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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. 812. ESTIMATES OF POTENTIAL TERMINATION LIABILITY OF CONTRACTS FOR THE DEVELOPMENT OR PRODUCTION OF MAJOR DEFENSE ACQUISITION PROGRAMS.

(a) Department of Defense Review- Not later than 180 days after the date of the enactment of this Act, the Under Secretary of Defense for Acquisition, Technology, and Logistics shall review relevant acquisition guidance and take appropriate actions to ensure that program managers for major defense acquisition programs are preparing estimates of potential termination liability for covered contracts, including how such termination liability is likely to increase or decrease over the period of performance, and are giving appropriate consideration to such estimates before making recommendations on decisions to enter into or terminate such contracts.

(b) Comptroller General of the United States Report-

(1) IN GENERAL- Not later than 270 days after the date of the enactment of this Act, the Comptroller General of the United States shall submit to the congressional defense committees a report on the extent to which the Department of Defense is considering potential termination liability as a factor in entering into and in terminating covered contracts.

(2) MATTERS TO BE ADDRESSED- The report required by paragraph (1) shall include, at a minimum, an assessment of the following:

(A) The extent to which the Department of Defense developed estimates of potential termination liability for covered contracts entered into before the date of the enactment of this Act and how such termination liability was likely to increase or decrease over the period of performance before making decisions to enter into or terminate such contracts.

(B) The extent to which the Department considered estimates of potential termination liability for such contracts and how such termination liability was likely to increase or decrease over the period of performance as a risk factor in deciding whether to enter into or terminate such contracts.

(c) Covered Contracts- For purposes of this section, a covered contract is a contract for the development or production of a major defense acquisition program for which potential termination liability could reasonably be expected to exceed $100,000,000.

(d) Major Defense Acquisition Program Defined- In this section, the term `major defense acquisition program' has the meaning given that term in section 2430(a) of title 10, United States Code.

 
Estimates of potential termination liability of contracts for the development or production of major defense acquisition programs (sec. 812)

The Senate amendment contained a provision (sec. 804) that would require the Secretary of Defense to submit a report to the congressional defense committees on any case in which the potential termination liability under a contract for the development or production of major defense acquisition programs exceeds $100 million.

The House bill contained no similar provision.

The House recedes with an amendment that would: (1) direct the Government Accountability Office to report to the congressional defense committees on the extent to which the Department of Defense (DOD) is considering potential termination liability as a factor in entering and in terminating contracts for major defense acquisition programs; and (2) require the Under Secretary of Defense for Acquisition, Technology, and Logistics to review relevant acquisition guidance and take such steps as are necessary to ensure that potential termination liability is so considered.

The conferees expect DOD to ensure that information regarding potential termination liability on contracts for the development or production of major defense acquisition programs, including estimates of potential termination liability and how such termination liability is likely to increase or decrease over the period of performance, is available to the congressional defense committees upon request.

Senate Report 112-173

Assessments of potential termination liability of contracts for the development or production of major defense acquisition programs (sec. 804)

The committee recommends a provision that would require the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD-AT&L) to provide the congressional defense committees with an assessment of potential termination liability for each contract entered by the Department of Defense (DOD) for the development or production of a major defense acquisition program for which the USD-AT&L is the milestone decision authority.

In recent years, DOD decisions to terminate contracts for the development or production of major defense acquisition programs--such as the VH-71 Presidential helicopter replacement program, the Future Combat Systems (FCS) program, and the Medium Extended Air Defense System program--have raised questions about the relative costs and benefits of program termination and program completion. The Government Accountability Office (GAO) reviewed this issue in 2008 and concluded that it cost more to complete programs than to terminate them and that contract termination costs were generally not a major factor in DOD decisions to terminate weapons programs.

GAO concluded that program terminations could be a valuable tool to `create trade space' in limited budgets and respond to to long-term fiscal imbalances and unexpected events. To make the most effective use of this tool, GAO stated, decision-makers `need to be able to anticipate and plan for possible terminations and have a sound understanding of costs, benefits, and legal requirements.' For this reason, GAO recommended that DOD review, and as needed amend, guidance on terminations across all the military departments and defense agencies to ensure that the guidance identifies the conditions under which it would be appropriate to end programs or contracts, and provides knowledge needed to use terminations as an investment portfolio tool.

The committee directs the Comptroller General to update the 2008 GAO report with an assessment of: (1) the extent to which DOD has implemented the recommendations of the 2008 report; (2) the actual costs and savings resulting from the termination of programs reviewed in the 2008 report and the extent to which technologies and facilities from these programs were effectively leveraged or transferred to other programs; and (3) the estimated costs and benefits of the termination of the VH-71 and FCS programs.

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