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

Subtitle B Provisions Relating to Major Defense Acquisition Programs

P. L. 112-

House Conference Report 112-705

SEC. 811. LIMITATION ON USE OF COST-TYPE CONTRACTS.

(a) Prohibition With Respect to Production of Major Defense Acquisition Programs- Not later than 120 days after the date of the enactment of this Act, the Secretary of Defense shall modify the acquisition regulations of the Department of Defense to prohibit the Department from entering into cost-type contracts for the production of major defense acquisition programs.

(b) Exception-

(1) IN GENERAL- The prohibition under subsection (a) shall not apply in the case of a particular cost-type contract if the Under Secretary of Defense for Acquisition, Technology, and Logistics provides written certification to the congressional defense committees that a cost-type contract is needed to provide a required capability in a timely and cost-effective manner.

(2) SCOPE OF EXCEPTION- In any case for which the Under Secretary grants an exception under paragraph (1), the Under Secretary shall take affirmative steps to make sure that the use of cost-type pricing is limited to only those line items or portions of the contract where such pricing is needed to achieve the purposes of the exception. A written certification under paragraph (1) shall be accompanied by an explanation of the steps taken under this paragraph.

(c) Definitions- In this section:

(1) MAJOR DEFENSE ACQUISITION PROGRAM- The term `major defense acquisition program' has the meaning given the term in section 2430(a) of title 10, United States Code.

(2) PRODUCTION OF A MAJOR DEFENSE ACQUISITION PROGRAM- The term `production of a major defense acquisition program' means the production and deployment of a major system that is intended to achieve an operational capability that satisfies mission needs, or any activity otherwise defined as Milestone C under Department of Defense Instruction 5000.02 or related authorities.

(3) CONTRACT FOR THE PRODUCTION OF A MAJOR DEFENSE ACQUISITION PROGRAM- The term `contract for the production of a major defense acquisition program'--

(A) means a prime contract for the production of a major defense acquisition program; and

(B) does not include individual line items for segregable efforts or contracts for the incremental improvement of systems that are already in production (other than contracts for major upgrades that are themselves major defense acquisition programs).

(d) Applicability- The requirements of this section shall apply to contracts for the production of major defense acquisition programs entered into on or after October 1, 2014.

Limitation on use of cost-type contracts (sec. 811)

The Senate amendment contained a provision (sec. 801) that would prohibit the use of cost-type contracts for the production of major defense acquisition programs unless the Under Secretary of Defense for Acquisition, Technology, and Logistics determines that a cost-type contract is needed to provide a required capability in a timely and cost-effective manner.

The House bill contained no similar provision.

The House recedes with an amendment that would clarify the applicability of the provision.

The conferees believe that the Department of Defense should select the contract type for a production program that is consistent with the level of risk for the program. Consistent with sound acquisition practice, however, very few major defense acquisition programs should be in production unless program risk has already been reduced to a manageable level. Therefore, the conferees expect the Under Secretary to be judicious in applying the authority to grant exceptions under this provision.

Senate Report 112-173

Limitation on use of cost-type contracts (sec. 801)

The committee recommends a provision that would prohibit the Department of Defense (DOD) from using cost-type contracts for the production of major defense acquisition programs, unless the Under Secretary of Defense for Acquisition, Technology, and Logistics, after consultation with the Director of Cost Assessment and Program Evaluation, certifies to Congress that a cost-type contract is needed to provide a required capability in a timely and cost-effective manner.

Section 818 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364) already limits the circumstances under which DOD may enter a cost-type contract for the development of major defense acquisition programs. However, no comparable limitation currently exists for the production of such programs.

The committee takes the position that DOD should select the contract type for a production program that is consistent with the level of program risk for the program. Consistent with sound acquisition practice, however, very few major defense acquisition programs should be in production unless program risk has already been reduced to a manageable level. The committee expects the Department to ensure that the authority to waive this requirement is exercised only in exceptional circumstances.

 

 

 

 

 

 

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