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

House Conference Report 109-360

SEC. 823. MODIFICATION OF AUTHORITY TO CARRY OUT CERTAIN PROTOTYPE PROJECTS.

Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (10 U.S.C. 2371 note) is amended--

(1) in subsection (a)--

(A) by striking `The Director' and inserting `(1) Subject to paragraph (2), the Director'; and

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

`(2) The authority of this section--

`(A) may be exercised for a prototype project that is expected to cost the Department of Defense in excess of $20,000,000 but not in excess of $100,000,000 only upon a written determination by the senior procurement executive for the agency (as designated for the purpose of section 16(c) of the Office of Federal Procurement Policy Act (41 U.S.C. 414(c)) that--

`(i) the requirements of subsection (d) will be met; and

`(ii) the use of the authority of this section is essential to promoting the success of the prototype project; and

`(B) may be exercised for a prototype project that is expected to cost the Department of Defense in excess of $100,000,000 only if--

`(i) the Under Secretary of Defense for Acquisition, Technology, and Logistics determines in writing that--

`(I) the requirements of subsection (d) will be met; and

`(II) the use of the authority of this section is essential to meet critical national security objectives; and

`(ii) the congressional defense committees are notified in writing at least 30 days before such authority is exercised.

`(3) The authority of a senior procurement executive under paragraph (2)(A), and the authority of the Under Secretary of Defense for Acquisition, Technology, and Logistics under paragraph (2)(B), may not be delegated.';

(2) by redesignating subsection (h) as subsection (i); and

(3) by inserting after subsection (g) the following new subsection (h):

`(h) Applicability of Procurement Ethics Requirements- An agreement entered into under the authority of this section shall be treated as a Federal agency procurement for the purposes of section 27 of the Office of Federal Procurement Policy Act (41 U.S.C. 423).'.

The Senate amendment contained a provision (sec. 844) that would prohibit the use of the authority of section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Public Law 103-160) for any prototype project that is expected to cost in excess of $100.0 million.

The House bill contained no similar provision.

The House recedes with an amendment that would allow the use of section 845 for a prototype project in excess of $20.0 million but less than $100.0 million only if the senior procurement executive for the agency determines that the use of the authority is essential to promoting the success of the prototype project, and in excess of $100.0 million only if the Under Secretary of Defense determines that the use of the authority is essential to meet critical national security objectives and notifies the congressional defense committees of the determination at least 30 days before the authority is exercised.

Senate Report 109-69

The committee recommends a provision that would prohibit the Department of Defense from entering into a transaction (other than a contract, cooperative agreement, or grant) under the authority of section 845 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136, 10 U.S.C. 2371 note) for a prototype project that is expected to cost in excess of $100.0 million. The provision would require the approval of the senior procurement executive for an agency before this authority may be used to enter into a transaction that is expected to cost in excess of $20.0 million.

Section 845 was intended to be used for limited prototype projects, particularly those in which the Department seeks to engage nontraditional defense contractors that may be averse to the requirements imposed by a standard Department procurement contract. For this reason, the statement of managers accompanying the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (Public Law 105-261) states:

The conferees continue to believe that the section 845 authority should only be used in the exceptional cases where it can be clearly demonstrated that a normal contract or grant will not allow sufficient access to affordable technologies. The conferees are especially concerned that such authority not be used to circumvent the appropriate management controls in the standard acquisition and budgeting process.

Similarly, section 803 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-348) expressly limited the use of section 845 authority to transactions with companies that typically do not do business with the Department and to transactions in which costs are shared between the Department and the contractor.

The committee does not believe that the $20.9 billion agreement entered between the Army and the Lead Systems Integrator for the Future Combat Systems program was consistent with the language and intent of these provisions. For this reason, the committee supports the Army's decision to restructure its agreement with the Lead Systems Integrator as a traditional procurement contract.

The provision recommended by the committee would ensure that section 845 authority is used as intended in the future for limited prototype projects, not to circumvent the appropriate management controls in the standard acquisition and budgeting process.