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

Subtitle F Improve Acquisition Act

P. L. 111-

Joint Explanatory Statement of the Committees on Armed Services of the U. S. Senate and House of Representatives on H. R. 6523

From H. R. 6523

SEC. 893. CONTRACTOR BUSINESS SYSTEMS.

    (a) Improvement Program- Not later than 270 days after the date of the enactment of this Act, the Secretary of Defense shall develop and initiate a program for the improvement of contractor business systems to ensure that such systems provide timely, reliable information for the management of Department of Defense programs by the contractor and by the Department.

    (b) Approval or Disapproval of Business Systems- The program developed pursuant to subsection (a) shall--

      (1) include system requirements for each type of contractor business system covered by the program;

      (2) establish a process for reviewing contractor business systems and identifying significant deficiencies in such systems;

      (3) identify officials of the Department of Defense who are responsible for the approval or disapproval of contractor business systems;

      (4) provide for the approval of any contractor business system that does not have a significant deficiency; and

      (5) provide for--

        (A) the disapproval of any contractor business system that has a significant deficiency; and

        (B) reduced reliance on, and enhanced scrutiny of, data provided by a contractor business system that has been disapproved.

    (c) Remedial Actions- The program developed pursuant to subsection (a) shall provide the following:

      (1) In the event a contractor business system is disapproved pursuant to subsection (b)(5), appropriate officials of the Department of Defense will be available to work with the contractor to develop a corrective action plan defining specific actions to be taken to address the significant deficiencies identified in the system and a schedule for the implementation of such actions.

      (2) An appropriate official of the Department of Defense may withhold up to 10 percent of progress payments, performance-based payments, and interim payments under covered contracts from a covered contractor, as needed to protect the interests of the Department and ensure compliance, if one or more of the contractor business systems of the contractor has been disapproved pursuant to subsection (b)(5) and has not subsequently received approval.

      (3) The amount of funds to be withheld under paragraph (2) shall be reduced if a contractor adopts an effective corrective action plan pursuant to paragraph (1) and is effectively implementing such plan.

    (d) Guidance and Training- The program developed pursuant to subsection (a) shall provide guidance and training to appropriate government officials on the data that is produced by contractor business systems and the manner in which such data should be used to effectively manage Department of Defense programs.

    (e) Rule of Construction- Nothing in this section shall be construed to prohibit an official of the Department of Defense from reviewing, approving, or disapproving a contractor business system pursuant to any applicable law or regulation in force as of the date of the enactment of this Act during the period between the date of the enactment of this Act and the date on which the Secretary implements the requirements of this section with respect to such system.

    (f) Definitions- In this section:

      (1) The term `contractor business system' means an accounting system, estimating system, purchasing system, earned value management system, material management and accounting system, or property management system of a contractor.

      (2) The term `covered contractor' means a contractor that is subject to the cost accounting standards under section 26 of the Office of Federal Procurement Policy Act (41 U.S.C. 422).

      (3) The term `covered contract' means a cost-reimbursement contract, incentive-type contract, time-and-materials contract, or labor-hour contract that could be affected if the data produced by a contractor business system has a significant deficiency.

      (4) The term `significant deficiency', in the case of a contractor business system, means a shortcoming in the system that materially affects the ability of officials of the Department of Defense and the contractor to rely upon information produced by the system that is needed for management purposes.

    (g) Defense Contract Audit Agency Legal Resources and Expertise-

      (1) REQUIREMENT- The Secretary of Defense shall ensure that--

        (A) the Defense Contract Audit Agency has sufficient legal resources and expertise to conduct its work in compliance with applicable Department of Defense policies and procedures; and

        (B) such resources and expertise are provided in a manner that is consistent with the audit independence of the Defense Contract Audit Agency.

      (2) REPORT- Not later than 180 days after the date of the enactment of this Act, the Secretary shall submit to the Committees on Armed Services of the Senate and the House of Representatives a report on the steps taken to comply with the requirements of this subsection.


From H.R. 5136:  National Defense Authorization Act for Fiscal Year 2011

SEC. 404. INDEPENDENCE OF CONTRACT AUDITS AND BUSINESS SYSTEM REVIEWS.

    (a) Defense Contract Audit Agency General Counsel-

      (1) IN GENERAL- Subchapter II of chapter 8 of title 10, United States Code, is amended by adding at the end the following new section:

`Sec. 204. Defense Contract Audit Agency general counsel

    `(a) General Counsel- The Director of the Defense Contract Audit Agency shall appoint a General Counsel of the Defense Contract Audit Agency.

