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

House Conference Report 109-360

SEC. 802. REQUIREMENTS APPLICABLE TO MAJOR DEFENSE ACQUISITION PROGRAMS EXCEEDING BASELINE COSTS.

(a) Specification of Significant Cost Growth Threshold and Critical Cost Growth Threshold- Subsection (a) of section 2433 of title 10, United States Code, is amended by adding at the end the following new paragraphs:

`(4) The term `significant cost growth threshold' means the following:

`(A) In the case of a major defense acquisition program, a percentage increase in the program acquisition unit cost for the program of--

`(i) at least 15 percent over the program acquisition unit cost for the program as shown in the current Baseline Estimate for the program; or

`(ii) at least 30 percent over the program acquisition unit cost for the program as shown in the original Baseline Estimate for the program.

`(B) In the case of a major defense acquisition program that is a procurement program, a percentage increase in the procurement unit cost for the program of--

`(i) at least 15 percent over the procurement unit cost for the program as shown in the current Baseline Estimate for the program; or

`(ii) at least 30 percent over the procurement unit cost for the program as shown in the original Baseline Estimate for the program.

`(5) The term `critical cost growth threshold' means the following:

`(A) In the case of a major defense acquisition program, a percentage increase in the program acquisition unit cost for the program of--

`(i) at least 25 percent over the program acquisition unit cost for the program as shown in the current Baseline Estimate for the program; or

`(ii) at least 50 percent over the program acquisition unit cost for the program as shown in the original Baseline Estimate for the program.

`(B) In the case of a major defense acquisition program that is a procurement program, a percentage increase in the procurement unit cost for the program of--

`(i) at least 25 percent over the procurement unit cost for the program as shown in the current Baseline Estimate for the program; or

`(ii) at least 50 percent over the procurement unit cost for the program as shown in the original Baseline Estimate for the program.'.

(b) Incorporation of Thresholds Into Unit Cost Report and Related Requirements-

(1) UNIT COST REPORT REQUIREMENTS- Subsection (c) of such section is amended by striking `cause to believe--' and all that follows through `reflected in the Baseline Estimate;' and inserting `cause to believe that the program acquisition unit cost for the program or the procurement unit cost for the program, as applicable, has increased by a percentage equal to or greater than the significant cost growth threshold for the program;'.

(2) DETERMINATIONS OF SERVICE ACQUISITION EXECUTIVES- Subsection (d) of such section is amended--

(A) in paragraph (1), by striking `by at least 15 percent, or by at least 25 percent, over the program acquisition unit cost for the program as shown in the Baseline Estimate' and inserting `by a percentage equal to or greater than the significant cost growth threshold, or the critical cost growth threshold, for the program';

(B) in paragraph (2), by striking `by at least 15 percent, or by at least 25 percent, over the procurement unit cost for the program as reflected in the Baseline Estimate' and inserting `by a percentage equal to or greater than the significant cost growth threshold, or the critical cost growth threshold, for the program'; and

(C) in paragraph (3)--

(i) by striking `by at least 15 percent, or by at least 25 percent, as determined under paragraph (1)' and inserting `by a percentage equal to or greater than the significant cost growth threshold or critical cost growth threshold'; and

(ii) by striking `by at least 15 percent, or by at least 25 percent, as determined under paragraph (2)' and inserting `by a percentage equal to or greater than the significant cost growth threshold or critical cost growth threshold'.

(3) SERVICE ACQUISITION REPORTS- Subsection (e) of such section is amended--

(A) in paragraph (1)(A), by striking `by at least 15 percent' and inserting `by a percentage equal to or greater than the significant cost growth threshold for the program';

(B) in paragraph (2)--

(i) by striking `percentage increase in the'; and

(ii) by striking `exceeds 25 percent' and inserting `increases by a percentage equal to or greater than the critical cost growth threshold for the program'; and

(C) in paragraph (3)--

(i) by striking `of at least 15 percent' both places it appears and inserting `by a percentage equal to or greater than the significant cost growth threshold'; and

(ii) by striking `of at least 25 percent' both places it appears and inserting `by a percentage equal to or greater than the critical cost growth threshold'.

