[Congressional Record Volume 153, Number 84 (Tuesday, May 22, 2007)]
[Senate]
[Pages S6466-S6471]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN:
  S. 32. A bill to reform the acquisition process of the Department of 
Defense, and for other purposes; to the Committee on Armed Services.
  Mr. McCAIN. Mr. President, I am introducing this omnibus defense 
acquisition reform bill today to highlight the scope and urgent need 
for comprehensive reform in how the Pentagon procures its biggest and 
most expensive weapons systems.
  Defense acquisition policy has been a major issue ever since 
President Eisenhower first warned the Nation, in 1961, about the 
military-industrial complex. As Operation Ill Wind in the 1980s and the 
Boeing tanker lease scandal just a few years ago have taught us, 
Eisenhower's comments apply with equal force today.
  Despite the lessons of the past, the acquisition process continues to 
be dysfunctional. In the 110th Congress, major acquisition policy 
issues have arisen in some of the biggest defense programs, including 
the Navy transformational program, Littoral Combat Systems, LCS and the 
Air Force's second largest acquisition program, Combat Search and 
Rescue Vehicle Replacement Program, CSAR-X.
  We can not do much to ensure that taxpayers' dollars are spent wisely 
in developing, testing and acquiring major defense systems. By 
increasing transparency and accountability and maximizing competition, 
comprehensive acquisition reform can provide the taxpayer with the best 
value; minimize waste, fraud and abuse; and, perhaps most importantly, 
help guarantee that the U.S. maintains the strongest, most capable 
fighting force in the world. That is what this legislative proposal is 
all about.
  Our colleagues in the House Armed Services Committee have already 
taken considerable steps in this area, which I applaud. It is my 
intention to offer this acquisition package to the defense 
authorization bill this week. The defense bill which we will be 
considering this week in the Committee on Armed Services totals more 
than $650 billion. That's serious money.
  As stewards of the taxpayers' dollars we must assure the public that 
we are buying the best programs for our servicemen and women at the 
best price for the taxpayer. I have already highlighted critical weapon 
systems with key acquisition problems. If we continue to buy weapon 
systems in an ineffective and inefficient manner so that costs continue 
to go up or the deployment of the system is delayed, it will only hurt 
the soldier, sailor, airman, or marine in the field.
  The reason for this is quite simple. First, it does not take an 
economics degree to understand that the higher that costs of a weapon 
system unexpectedly goes up, the fewer of them we can buy. A prime 
example is the F-22 Raptor. The original requirement was for 781 jet 
fighters, now we can only afford 183. In addition, without fundamental 
reforms, such as I have proposed in this bill, we will continue to buy 
weapon systems in an ineffective manner, which usually results in long 
delays and unexpected cost growth, as requirements, acquisition policy 
and resources never get in synch.
  One aspect of how the Pentagon buys the biggest weapons systems that 
my proposal addresses head-on is the ``requirements process''; that is, 
the process by which the Pentagon defines the weapon system it wants to 
procure. All too often, costly requirements, many of which are 
unrelated to what the unified commands say they need, are piled on to 
these programs irresponsibly, without regard to the bottom-line. Just 
as egregious is the tendency to drop requirements that the warfighter 
has said they need, which sometimes justified the system in the first 
instance.

