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Conference Report 107-772 - National Defense Authorization Act for Fiscal Year 2003

Conference Report Section

Legislative History

(a) PERFORMANCE GOALS- Subsection (a) of section 802 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107; 115 Stat. 1178; 10 U.S.C. 2330 note) is amended to read as follows:

`(a) GOALS- (1) It shall be an objective of the Department of Defense to achieve efficiencies in procurements of services pursuant to multiple award contracts through the use of--

`(A) performance-based services contracting;

`(B) appropriate competition for task orders under services contracts;

`(C) program review, spending analyses, and improved management of services contracts.

`(2) In furtherance of such objective, the Department of Defense shall have the following goals:

`(A) To increase, as a percentage of all of the individual purchases of services made by or for the Department of Defense under multiple award contracts for a fiscal year (calculated on the basis of dollar value), the volume of the individual purchases of services that are made on a competitive basis and involve receipt of more than one offer from qualified contractors to a percentage as follows:

`(i) For fiscal year 2003, a percentage not less than 40 percent.

`(ii) For fiscal year 2004, a percentage not less than 50 percent.

`(iii) For fiscal year 2011, a percentage not less than 75 percent.

`(B) To increase, as a percentage of all of the individual purchases of services made by or for the Department of Defense under multiple award contracts for a fiscal year (calculated on the basis of dollar value), the use of performance-based purchasing specifying firm fixed prices for the specific tasks to be performed to a percentage as follows:

`(i) For fiscal year 2003, a percentage not less than 25 percent.

`(ii) For fiscal year 2004, a percentage not less than 35 percent.

`(iii) For fiscal year 2005, a percentage not less than 50 percent.

`(iv) For fiscal year 2011, a percentage not less than 70 percent.

`(3) The Secretary of Defense may adjust any percentage goal established in paragraph (2) if the Secretary determines in writing that such a goal is too high and cannot reasonably be achieved. In the event that the Secretary chooses to adjust such a goal, the Secretary shall--

`(A) establish a percentage goal that the Secretary determines would create an appropriate incentive for Department of Defense components to use competitive procedures or performance-based services contracting, as the case may be; and

`(B) submit to the congressional defense committees a report containing an explanation of the reasons for the Secretary's determination and a statement of the new goal that the Secretary has established.'.

(b) EXTENSION AND REVISION OF REPORTING REQUIREMENT- Subsection (b) of such section is amended--

(1) by striking `March 1, 2006' and inserting `March 1, 2011'; and

(2) by amending paragraph (5) to read as follows:

`(5) Regarding the individual purchases of services that were made by or for the Department of Defense under multiple award contracts in the fiscal year preceding the fiscal year in which the report is required to be submitted, information (determined using the data collection system established under section 2330a of title 10, United States Code) as follows:

`(A) The percentage (calculated on the basis of dollar value) of such purchases that are purchases that were made on a competitive basis and involved receipt of more than one offer from qualified contractors.

`(B) The percentage (calculated on the basis of dollar value) of such purchases that are performance-based purchases specifying firm fixed prices for the specific tasks to be performed.'.

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

`(c) DEFINITIONS- (1) In this section, the terms `individual purchase' and `multiple award contract' have the meanings given such terms in section 803(c) of this Act.

`(2) For the purposes of this section, an individual purchase of services is made on a competitive basis only if it is made pursuant to procedures described in paragraphs (2), (3), and (4) of section 803(b) of this Act.'.

(d) CONFORMING AMENDMENT- The heading for such section is amended by striking `SAVINGS GOALS' and inserting `PERFORMANCE GOALS'.

Conference Report 107-772

The Senate amendment contained a provision (sec. 811) that would establish annual goals for the Department of Defense (DOD) to increase the percentage of services purchases under multiple award contracts that are: (1) entered on the basis of competition with more than one offer received; and (2) performance-based with fixed prices for specific tasks to be performed.  (See Senate Amendment and Senate Report 107-151 below)

The House bill contained no similar provision. 

The House recedes with an amendment that would repeal goals established in the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107 107) for savings to be achieved through improved management of the Department's $50.0 billion of services contracts. The conference amendment would also: (1) modify the goals for the competitive purchase of services under multiple award contracts to 40 percent for fiscal year 2003, 50 percent for fiscal year 2004, and 75 percent for fiscal year 2011; and (2) modify the goals for performance-based purchases of services under such contracts to 25 percent in fiscal year 2003, 35 percent in 2004, 50 percent in 2005, and 70 percent in 2011. The Secretary of Defense would be authorized to adjust any of these percentage goals upon a determination that such goal is too high and cannot reasonably be achieved. The conferees understand that the Department has been unable to develop a method for measuring savings achieved through the improved management of services contracts. The goals for competitive and performance-based services contracting established by the conference amendment would establish measurable benchmarks for the increased use of improved management approaches for services contracts. In the 1990's, the Office of Federal Procurement Policy (OFPP) conducted a government-wide, performance-based service contracting (PBSC) pilot program including 26 contracts from 15 agencies with a combined award value of approximately $585.0 million. OFPP found that, ``On average contract price decreased by 15% in nominal dollars after the introduction of PBSC. This does not consider that, absent the conversion to PBSC, additional inflation-related price increases of 16% could have been expected.'' The report cautions that all elements of performance-based contracting must be followed in order to achieve optimal success. According to the report, the minimum essential components of performance-based contracting include: performance requirements; measurable performance standards; government quality assurance plans based on measurements of the work against the performance standards; and incentives based on the quality assurance measurements. The conferees are aware of the significant effort that will be required to implement performance-based contracting on an extensive basis. The conferees also note that significant savings can be found where a non-technical cost type contract is converted to a fixed price performance-based contract. In addition, the Acting Inspector General of the Department of Defense testified in the mid 1990's that the first decade of implementation of the Competition in Contracting Act of 1984 (Public Law 98 396) had resulted in significant cost avoidance. On August 3, 1995, the Acting Inspector General testified that: ``While we have seen savings of 5 to over 90 percent from competition, typically competition results in price reductions of 15 to 30 percent.'' The conferees believe that the Department should be able to achieve significant savings by meeting the performance goals established in this provision.