(c) Additional Requirements Relating to Certain Unit Cost Increases- Paragraph (2) of subsection (e) of such section is further amended--

(1) by redesignating subparagraph (B) as subparagraph (C); and

(2) by striking `the Secretary of Defense' and all that follows through `a written certification, stating that--' and inserting `the Secretary of Defense shall--

`(A) carry out an assessment of--

`(i) the projected cost of completing the program if current requirements are not modified;

`(ii) the projected cost of completing the program based on reasonable modification of such requirements; and

`(iii) the rough order of magnitude of the costs of any reasonable alternative system or capability;

`(B) submit to Congress, before the end of the 60-day period beginning on the day the Selected Acquisition Report containing the information described in subsection (g) is required to be submitted under section 2432(f) of this title, a written certification (with a supporting explanation) stating that--'.

(d) Original Baseline Estimate-

(1) IN GENERAL- Section 2435 of title 10, United States Code, is amended--

(A) by redesignating subsection (d) as subsection (e); and

(B) by inserting after subsection (c) the following new subsection (d):

`(d) Original Baseline Estimate- (1) In this chapter, the term `original Baseline Estimate', with respect to a major defense acquisition program, means the baseline description established with respect to the program under subsection (a), without adjustment or revision (except as provided in paragraph (2)).

`(2) An adjustment or revision of the original baseline description of a major defense acquisition program may be treated as the original Baseline Estimate for the program for purposes of this chapter only if the percentage increase in the program acquisition unit cost or procurement unit cost under such adjustment or revision exceeds the critical cost growth threshold for the program under section 2433 of this title, as determined by the Secretary of the military department concerned under subsection (d) of such section.

`(3) In the event of an adjustment or revision of the original baseline description of a major defense acquisition program, the Secretary of Defense shall include in the next Selected Acquisition Report to be submitted under section 2432 of this title after such adjustment or revision a notification to the congressional defense committees of such adjustment or revision, together with the reasons for such adjustment or revision.'.

(2) CONFORMING AMENDMENT- Section 2433(a) of such title, as amended by subsection (a) of this section, is further amended by adding at the end the following new paragraph:

`(6) The term `original Baseline Estimate' has the same meaning as provided in section 2435(d) of this title.'.

(e) Effective Date-

(1) IN GENERAL- The amendments made by this section shall take effect on the date of the enactment of this Act, and shall apply with respect to any major defense acquisition program for which an original Baseline Estimate is first established before, on, or after that date.

(2) APPLICABILITY TO CURRENT MAJOR DEFENSE ACQUISITION PROGRAMS- In the case of a major defense acquisition program for which the program acquisition unit cost or procurement unit cost, as applicable, exceeds the original Baseline Estimate for the program by more than 50 percent on the date of the enactment of this Act--

(A) the current Baseline Estimate for the program as of such date of enactment is deemed to be the original Baseline Estimate for the program for purposes of section 2433 of title 10, United States Code (as amended by this section); and

(B) each Selected Acquisition Report submitted on the program after the date of the enactment of this Act shall reflect each of the following:

(i) The original Baseline Estimate, as first established for the program, without adjustment or revision.

(ii) The Baseline Estimate for the program that is deemed to be the original Baseline Estimate for the program under subparagraph (A).

(iii) The current original Baseline Estimate for the program as adjusted or revised, if at all, in accordance with subsection (d)(2) of section 2435 of title 10, United States Code (as added by subsection (d) of this section).

The House bill contained two provisions (secs. 802 and 803) that would modify the oversight requirements for major defense acquisition programs (MDAPs) in sections 2433 and 2435 of title 10, United States Code. Section 802 would require that the Secretary of Defense conduct an analysis of alternatives for any MDAP for which the program acquisition unit cost or the procurement unit cost rises by 15 percent over the baseline estimate. Section 803 would restrict the circumstances in which the Secretary may modify a baseline estimate.