  There is an emerging consensus that one way of addressing these, and 
related, problems is by integrating processes, that is, aligning the 
acquisition, resources, and requirements spheres of the procurement 
process in a way that provides the necessary accountability and agility 
for the Pentagon to make sound judgments on its defense investments. 
Historically, each sphere has been stove-piped and allowed to operate 
independently in a way that has produced poor cost, scheduling and 
performance outcomes, to the detriment of both the taxpayer and the 
warfighter.
  Elements of this legislative proposal that provide for ``integrated 
processes'' include 1. having the Service Chiefs help oversee 
acquisition management decisions; 2. standing-up a ``tri-chair 
committee''--so-called because it will be that headed by the primary 
players in the acquisition, resources and requirements communities--
that can help make enterprise-wide investment decisions more powerfully 
and with greater agility than any other procurement-related 
organization currently within the Pentagon 3. increasing the membership 
of the Pentagon's main requirements-setting body to include leadership 
from all three spheres; and 4. setting out guidelines that, when 
coupled with certain provisions currently under law, can help the 
Pentagon better manage unexpected cost growth.
  Other elements of this proposal address particular structural 
problems in major weapons procurement that Congress has observed over 
the last few years. One such provision restricts the services from 
entering into multiyear contracts irresponsibly when buying weapons. 
Buying weapons under a multiyear contract restricts Congress's ability 
to exercise appropriate oversight. If Congress bought these items under 
a series of annual contracts, there would be a meaningful opportunity 
for it to annually review the programs' progress. For this reason, 
using multiyear contracts should be limited to only the best performing 
and most stable programs. The approach provided for under this 
legislative proposal would help to ensure that.
  Other elements of this proposal would help reign in abuses in how the 
Government pays award fees and require defense contractors to maintain 
a robust internal ethics compliance program that can help maintain 
effective oversight of defense programs.

[[Page S6467]]

  In developing this reform package, I have pulled the ``best of the 
best,'' that is, the best, most powerful ideas which enjoy the broadest 
consensus among some of the most respected experts, whose ideas have 
been ventilated in public hearings and reps over the last 3 years, 
including the Defense Acquisition Performance Assessment Report, a.k.a. 
the DAPA or the Kadish Report; the Center for Strategic International 
Studies' CSIS, Beyond Goldwater-Nichols Report; the section 804 report 
from the Undersecretary of Defense for Acquisition, Technology and 
Logistics; a number of reports and analyses from the Government 
Accountability Office and the Congressional Research Service; and 
others. Some of the elements of this package also institutionalize good 
ideas that the Pentagon has informally put in place recently.
  Acquisition reform of a bureaucracy as large as the Pentagon does not 
happen overnight. That is why we need to act now. Our defense spending 
has doubled in the last decade, from $350 billion to $650 billion. 
Every American I talk to as I cross the country understands that we 
need to spend as much as necessary for national defense. However, how 
much is enough? Taxpayers also expect that we spend his or her hard-
earned tax dollars in a sound and cost-effective manner. We have not 
been fulfilling that expectation. We need to. This proposed legislation 
sets us on that course.
  Chairman Levin and I have discussed the need for greater oversight in 
the Senate Armed Services Committee and the common goal of producing 
concrete results on acquisition reform this year. I look forward to 
working with Chairman Levin to fully adopt this acquisition package 
this week and also working with his capable staff in taking 
comprehensive steps, similar to what our House colleagues have done, to 
assure that we buy weapon systems at the best price and field them as 
soon as practicable.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 32

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Defense Acquisition Reform 
     Act of 2007''.

     SEC. 2. JOINT REQUIREMENTS OVERSIGHT COUNCIL EVALUATION OF 
                   MAJOR DEFENSE ACQUISITION PROGRAMS EXPERIENCING 
                   CERTAIN COST INCREASES.

       (a) In General.--Chapter 144 of title 10, United States 
     Code, is amended by inserting after section 2433 the 
     following new section:

     ``Sec. 2433a. Joint Requirements Oversight Council evaluation 
       of programs experiencing certain cost increases

       ``(a) In General.--The Secretary concerned may not 
     reprogram funds for a major defense acquisition program 
     described in subsection (b), or otherwise provide or provide 
     for additional funding for such a program, until the Joint 
     Requirements Oversight Council submits to the Secretary an 
     assessment of the performance requirements for the item to be 
     procured under the contract, including the effect of such 
     requirements on cost increases under the program.
       ``(b) Covered Major Defense Acquisition Programs.--A major 
     defense acquisition program described in this subsection is 
     any major defense acquisition program as follows:
       ``(1) A major defense acquisition program that experiences 
     a percentage increase in the program acquisition unit cost 
     of--
       ``(A) at least 10 percent over the program acquisition unit 
     cost for the program as shown in the current Baseline 
     Estimate for the program; or
       ``(B) at least 25 percent over the program acquisition unit 
     cost for the program as shown in the original Baseline 
     Estimate for the program.
       ``(2) A major defense acquisition program that is a 
     procurement program that experiences a percentage increase in 
     the procurement unit cost of--
       ``(A) at least 10 percent over the procurement unit cost 
     for the program as shown in the current Baseline Estimate for 
     the program; or
       ``(B) at least 25 percent over the procurement unit cost 
     for the program as shown in the original Baseline Estimate 
     for the program.
       ``(c) Definitions.--In this section:
       ``(1) The terms `program acquisition unit cost' and 
     `procurement unit cost' have the meaning given those terms in 
     section 2432(a) of this title.
       ``(2) The terms `Baseline Estimate' and `procurement 
     program' have the meaning given those terms in section 
     2433(a) of this title.''.
       (b) Clerical Amendment.--The table of sections at the 
     beginning of such title is amended by inserting after the 
     item relating to section 2433 the following new item:

``2433a. Joint Requirements Oversight Council evaluation of programs 
              experiencing certain cost increases.''.

     SEC. 3. MEMBERSHIP OF THE JOINT REQUIREMENTS OVERSIGHT 
                   COUNCIL.

       Section 181(c) of title 10, United States Code, is 
     amended--
       (1) in paragraph (1)--
       (A) in subparagraph (D), by striking ``and'' at the end;
       (B) in subparagraph (E), by striking the period at the end 
     and inserting a semicolon; and
       (C) by adding at the end the following new subparagraphs:
       ``(F) the Under Secretary of Defense for Acquisition, 
     Technology, and Logistics; and
       ``(G) the Under Secretary of Defense (Comptroller).'';
       (2) by redesignating paragraphs (2) and (3) as paragraphs 
     (3) and (4), respectively; and
       (3) by inserting after paragraph (1) the following new 
     paragraph (2):
       ``(2) The Director of Program Analysis and Evaluation shall 
     be an advisor to the Council in the performance of its 
     mission under this section.''.

     SEC. 4. REQUIREMENT OF APPROVAL OF JOINT REQUIREMENTS 
                   OVERSIGHT COUNCIL FOR INITIAL OPERATIONAL TEST 
                   AND EVALUATION IN ENVIRONMENT NOT SPECIFIED IN 
                   TEST AND EVALUATION MASTER PLAN.

       Section 2399(b) of title 10, United States Code, is 
     amended--
       (1) by redesignating paragraphs (2) through (6) as 
     paragraphs (3) through (7), respectively;
       (2) by inserting after paragraph (1) the following new 
     paragraph (2):
       ``(2) Initial operational test and evaluation of a major 
     defense acquisition program may not be conducted in an 
     environment other than the environment specified and defined 
     in the test and evaluation master plan (TEMP) concerned 
     without the approval of the Joint Requirements Oversight 
     Council.'';
       (3) in paragraph (4), as redesignated by paragraph (1) of 
     this subsection, by striking ``paragraph (2)'' and inserting 
     ``paragraph (3)'';
       (4) in paragraph (5), as so redesignated, by striking 
     ``paragraph (2)'' and inserting ``paragraph (3)''; and
       (5) in paragraph (6), as so redesignated--
       (A) by striking ``paragraph (4)'' and inserting ``paragraph 
     (5)''; and
       (B) by striking ``paragraph (2)'' and inserting ``paragraph 
     (3)''.

     SEC. 5. APPROVAL BY PROGRAM MANAGERS OF CERTAIN COST 
                   INCREASES IN CONTRACTS FOR THE ACQUISITION OF 
                   PROPERTY.

