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TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED MATTERS

Subtitle E—Defense Industrial Base Matters

P. L. 112-81

House Conference Report 112-329

(a) Report Required- The Secretary of Defense shall ensure that the annual report to Congress on the defense industrial base submitted for fiscal year 2012 pursuant to section 2504 of title 10, United States Code, includes a description of, and a status report on, the sector-by-sector, tier-by-tier assessment of the industrial base undertaken by the Department of Defense.

(b) Contents of Report- The report required by subsection (a) shall include, at a minimum, a description of the steps taken and planned to be taken--

(1) to identify current and emerging sectors of the defense industrial base that are critical to the national security of the United States;

(2) in each sector, to identify items that are critical to military readiness, including key components, subcomponents, and materials;

(3) to examine the structure of the industrial base, including the competitive landscape, relationships, risks, and opportunities within that structure;

(4) to map the supply chain for critical items identified under paragraph (2) in a manner that provides the Department of Defense visibility from raw material to final products;

(5) to perform a risk assessment of the supply chain for such critical items and conduct an evaluation of the extent to which--

(A) the supply chain for such items is subject to disruption by factors outside the control of the Department of Defense; and

(B) such disruption would adversely affect the ability of the Department of Defense to fill its national security mission.

(c) Strategy Required- Based on the findings from the sector-by-sector, tier-by-tier assessment, as described in the report required by subsection (a), the Secretary of Defense shall develop a defense supply chain and industrial base strategy to ensure the continued availability of items that are determined by the Secretary to be critical to military readiness and to be subject to significant supply chain risk. The strategy shall be based on a prioritized assessment of risks and challenges to the defense supply chain and industrial base and shall, at a minimum, address--

(1) mitigation strategies needed to address any gaps or vulnerabilities in the relevant sectors of the defense industrial base;

(2) the need for timely mobilization and capacity in such sectors of the defense industrial base; and

(3) any other steps needed to foster and safeguard such sectors of the defense industrial base.

(d) Follow-up Review- The Secretary of Defense shall ensure that the annual report to Congress on the defense industrial base submitted for each of fiscal years 2013, 2014, and 2015 includes an update on the steps taken by the Department of Defense to act on the findings of the sector-by-sector, tier-by-tier assessment of the industrial base and implement the strategy required by subsection (c). Such updates shall, at a minimum--

(1) be conducted based on current mapping of the supply chain and industrial base structure, including an analysis of the competitive landscape, relationships, risks, and opportunities within that structure; and

(2) take into account any changes or updates to the National Defense Strategy, National Military Strategy, national counterterrorism policy, homeland security policy, and applicable operational or contingency plans.

The House bill contained a provision (sec. 832) that would require the Secretary of Defense to assess the defense industrial base and develop mitigation strategies to address any gaps and vulnerabilities identified in the assessment.

The Senate amendment contained no similar provision.

The Senate recedes with an amendment that would require the Secretary of Defense to address industrial base and supply chain issues (including risks and vulnerabilities) through the sector-by-sector, tier-by-tier assessment of the industrial base now underway and the annual industrial base report required by section 2504 of title 10, United States Code.

House Report 112-078

SECTION 832--DEPARTMENT OF DEFENSE ASSESSMENT OF INDUSTRIAL BASE FOR POTENTIAL SHORTFALLS

This section would require the Secretary of Defense to conduct an assessment of the U.S. industrial base to identify potential gaps that might affect military readiness. Such assessment would be required within 180 days after the date of enactment of this Act. In addition, the Comptroller General of the United States would be required to review the Secretary of Defense's assessment, including completeness of the report and the reasonableness of the methodology and recommendations.

The Department of Defense relies on thousands of suppliers to ensure that it has the weapons, supporting equipment, and raw materials it needs to support current and future conflicts against conventional opponents. However, the committee is concerned that increasing globalization in the defense industry presents uncertainty in the ability of the United States to maintain a reliable and sufficient supplier base in the event of such conflicts. In addition, defense industry prime contractors are relying more on subcontractors, including commercial suppliers, which can limit the visibility into the lower tiers of the supplier base. The committee notes that studies by the Government Accountability Office have found that the Department lacks a framework and consistent approach for managing supplier base concerns such as counterfeit parts in the supply chain, and reliance on rare earth materials from the People's Republic of China in military equipment and systems. Furthermore, the committee is concerned that the Department has not taken steps to identify supplier-base availability for defense needs beyond a 5-year time frame. Therefore, the committee encourages the Secretary of Defense to address these deficiencies in the required report and to provide a specific assessment of the vulnerabilities posed to defense systems as a result of potential counterfeiting of sub-components manufactured in China.