The Senate amendment contained no similar provision.

The Senate recedes with an amendment that would: (1) amend section 2435 to add a new term--`original Baseline Estimate'--and to restrict the circumstances in which an original baseline estimate may be modified; (2) add two new terms--`significant cost growth' and `critical cost growth'--to section 2433; (3) define significant cost growth and critical cost growth by reference to both the current baseline estimate for an MDAP and the original baseline estimate for the program; and (4) require additional analysis and explanation (but not a formal analysis of alternatives) for any MDAP that experiences critical cost growth.

Taken together, these changes would tighten requirements for flagging programs that are experiencing problematic cost growth and ensure more rigorous review and analysis of these programs. The conferees believe that the added discipline imposed by these provisions should encourage the Department of Defense both to establish more realistic and achievable cost and performance estimates at the outset of MDAPs and to more aggressively manage MDAPs to avoid undesirable cost growth on these programs.

House Report 109-89

SECTION 802--REQUIREMENT FOR ANALYSIS OF ALTERNATIVES TO MAJOR DEFENSE ACQUISITION PROGRAMS

This section would require an analysis of alternatives (AoA) for major defense acquisition programs (MDAP) when the procurement unit cost rises more then 15 percent above the acquisition unit cost or procurement unit cost established at Milestone B. The secretary of the military department concerned would conduct the AoA at the 15 percent threshold. The AoA would be required within one year after initiation and submitted to congressional defense committees within 30 days of completion.

This section directs that every analysis of alternatives (AoA) for major defense acquisition programs (MDAP) performed prior to execution of the MDAP must include a list of commercially available technologies that have applicability to the stated program element requirement within the MDAP. All comprehensive efforts should be made to utilize these technologies in the MDAP.

The committee believes once an MDAP evidences significant departure from the baseline estimate, such as the acquisition unit cost or procurement unit cost exceeding 15 percent, the service secretary concerned should begin the process of evaluating other options. The committee recommends that the Department of Defense (DOD) utilize the Defense Acquisition Challenge Program as one possible alternative.

The required analysis of alternatives should be built on the original analysis of alternatives conducted prior to Milestone B. Such an approach could alleviate the cost and time requirements for conducting an AoA. The committee does not intend that the initiation of an AoA necessarily result in all work stopping for an affected program. The AoA is intended to foster development of alternatives, not to stifle current programs or innovation.

With this in mind, the committee recommends that DOD recognize the potential for an analysis of alternatives during the Systems Development and Demonstration (SDD) phase and that appropriate precautions be taken to avoid unnecessary costs associated with a required AoA. The committee believes that no program the size of an MDAP should proceed without thoroughly examining available alternatives and that such alternatives should remain viable throughout the acquisition life cycle should they be needed to deal with unexpected technological delays or changing requirements.

It is the intention of the committee that this section applies to both MDAPs and to the start of a National Security Space program.

SECTION 803--AUTHORITY FOR SECRETARY OF DEFENSE TO REVISE BASELINE FOR MAJOR DEFENSE ACQUISITION PROGRAMS

This section would identify the baseline established at Milestone B as the only baseline to be utilized for purposes of chapter 144 of title 10, United States Code. The committee believes the Secretary of Defense and the secretaries of the military departments have improperly avoided reporting requirements in chapter 144 by rebaselining programs.

This section would allow rebaselining only when a major defense acquisition program (MDAP) has a percentage increase in program acquisition unit cost or procurement unit cost exceeding 25 percent of the original baseline estimate. Upon breach of the 25 percent barrier, the Secretary must return the MDAP back to Milestone B and perform a rebaselining or comply with the requirements of section 2433 (e)(2)(B) of title 10, United States Code.

This section would also require the secretary of a military department to notify the congressional defense committees within 30 days of a rebaselining action.