       (a) Regulations Required.--
       (1) In general.--Not later than 90 days after the date of 
     the enactment of this Act, the Secretary of Defense shall 
     prescribe in regulations certain mechanisms that provide cost 
     control measures in contracts for the acquisition of property 
     for the Department of Defense that may be authorized or 
     approved by the program manager.
       (2) Objectives.--In prescribing the regulations, the 
     Secretary shall seek, to the maximum extent practicable, to 
     achieve cost control, the stabilization of requirements, and 
     timely delivery in accordance with contract specifications in 
     the performance of contracts for the acquisition of property 
     for the Department.
       (b) Covered Cost Increases.--The regulations required by 
     subsection (a) shall provide that the cost increases that may 
     be authorized or approved by a program manager under a 
     contract shall be limited to the following:
       (1) A cost increase necessary to secure or enhance safety 
     in the property procured under the contract where the 
     unsecure or unsafe condition or situation (as officially 
     documented by a responsible oversight organization) is 
     attributable to the Government.
       (2) A cost increase necessary for the correction of a 
     defect in the contract that is attributable to the 
     Government, including a defect in contract specifications, a 
     defect in or the unavailability of Government information 
     necessary for the performance of the contract, or a defect in 
     or the unavailability of Government equipment necessary for 
     the performance of the contract.
       (3) A cost increase associated with the unavailability of 
     Government-specified, contractor-furnished equipment or 
     components.
       (4) A cost increase that is necessary for the modification 
     of the property procured under the contract that is critical 
     for the delivery or completion of operational testing.
       (5) A cost increase resulting from a modification of 
     applicable statutes or regulations, but only if--
       (A) funds are specifically made available to implement such 
     modification; or
       (B) in the event funds are not so made available, the 
     service acquisition executive concerned approves the cost 
     increase.
       (6) Any other cost increase approved and funded by an 
     appropriate oversight organization that is the result of new 
     or revised requirements or modifications that would result in 
     an overall reduction in life cycle cost in the property 
     procured under the contract.
       (c) Availability of Change Order Funds for Cost 
     Increases.--The regulations shall provide that amounts 
     appropriated for a program and available for change orders to 
     contracts under the program shall be available

[[Page S6468]]

     for costs authorized or approved under subsection (b).
       (d) Prohibition on Other Cost Increases.--The regulations 
     shall prohibit the authorization or approval by a program 
     manager of any cost increase under a contract not authorized 
     pursuant to subsection (b).
       (e) Cost Reductions.--The regulations shall also authorize 
     a program manager to authorize or approve an administrative 
     change, whether engineering or non-engineering, to a contract 
     for the acquisition of property for the Department if the 
     change will reduce or have no effect on the cost of the 
     contract.
       (f) Prohibition on Use of Certain Cost Reductions for 
     Offset.--The regulations shall prohibit the utilization as an 
     offset for a cost increase in a contract under subsection 
     (b)(6) of any reduction in the cost of the contract resulting 
     from a cost change approved by the program manager, including 
     a reduction attributable to a change authorized under 
     subsection (e).

     SEC. 6. MILITARY DEPUTIES TO THE ASSISTANT SECRETARIES OF THE 
                   MILITARY DEPARTMENTS FOR ACQUISITION MATTERS 
                   AND THE CHIEFS OF STAFF.

       (a) Department of the Army.--
       (1) In general.--There is in the Army a Military Deputy for 
     Acquisition Matters, appointed by the President, by and with 
     the advice and consent of the Senate, from among officers in 
     the Army who have significant experience in the areas of 
     acquisition and program management.
       (2) Grade.--The Military Deputy for Acquisition Matters has 
     the grade of lieutenant general.
       (3) Duties.--The Military Deputy for Acquisition Matters 
     shall have the following duties:
       (A) To assist the Assistant Secretary of the Army with 
     responsibility for acquisition matters in the supervision of 
     acquisition matters for the Army.
       (B) To report to the Chief of Staff of the Army regarding 
     such matters.
       (b) Department of the Navy.--
       (1) In general.--There is in the Navy a Naval Deputy for 
     Acquisition Matters, appointed by the President, by and with 
     the advice and consent of the Senate, from among officers in 
     the Navy and Marine Corps who have significant experience in 
     the areas of acquisition and program management.
       (2) Grade.--The Naval Deputy for Acquisition Matters has 
     the grade of vice admiral or lieutenant general.
       (3) Duties.--The Naval Deputy for Acquisition Matters shall 
     have the following duties:
       (A) To assist the Assistant Secretary of the Navy with 
     responsibility for acquisition matters in the supervision of 
     acquisition matters for the Navy.
       (B) To report to the Chief of Naval Operations regarding 
     such matters.
       (c) Department of the Air Force.--
       (1) In general.--There is in the Air Force a Military 
     Deputy for Acquisition Matters, appointed by the President, 
     by and with the advice and consent of the Senate, from among 
     officers in the Air Force who have significant experience in 
     the areas of acquisition and program management.
       (2) Grade.--The Military Deputy for Acquisition Matters has 
     the grade of lieutenant general.
       (3) Duties.--The Military Deputy for Acquisition Matters 
     shall have the following duties:
       (A) To assist the Assistant Secretary of the Air Force with 
     responsibility for acquisition matters in the supervision of 
     acquisition matters for the Air Force.
       (B) To report to the Chief of Staff of the Air Force 
     regarding such matters.
       (d) Exclusion of Military Deputies From Distribution and 
     Strength in Grade Limitations.--
       (1) Distribution.--Section 525(b) of title 10, United 
     States Code, is amended by adding at the end the following 
     new paragraph:
       ``(9)(A) An officer while serving in a position specified 
     in subparagraph (B) is in addition to the number that would 
     otherwise be permitted for that officer's armed force for the 
     grade of lieutenant general or vice admiral, as applicable.
       ``(B) A position specified in this subparagraph is each 
     position as follows:
       ``(i) Military Deputy for Acquisition Matters of the Army.
       ``(ii) Naval Deputy for Acquisition Matters of the Navy.
       ``(iii) Military Deputy for Acquisition Matters of the Air 
     Force.''.
       (2) Authorized strength.--Section 526 of such title is 
     amended by adding at the end the following new subsection:
       ``(g) Exclusion of Military Deputies to Assistant 
     Secretaries of the Military Departments for Acquisition 
     Matters.--The limitations of this section do not apply to a 
     general or flag officer who is covered by the exclusion under 
     section 525(b)(9) of this title.''.

