NDAA for Fiscal Year 2012

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TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED MATTERS Subtitle A--Acquisition Policy and Management
P. L. 112-	House Conference Report 112-705
SEC. 804. DEPARTMENT OF DEFENSE POLICY ON CONTRACTOR PROFITS. (a) Review of Guidelines on Profits- The Secretary of Defense shall review the profit guidelines in the Department of Defense Supplement to the Federal Acquisition Regulation in order to identify any modifications to such guidelines that are necessary to ensure an appropriate link between contractor profit and contractor performance. In conducting the review, the Secretary shall obtain the views of experts and interested parties in Government and the private sector. (b) Matters To Be Considered- In conducting the review required by subsection (a), the Secretary shall consider, at a minimum, the following: (1) Appropriate levels of profit needed to sustain competition in the defense industry, taking into account contractor investment and cash flow. (2) Appropriate adjustments to address contract and performance risk assumed by the contractor, taking into account the extent to which such risk is passed on to subcontractors. (3) Appropriate incentives for superior performance in delivering quality products and services in a timely and cost-effective manner, taking into account such factors as prime contractor cost reduction, control of overhead costs, subcontractor cost reduction, subcontractor management, and effective competition (including the use of small business) at the subcontract level. (c) Modification of Guidelines- Not later than 180 days after the date of the enactment of this Act, the Secretary shall modify the profit guidelines described in subsection (a) to make such changes as the Secretary determines to be appropriate based on the review conducted pursuant to that subsection.	Department of Defense policy on contractor profits (sec. 804) The Senate amendment contained a provision (sec. 824) that would require the Secretary of Defense to review the profit guidelines in the Department of Defense Supplement to the Federal Acquisition Regulation. The House bill contained no similar provision. The House recedes with an amendment requiring the Secretary to obtain the views of experts and interested parties before completing the review and clarifying that Congress does not intend the review to reach any pre-ordained conclusion. The conferees direct the Secretary to provide periodic updates to the congressional defense committees on the conduct, progress, and results of the required review.
	House Report 112-173
	Department of Defense policy on contractor profits (sec. 824) The committee recommends a provision that would require the Secretary of Defense to review the profit guidelines for Department of Defense (DOD) contracts to ensure an appropriate link between contractor profit and contractor performance. The committee understands that contractor profit levels play an important role in attracting and sustaining investment in the defense industry. In a time of constrained budgets, however, DOD cannot afford to pay excessive profits to contractors who perform poorly. Rather, the Department must use all available tools--including profit policy--to incentivize the timely and cost-effective delivery of quality products and services by DOD contractors. Section 814 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364) required the Secretary to ensure that award and incentive fees are linked to acquisition outcomes (defined in terms of program cost, schedule, and performance) in DOD acquisition programs. The committee concludes that a similar link is needed between contractor profits and contractor performance.

SEC. 804. DEPARTMENT OF DEFENSE POLICY ON CONTRACTOR PROFITS.