plan to implement--

(A) the reasons for the decision not to implement such recommendation; and

(B) a summary of any alternative actions the Secretary plans to take to address the purposes underlying such recommendation.

(3) A summary of any additional actions the Secretary has taken or plans to take to ensure that total ownership cost is appropriately considered in the requirements process for major weapon systems.

END