Senate Amendment

SEC. 811. PERFORMANCE GOALS FOR CONTRACTING FOR SERVICES.

(a) INDIVIDUAL PURCHASES OF SERVICES- Subsection (a) of section 802 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107; 10 U.S.C. 2330 note) is amended by adding at the end the following new paragraphs:

`(3) To support the attainment of the goals established in paragraph (2), the Department of Defense shall have the following goals:

`(A) To increase, as a percentage of all of the individual purchases of services made by or for the Department of Defense under multiple award contracts for a fiscal year (calculated on the basis of dollar value), the volume of the individual purchases of services that are made on a competitive basis and involve the receipt of two or more offers from qualified contractors to a percentage as follows:

`(i) For fiscal year 2003, a percentage not less than 50 percent.

`(ii) For fiscal year 2004, a percentage not less than 60 percent.

`(iii) For fiscal year 2011, a percentage not less than 80 percent.

`(B) To increase, as a percentage of all of the individual purchases of services made by or for the Department of Defense under multiple award contracts for a fiscal year (calculated on the basis of dollar value), the use of performance-based purchasing specifying firm fixed prices for the specific tasks to be performed to a percentage as follows:

`(i) For fiscal year 2003, a percentage not less than 30 percent.

`(ii) For fiscal year 2004, a percentage not less than 40 percent.

`(iii) For fiscal year 2005, a percentage not less than 50 percent.

`(iv) For fiscal year 2011, a percentage not less than 80 percent.'.

(b) EXTENSION AND REVISION OF REPORTING REQUIREMENT- Subsection (b) of such section is amended--

(1) by striking `March 1, 2006', and inserting `March 1, 2011'; and

(2) by adding at the end the following new paragraphs:

`(6) Regarding the individual purchases of services that were made by or for the Department of Defense under multiple award contracts in the fiscal year preceding the fiscal year in which the report is required to be submitted, information (determined using the data collection system established under section 2330a of title 10, United States Code) as follows:

`(A) The percentage (calculated on the basis of dollar value) of such purchases that are purchases that were made on a competitive basis and involved receipt of two or more offers from qualified contractors.

`(B) The percentage (calculated on the basis of dollar value) of such purchases that are performance-based purchases specifying firm fixed prices for the specific tasks to be performed.'.

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

`(c) DEFINITIONS- In this section:

`(1) The term `individual purchase' means a task order, delivery order, or other purchase.

`(2) The term `multiple award contract' means--

`(A) a contract that is entered into by the Administrator of General Services under the multiple award schedule program referred to in section 2302(2)(C) of title 10, United States Code;

`(B) a multiple award task order contract that is entered into under the authority of sections 2304a through 2304d of title 10, United States Code, or sections 303H through 303K of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 253h through 253k); and

`(C) any other indefinite delivery, indefinite quantity contract that is entered into by the head of a Federal agency with two or more sources pursuant to the same solicitation.'.

Senate Report 107-151

Performance goals for contracting for services (sec. 811)

The committee recommends a provision that would establish annual goals for the Department of Defense to increase the percentage of services contracts that are: (1) entered on the basis of competition; and (2) performance-based.

Section 802 of the National Defense Authorization Act for Fiscal Year 2002 established annual goals for Department of Defense savings to be achieved through improved management of the Department's $50.0 billion of services contracts. The statutory provisions establishing the management tools needed to achieve these savings were provided in Sections 801 and 803 of that Act and included the increased use of performance-based services contracting and increased competition for task orders under contracts for services.

The committee is concerned that some elements of the Department may have cut programs rather than utilizing contract management tools to achieve savings goals. Therefore, the provision recommended by the committee would establish specific targets for the use of these contract management tools, with the overall goal of ensuring that 80 percent of the Department's services contracts are both competitive and performance-based by 2011. This goal is comparable to what the Department achieved in implementing the Competition in Contracting Act of 1984 (enacted as Title VII of Division B of Public Law 98-369) in the 1980's and in adopting performance specifications for purchases of products in the 1990's.