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

P. L. 108-375

House Conference Report 108-767

SEC. 818. SUBMISSION OF COST OR PRICING DATA ON NON COMMERCIAL MODIFICATIONS OF COMMERCIAL ITEMS.

(a) INAPPLICABILITY OF COMMERCIAL ITEMS EXCEPTION TO NONCOMMERCIAL MODIFICATIONS OF COMMERCIAL ITEMS. — Subsection (b) of section 2306a of title 10, United States Code, is amended by adding at the end the following new paragraph:

‘‘(3) NONCOMMERCIAL MODIFICATIONS OF COMMERCIAL ITEMS. —

     (A) The exception in paragraph (1)(B) does not apply to cost or pricing data on noncommercial modifications of a commercial item that are expected to cost, in the aggregate, more than $500,000 or 5 percent of the total price of the contract, whichever is greater.

     ‘‘(B) In this paragraph, the term ‘noncommercial modification’, with respect to a commercial item, means a modification of such item that is not a modification described in section 4(12)(C)(i) of the Office of Federal Procurement Policy Act (41 U.S.C. 403(12)(C)(i)).

‘‘(C) Nothing in subparagraph (A) shall be construed — 

     ‘‘(i) to limit the applicability of the exception in subparagraph (A) or (C) of paragraph (1) to cost or pricing data on a noncommercial modification of a commercial item; or

     ‘‘(ii) to require the submission of cost or pricing data on any aspect of an acquisition of a commercial item other than the cost and pricing of noncommercial modifications of such item.’’.

(b) EFFECTIVE DATE AND APPLICABILITY.—Paragraph (3) of section 2306a of title 10, United States Code (as added by subsection (a)), shall take effect on June 1, 2005, and shall apply with respect to offers submitted, and to modifications of contracts or subcontracts made, on or after that date.

The Senate amendment contained a provision (sec. 813) that would require contractors for Department of Defense contracts to submit cost or pricing data on noncommercial modifications to commercial items, if the modifications are expected to cost in excess of $500,000.

The House bill contained no similar provision. 

The House recedes with an amendment that would modify the requirement to apply to noncommercial modifications that are expected to cost in excess of $500,000 or five percent of the total price of the contract, whichever is greater.

Senate Report 108-260
The committee recommends a provision that would require contractors to submit cost or pricing data on noncommercial modifications to commercial items.

The Department of Defense Inspector General's (IG) March 29, 2004 report, `Acquisition of the Boeing KC-767A Tanker Aircraft,' (D-2004-064) states that less than one-third of the dollar value of the contract negotiated by the Air Force was for the `green' commercial aircraft, with the balance covering development costs, noncommercial modifications, logistics support, training, and lease costs. The IG concluded that the noncommercial modifications to the aircraft (including development costs) were so extensive that the program did not meet the statutory definition of a commercial item.

The entire tanker lease program was treated as a commercial acquisition, leaving the Air Force without access to cost or pricing data even for development costs, noncommercial modifications, training, and logistics support. As a result, the IG found that the Air Force did not have the data that it needed to ensure that Boeing's prices were fair and reasonable. For example, the Air Force relied upon information provided to the Italian government to assess the reasonableness of development costs; relied upon the prices of unrelated modifications to other aircraft to assess the reasonableness of modification costs; and relied upon internal Air Force brochures from other aircraft programs to assess the reasonableness of logistics support costs.

The committee believes that the Department needs much better information to protect the interest of the taxpayers in assessing the price reasonableness of non commercial modifications to commercial items. Under the provision recommended by the committee, contractors would be required to provide cost or pricing data with regard to noncommercial modifications to commercial items, if the modifications are expected to cost in excess of $500,000. This is the same information that the contractors would be required to provide if the modifications were acquired under separate contracts.

The provision recommended by the committee would not require the contractor to provide any additional information on the commercial part of the contract. Exceptions to the requirement to provide cost or pricing data based on adequate price competition or exceptional circumstances would remain unchanged.

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