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

Subtitle B — Provisions Relating to Major Defense Acquisition Programs

NDAA Section

House Conference Report 110-477

SEC. 811. REQUIREMENTS APPLICABLE TO MULTIYEAR CONTRACTS FOR THE PROCUREMENT OF MAJOR SYSTEMS OF THE DEPARTMENT OF DEFENSE.

(a) Additional Requirements Applicable to Multiyear Contracts- Section 2306b of title 10, United States Code, is amended as follows:

(1) Subsection (a) of such section is amended by adding at the end the following new paragraph:

`(7) In the case of a contract in an amount equal to or greater than $500,000,000, that the conditions required by subparagraphs (C) through (F) of paragraph (1) of subsection (i) will be met, in accordance with the Secretary's certification and determination under such subsection, by such contract.'.

(2) Subsection (i)(1) of such section is amended by inserting after `unless' the following: `the Secretary of Defense certifies in writing by no later than March 1 of the year in which the Secretary requests legislative authority to enter into such contract that'.

(3) Subsection (i)(1) of such section is further amended--

(A) by redesignating subparagraph (B) as subparagraph (G); and

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

`(A) The Secretary has determined that each of the requirements in paragraphs (1) through (6) of subsection (a) will be met by such contract and has provided the basis for such determination to the congressional defense committees.

`(B) The Secretary's determination under subparagraph (A) was made after the completion of a cost analysis performed by the Cost Analysis Improvement Group of the Department of Defense and such analysis supports the findings.

`(C) The system being acquired pursuant to such contract has not been determined to have experienced cost growth in excess of the critical cost growth threshold pursuant to section 2433(d) of this title within 5 years prior to the date the Secretary anticipates such contract (or a contract for advance procurement entered into consistent with the authorization for such contract) will be awarded.

`(D) A sufficient number of end items of the system being acquired under such contract have been delivered at or within the most current estimates of the program acquisition unit cost or procurement unit cost for such system to determine that current estimates of such unit costs are realistic.

`(E) During the fiscal year in which such contract is to be awarded, sufficient funds will be available to perform the contract in such fiscal year, and the future-years defense program for such fiscal year will include the funding required to execute the program without cancellation.

`(F) The contract is a fixed price type contract.'.

(4) Subsection (i) of such section is further amended by adding at the end the following new paragraphs:

`(5) The Secretary may make the certification under paragraph (1) notwithstanding the fact that one or more of the conditions of such certification are not met if the Secretary determines that, due to exceptional circumstances, proceeding with a multiyear contract under this section is in the best interest of the Department of Defense and the Secretary provides the basis for such determination with the certification.

`(6) The Secretary of Defense may not delegate the authority to make the certification under paragraph (1) or the determination under paragraph (5) to an official below the level of Under Secretary of Defense for Acquisition, Technology, and Logistics.

`(7) The Secretary of Defense shall send a notification containing the findings of the agency head under subsection (a), and the basis for such findings, 30 days prior to the award of a multiyear contract for a defense acquisition program that has been specifically authorized by law.'.

(5) Such section is further amended by adding at the end the following new subsection:

`(m) Increased Funding and Reprogramming Requests- Any request for increased funding for the procurement of a major system under a multiyear contract authorized under this section shall be accompanied by an explanation of how the request for increased funding affects the determinations made by the Secretary under subsection (i).'.

(b) Applicability- The amendments made by this section shall take effect on the date of the enactment of this Act and shall apply with respect to multiyear contracts for the purchase of major systems for which legislative authority is requested on or after that date.

The Senate amendment contained a provision (sec. 801) that would define the term `substantial savings' for the purposes of authorizing multiyear contracts.

The House bill contained no similar provision.

The House recedes with an amendment that would require the Secretary of Defense to certify in writing by no later than March 1 of a year in which the Secretary requests legislative authority to enter into a multiyear contract for which such authority is required that he has made certain determinations with regard to such contract.

The conferees agree that `substantial savings' under section 2306b(a)(1) of title 10, United States Code, means savings that exceed 10 percent of the total costs of carrying out the program through annual contracts, except that multiyear contracts for major systems providing savings estimated at less than 10 percent should only be considered if the Department presents an exceptionally strong case that the proposal meets the other requirements of section 2306b(a), as amended. The conferees agree with a Government Accountability Office finding that any major system that is at the end of its production line is unlikely to meet these standards and therefore would be a poor candidate for a multiyear procurement contract.

The conferees further agree that the Cost Analysis Improvement Group must be tasked and resourced to perform the cost estimates required by this section in a timely manner to ensure compliance with this section.

Senate Armed Services Committee Report 110-77

The committee recommends a provision that would define the term `substantial savings' for the purposes of authorizing multiyear contracts and require the Secretary of Defense to report to the congressional defense committees on an annual basis on the savings actually achieved under such contracts. The provision would also require the head of the agency seeking the multiyear contract to report to the congressional defense committees, prior to legislative authorization, the specific facts demonstrating that the statutory criteria for entering such a contract have been met.

Section 2306b of title 10, United States Code, authorizes the Department of Defense to enter into multiyear contracts for the purchase of property, but only if six statutory criteria are met. One of these criteria is that the use of a multiyear contract must result in `substantial savings' compared to the anticipated costs of carrying out the program through annual contracts.

Under the provision recommended by the committee, savings that exceed 10 percent of total anticipated program costs would be considered to be substantial. Savings that exceed 5 percent of total anticipated program costs, but do not exceed 10 percent of such costs could be considered substantial, but only if the agency head makes an exceptionally strong case that the statutory criteria have been met and a multiyear contract is in the interest of the Department and the taxpayers. Savings that do not exceed 5 percent of total anticipated program costs would not qualify as a basis for entering a multiyear contract.