    `(b) Duties- (1) The General Counsel shall perform such functions as the Director may prescribe and shall serve at the discretion of the Director.

    `(2) Notwithstanding section 140(b) of this title, the General Counsel shall be the chief legal officer of the Defense Contract Audit Agency.

    `(3) The Defense Contract Audit Agency shall be the exclusive legal client of the General Counsel.

    `(c) Office of the General Counsel- There is established an Office of the General Counsel within the Defense Contract Audit Agency. The Director may appoint to the Office to serve as staff of the General Counsel such legal counsel as the Director determines is appropriate.'.

      (2) CLERICAL AMENDMENT- The table of sections at the beginning of subchapter II of chapter 8 of such title is amended by adding at the end the following new item:

      `204. Defense Contract Audit Agency general counsel.'.

    (b) Criteria for Business System Reviews-

      (1) IN GENERAL- Chapter 131 of title 10, United States Code, is amended by inserting after section 2222 the following new section:

`Sec. 2222a. Criteria for business system reviews

    `(a) Criteria for Business System Reviews- The Secretary of Defense shall ensure that any contractor business system review carried out by a military department, a Defense Agency, or a Department of Defense Field Activity--

      `(1) complies with generally accepted government auditing standards issued by the Comptroller General;

      `(2) is performed by an audit team that does not engage in any other official activity (audit-related or otherwise) involving the contractor concerned;

      `(3) is performed in a time and manner consistent with a documented assessment of risk to the Federal Government; and

      `(4) involves testing on a representative sample of transactions sufficient to fully examine the integrity of the contractor business system concerned.

    `(b) Contractor Business System Review Defined- In this section, the term `contractor business system review' means an audit of policies, procedures, and internal controls relating to accounting and management systems of a contractor.'.

      (2) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 131 of such title is amended by inserting after the item relating to section 2222 the following new item:

      `2222a. Criteria for business system reviews.'.

    (c) Contract Audit Guidance- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall issue guidance relating to contract audits carried out by a military department, a defense agency, or a Department of Defense field activity that are not contractor business system reviews, as described under section 2222a of title 10, United States Code, that--

      (1) requires that such audits comply with generally accepted government auditing standards issued by the Comptroller General and are performed in a time and manner consistent with a documented assessment of risk to the Federal Government;

      (2) establishes guidelines for discussions of the scope of the audit with the contractor concerned that ensure that such scope is not improperly influenced by the contractor;

      (3) provides for withholding of contract payments when necessary to compel the submission of documentation from the contractor; and

      (4) requires that the results of contract audits performed on behalf of an agency of the Department of Defense be shared with other Federal agencies upon request, without reimbursement.

    (d) Effective Dates-

      (1) SECTION 204- Section 204 of title 10, United States Code, as added by subsection (a), shall take effect on the date of the enactment of this Act.

      (2) SECTION 2222A- Section 2222a of title 10, United States Code, as added by subsection (b), shall take effect 180 days after the date of the enactment of this Act.


From H. R. 5013:  Implementing Management for Performance and Related Reforms to Obtain Value in Every Acquisition Act of 2010

SEC. 404. INDEPENDENCE OF CONTRACT AUDITS AND BUSINESS SYSTEM REVIEWS.

    (a) Defense Contract Audit Agency General Counsel-

      (1) IN GENERAL- Subchapter II of chapter 8 of title 10, United States Code, is amended by adding at the end the following new section:

`Sec. 204. Defense Contract Audit Agency general counsel

    `(a) General Counsel- The Director of the Defense Contract Audit Agency shall appoint a General Counsel of the Defense Contract Audit Agency.

    `(b) Duties- (1) The General Counsel shall perform such functions as the Director may prescribe and shall serve at the discretion of the Director.

    `(2) Notwithstanding section 140(b) of this title, the General Counsel shall be the chief legal officer of the Defense Contract Audit Agency.

    `(3) The Defense Contract Audit Agency shall be the exclusive legal client of the General Counsel.

    `(c) Office of the General Counsel- There is established an Office of the General Counsel within the Defense Contract Audit Agency. The Director may appoint to the Office to serve as staff of the General Counsel such legal counsel as the Director determines is appropriate.'.

      (2) CLERICAL AMENDMENT- The table of sections at the beginning of subchapter II of chapter 8 of such title is amended by adding at the end the following new item:

      `204. Defense Contract Audit Agency general counsel.'.

