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TITLE IX—DEPARTMENT OF DEFENSE ORGANIZATION AND MANAGEMENT

Subtitle D—Total Force Management

P. L. 112-81

House Conference Report 112-329

Section 2463 of title 10, United States Code, is amended--

(1) in subsection (b)(1)--

(A) by redesignating subparagraphs (B), (C), and (D) as subparagraphs (C), (E), and (F), respectively;

(B) by striking subparagraph (A) and inserting the following new subparagraphs (A) and (B):

`(A) is a critical function that--

`(i) is necessary to maintain sufficient Government expertise and technical capabilities; or

`(ii) entails operational risk associated with contractor performance;

`(B) is an acquisition workforce function;'; and

(C) by inserting after subparagraph (C), as redesignated by subparagraph (A), the following new subparagraph (D):

`(D) has been performed by Department of Defense civilian employees at any time during the previous 10-year period;';

(2) by redesignating subsection (e) as subsection (g);

(3) by inserting after subsection (d) the following new subsections (e) and (f):

`(e) Determinations Relating to the Conversion of Certain Functions- (1) Except as provided in paragraph (2), in determining whether a function should be converted to performance by Department of Defense civilian employees, the Secretary of Defense shall--

`(A) develop methodology for determining costs based on the guidance outlined in the Directive-Type Memorandum 09-007 entitled `Estimating and Comparing the Full Costs of Civilian and Military Manpower and Contractor Support' or any successor guidance for the determination of costs when costs are the sole basis for the determination;

`(B) take into consideration any supplemental guidance issued by the Secretary of a military department for determinations affecting functions of that military department; and

`(C) ensure that the difference in the cost of performing the function by a contractor compared to the cost of performing the function by Department of Defense civilian employees would be equal to or exceed the lesser of--

`(i) 10 percent of the personnel-related costs for performance of that function; or

`(ii) $10,000,000.

`(2) Paragraph (1) shall not apply to any function that is inherently governmental or any function described in subparagraph (A), (B), or (C) of subsection (b)(1).

`(f) Notification Relating to the Conversion of Certain Functions- The Secretary of Defense shall establish procedures for the timely notification of any contractor who performs a function that the Secretary plans to convert to performance by Department of Defense civilian employees pursuant to subsection (a). The Secretary shall provide a copy of any such notification to the congressional defense committees.'; and

(4) in subsection (g), as redesignated by paragraph (2)--

(A) by striking `this section' and all that follows and inserting `this section:'; and

(B) by adding at the end the following new paragraphs:

`(1) The term `functions closely associated with inherently governmental functions' has the meaning given that term in section 2383(b)(3) of this title.

`(2) The term `acquisition function' has the meaning given that term under section 1721(a) of this title.

`(3) The term `inherently governmental function' has the meaning given that term in the Federal Activities Inventory Reform Act of 1998 (Public Law 105-270; 31 U.S.C. 501 note).'.

The House bill contained a provision (sec. 939) that would amend section 2463 of title 10, United States Code, to clarify the requirements for conversion of functions from contractor performance to performance by Department of Defense civilian employees.

The Senate amendment contained no similar provision.

The Senate recedes with an amendment that would clarify the provision.

The conferees expect the use of insourcing to be focused, in accordance with the total force management policy developed in accordance with section 129a of title 10, United States Code, as amended, on ensuring appropriate government capacity to perform acquisition workforce and other critical government functions. The conferees note that section 7.503 of the Federal Acquisition Regulation states that contracts `shall not be used for the performance of inherently governmental functions.'

House Report 112-078

SECTION 939--CONVERSION OF CERTAIN FUNCTIONS FROM CONTRACTOR PERFORMANCE TO PERFORMANCE BY DEPARTMENT OF DEFENSE CIVILIAN EMPLOYEES

This section would amend section 2463 of title 10, United States Code, to require the conversion of any inherently governmental function to performance by Department of Defense (DOD) civilian employees. The committee notes that this requirement was not specifically included in section 2463 when it was enacted originally because it was presumed that such functions were not being performed by contractors. However, the committee is aware that was a false presumption. For example, according to a report by the Government Accountability Office, `Defense Acquisitions: Further Action Needed to Better Implement Requirements for Conducting Inventory of Service Contract Activities, January 2011', within the Department of the Army, more than 2,000 contractor full-time equivalents are performing work that is inherently governmental, and an additional 45,934 Army contractors are performing activities deemed closely associated with inherently governmental functions. The committee finds this troubling and urges the military services, particularly the Army, to convert such functions immediately to performance by DOD civilian employees.

In addition, this section would require a cost analysis and a savings differential before converting certain commercial functions to performance by DOD civilian employees. This requirement would be applied for the conversion of functions that are not inherently governmental. This section also would require procedures to be developed to notify a contractor of the intent to insource a contract on which the contractor is currently performing; a copy of the notification would be provided to the congressional defense committees. The intent of the notification is to provide fair notice to affected contractors but not to delay or stop an insourcing initiative.