How To Use the NDAA Pages

Back to NDAA Contents

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

Subtitle C--Provisions Relating to Major Defense Acquisition Programs

P. L. 114-

House Conference Report. 114-270

SEC. 828. Penalty for cost overruns.

(a) In general.—For each fiscal year beginning with fiscal year 2015, the Secretary of each military department shall pay a penalty for cost overruns on the covered major defense acquisition programs of the military department.

(b) Calculation of penalty.—For the purposes of this section:

(1) The amount of the cost overrun or underrun on any major defense acquisition program or subprogram in a fiscal year is the difference between the current program acquisition unit cost for the program or subprogram and the program acquisition unit cost for the program as shown in the original Baseline Estimate for the program or subprogram, multiplied by the quantity of items to be purchased under the program or subprogram, as reported in the final Selected Acquisition Report for the fiscal year in accordance with section 2432 of title 10, United States Code.

(2) Cost overruns or underruns for covered major defense acquisition programs that are joint programs of more than one military department shall be allocated among the military departments in percentages determined by the Under Secretary of Defense for Acquisition, Technology, and Logistics.

(3) The cumulative amount of cost overruns for a military department in a fiscal year is the sum of the cost overruns and cost underruns for all covered major defense acquisition programs of the department in the fiscal year (including cost overruns or underruns allocated to the military department in accordance with paragraph (2)).

(4) The cost overrun penalty for a military department in a fiscal year is three percent of the cumulative amount of cost overruns of the military department in the fiscal year, as determined pursuant to paragraph (3), except that the cost overrun penalty may not be a negative amount.

(c) Transfer of funds.—

(1) REDUCTION OF RESEARCH, DEVELOPMENT, TEST, AND EVALUATION ACCOUNTS.—Not later than 60 days after the end of each fiscal year beginning with fiscal year 2015, the Secretary of each military department shall reduce each research, development, test, and evaluation account of the military department by the percentage determined under paragraph (2), and remit such amount to the Secretary of Defense.

(2) DETERMINATION OF AMOUNT.—The percentage reduction to research, development, test, and evaluation accounts of a military department referred to in paragraph (1) is the percentage reduction to such accounts necessary to equal the cost overrun penalty for the fiscal year for such department determined pursuant to subsection (b)(4).

(3) CREDITING OF FUNDS.—Any amount remitted under paragraph (1) shall be credited to the Rapid Prototyping Fund established pursuant to section 804 of this Act.

(d) Covered programs.—A major defense acquisition program is covered under this section if the original Baseline Estimate was established for such program under paragraph (1) or (2) of section 2435(d) of title 10, United States Code, on or after May 22, 2009 (which is the date of the enactment of the Weapon Systems Acquisition Reform Act of 2009 (Public Law 111–23)).

The House bill contained no similar provision.

The House recedes.

Senate Report 114-49 to accompany S. 1376 as it was reported out of the Senate Armed Services Committee.

Penalty for cost overruns (sec. 849)

The committee recommends a provision under which each military department would pay an annual penalty in the amount of 3 percent of the cumulative cost overrun on all of its major defense acquisition programs (MDAPs). To avoid ``breaking'' any individual acquisition program, the annual penalty would be assessed as an across-the-board reduction to the research, development, test, and evaluation account of the military department.

Despite the enactment of the Nunn-McCurdy Act (10 U.S.C. section 2433), which requires a reexamination and revalidation of MDAPs which experience critical cost overruns, the military departments continue to incur huge cost overruns on virtually every program. The cumulative total of these cost overruns is hundreds of billions of dollars.

This Act would give greater responsibility to the services to manage acquisition programs. With this responsibility there is a need for greater accountability. The committee concludes that one way to incentivize the military departments to establish realistic baseline cost estimates for their MDAPs and to stick to these estimates is to assess a significant penalty for cost overruns. To avoid penalizing the military departments for past mistakes, the penalty recommended by the committee would apply only to overruns on MDAPs that received an initial baseline estimate after the enactment of the Weapon Systems Acquisition Reform Act of 2009 (Public Law 111-23). The funds decremented under this authority would be transferred to the Rapid Prototyping Fund established under section 803 of this Act. The Committee is willing to consider greater budgetary flexibility when MDAPs underrun their estimated costs and requests that the Department develop any necessary legislative proposal for congressional consideration that would be applicable in those cases.