    (b) Criteria for Business System Reviews-

      (1) IN GENERAL- Chapter 131 of title 10, United States Code, is amended by inserting after section 2222 the following new section:

`Sec. 2222a. Criteria for business system reviews

    `(a) Criteria for Business System Reviews- The Secretary of Defense shall ensure that any contractor business system review carried out by a military department, a Defense Agency, or a Department of Defense Field Activity--

      `(1) complies with generally accepted government auditing standards issued by the Comptroller General;

      `(2) is performed by an audit team that does not engage in any other official activity (audit-related or otherwise) involving the contractor concerned;

      `(3) is performed in a time and manner consistent with a documented assessment of risk to the Federal Government; and

      `(4) involves testing on a representative sample of transactions sufficient to fully examine the integrity of the contractor business system concerned.

    `(b) Contractor Business System Review Defined- In this section, the term `contractor business system review' means an audit of policies, procedures, and internal controls relating to accounting and management systems of a contractor.'.

      (2) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 131 of such title is amended by inserting after the item relating to section 2222 the following new item:

      `2222a. Criteria for business system reviews.'.

    (c) Contract Audit Guidance- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall issue guidance relating to contract audits carried out by a military department, a defense agency, or a Department of Defense field activity that are not contractor business system reviews, as described under section 2222a of title 10, United States Code, that--

      (1) requires that such audits comply with generally accepted government auditing standards issued by the Comptroller General and are performed in a time and manner consistent with a documented assessment of risk to the Federal Government;

      (2) establishes guidelines for discussions of the scope of the audit with the contractor concerned that ensure that such scope is not improperly influenced by the contractor;

      (3) provides for withholding of contract payments when necessary to compel the submission of documentation from the contractor; and

      (4) requires that the results of contract audits performed on behalf of an agency of the Department of Defense be shared with other Federal agencies upon request, without reimbursement.

    (d) Effective Dates-

      (1) SECTION 204- Section 204 of title 10, United States Code, as added by subsection (a), shall take effect on the date of the enactment of this Act.

      (2) SECTION 2222A- Section 2222a of title 10, United States Code, as added by subsection (b), shall take effect 180 days after the date of the enactment of this Act.


From S. 3454, National Defense Authorization Act for Fiscal Year 2011

SEC. 841. CONTRACTOR BUSINESS SYSTEMS.

    (a) Improvement Program- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall develop a program for the improvement of contractor business systems to ensure that such systems provide timely, reliable information for the management of Department of Defense programs by the contractor and by the Department.

    (b) Approval or Disapproval of Business Systems- The program developed pursuant to subsection (a) shall--

      (1) include system requirements for each type of contractor business system covered by the program;

      (2) establish a process for reviewing contractor business systems and identifying significant deficiencies in such systems;

      (3) identify officials of the Department of Defense who are responsible for the approval or disapproval of contractor business systems;

      (4) provide that a contractor business system that meets the system requirements established under this subsection without significant deficiencies may be relied upon as an approved contractor business system for purposes of program management; and

      (5) provide for--

        (A) the disapproval of contractor business systems that have significant deficiencies; and

        (B) reduced reliance on, and enhanced scrutiny of, data provided by contractor business systems that have been disapproved.

    (c) Remedial Actions- The program developed pursuant to subsection (a) shall provide the following:

      (1) In the event a contractor business system is disapproved pursuant to subsection (b)(5), appropriate officials of the Department of Defense will be available to work with the contractor to develop a corrective action plan defining specific actions to be taken to address the significant deficiencies identified in the system and a schedule for the implementation of such actions.

      (2) The Department may withhold up to ten percent of progress payments, performance-based payments, and interim payments under covered contracts from a covered contractor, as needed to protect the interests of the Department and to incentivize compliance, if one or more of the contractor business systems of the contractor has been disapproved pursuant to subsection (b)(5).

      (3) The amount of funds to be withheld under paragraph (2) shall be reduced if a contractor adopts and an effective corrective action plan pursuant to paragraph (1) and is effectively implementing such plan.

    (d) Guidance and Training- The program developed pursuant to subsection (a) shall provide guidance and training to appropriate government officials on the data that is produced by contractor business systems and the manner in which such data should be used to effectively manage Department of Defense programs.

    (e) Definitions- In this section:

      (1) The term `contractor business system' means an accounting system, estimating system, purchasing system, earned value management system, material management and accounting system, or property management system of a contractor.

      (2) The term `covered contractor' means a contractor that is subject to the cost accounting standards under section 26 of the Office of Federal Procurement Policy Act (41 U.S.C. 422).

      (3) The term `covered contract' means a cost-reimbursement contract, incentive-type contract, time-and-materials contract, and labor-hour contract.

      (4) The term `significant deficiency', in the case of a contractor business system, means a shortcoming in the system that undermines the ability of officials of the Department of Defense and the contractor to rely upon information produced by the system that is needed for management purposes.

Contractor business systems (sec. 893)

The House bill contained a provision (sec. 404 of division D) that would address contract audits and business system reviews conducted by the Department of Defense. The House provision would also establish an independent Office of General Counsel within the Defense Contract Audit Agency (DCAA).

The Senate committee-reported bill contained a provision (sec. 841) that would require the Secretary of Defense to develop a program for the improvement of contractor business systems.

The agreement includes the Senate provision, with an amendment requiring the Secretary of Defense to ensure that appropriate legal resources are provided to DCAA in a manner that is consistent with DCAA‟s need to maintain audit independence. When DCAA faces a critical legal issue relating to the independence of its audit function, we believe it would be appropriate for DCAA to seek advice from the General Counsel to the Inspector General of the Department of Defense (DOD IG), and for the General Counsel to the DOD IG to provide such advice. The Government Accountability Office recommended that DCAA take a risk-based approach to contract audits and reform its processes to focus on performing quality audits that meet generally accepted government accounting standards. We concur with these recommendations, note that the Department also concurred, and expect that the Department will continue with its implementation of these reforms.


From H. Rpt. 111-465, accompanying  H. R. 5013: Implementing Management for Performance and Related Reforms to Obtain Value in Every Acquisition Act of 2010

SECTION 404--INDEPENDENCE OF CONTRACT AUDITS AND BUSINESS SYSTEM REVIEWS

This section would add a new section 204 to title 10, United States Code, to provide for an independent General Counsel within the Defense Contract Audit Agency (DCAA) to serve as DCAA's chief legal officer effective on the date of enactment of this Act. This section would also add new section 2222a to title 10, United States Code, to require the Department of Defense, effective 180 days after the date of enactment of this Act, to carry out reviews of contractor business systems: in accordance with generally accepted government auditing standards; using an independent audit team; using risk-based audit planning; and by performing testing on a representative sample sufficient to fully validate the integrity of the systems concerned. This section would further require the Secretary of Defense to issue guidance within 180 days of the date of enactment of this Act relating to contract audits that are not business system reviews. Such guidance should require contract audits to comply with generally accepted government auditing standards; establish guidelines for discussions of audit scope with the contractor; provide for withholding of contract payments when necessary to compel the submission of documentation; and require that the results of contract audits be shared with other federal agencies upon request without reimbursement.


From S. Rpt. 111-201, to accompany S. 3454, NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2011

Contractor business systems (sec. 841)

The committee recommends a provision that would require the Secretary of Defense to develop a program for the improvement of contractor business systems to ensure that such systems provide timely, reliable information for the management of Department of Defense programs by the contractor and by the Department.

Section 887 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Public Law 110-417), as amended by section 302 of the Weapon Systems Acquisition Reform Act of 2009 (Public Law 111-23), directed the Department of Defense to report to Congress on the implementation of earned value management (EVM) systems. The Secretary's report, which was transmitted to Congress on November 2, 2009, concluded that:

`The effectiveness of the Department's use of EVM is limited by the underlying quality of the data and by the inability to gain access to contractor data, due to antiquated systems. . . . DOD's access to data is an issue because many contractors have not updated their business systems in decades. These older systems rely on manual interfaces that are prone to errors. In addition, industry has not fulfilled its role or self-surveillance. [The Defense Contract Management Agency (DCMA) has] found, in many reviews, that contractors are not compliant with the guidelines in ANSI/EIA-748 [the industry-wide standard] and have not adequately identified those deficiencies themselves.'

The report indicates that of the last 13 comprehensive reviews conducted by DCMA, only two contractors were found to be compliant with the industry-wide standard. According to the report, the data quality problems in contractor business systems `hinder the government's ability to meet program objectives by delaying or masking insight into developing problems.'

Reports by DCMA, the Defense Contract Audit Agency, and the Commission on Wartime Contracting indicate that the problems identified by the Secretary are not unique to EVM systems, but extend to many other types of contractor business systems--such as estimating systems, purchasing systems, and material management systems--on which the Department of Defense also places heavy reliance.

 

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