     SEC. 7. COMMITTEE ON STRATEGIC INVESTMENT IN MAJOR DEFENSE 
                   ACQUISITION PROGRAMS.

       (a) In General.--The Secretary of Defense shall establish 
     within the Department of Defense a committee to ensure the 
     effective allocation within major defense acquisition 
     programs of the financial resources available for such 
     programs.
       (b) Members.--
       (1) In general.--The committee established under subsection 
     (a) shall be composed of the following:
       (A) The Under Secretary of Defense for Acquisition, 
     Technology, and Logistics.
       (B) The Vice Chairman of the Joint Chiefs of Staff.
       (C) The Director of Program Analysis and Evaluation.
       (D) Any other officials of the Department of Defense 
     jointly agreed upon by the Under Secretary and the Vice 
     Chairman.
       (2) Chairs.--The officials referred to in subparagraphs (A) 
     through (C) of paragraph (1) shall serve as joint chairs of 
     the committee.
       (c) Duties.--
       (1) In general.--The committee established under subsection 
     (a) shall, at each point in the acquisition of a major 
     defense acquisition program specified in paragraph (2), 
     determine the most effective allocation among such program of 
     the financial resources available to such program at such 
     point. In making such determinations, the committee shall 
     balance requirements, technological maturities, and available 
     resources under such program utilizing solutions bounded by a 
     time-certain and available resources (commonly referred to as 
     ``bounded solutions''), portfolio management techniques, and 
     other appropriate investment evaluation techniques to 
     identify the most appropriate allocation of financial 
     resources to meet requirements.
       (2) Points within acquisition process.--The points in the 
     acquisition of a major defense acquisition program specified 
     in this paragraph are the points as follows:
       (A) At an appropriate point early in the acquisition 
     jointly specified by the Under Secretary and the Vice 
     Chairman.
       (B) At such other point in the acquisition as the Under 
     Secretary and the Vice Chairman shall jointly specify for 
     purposes of this section or otherwise jointly specify for 
     purposes of the program.
       (d) Major Defense Acquisition Program Defined.--In this 
     section, the term ``major defense acquisition program'' means 
     a major defense acquisition program for purposes of chapter 
     144 of title 10, United States Code.

     SEC. 8. COMPTROLLER GENERAL REPORT ON DEPARTMENT OF DEFENSE 
                   ORGANIZATION AND STRUCTURE FOR THE ACQUISITION 
                   OF MAJOR DEFENSE ACQUISITION PROGRAMS.

       (a) Report Required.--Not later than one year 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 potential modifications of the 
     organization and structure of the Department of Defense for 
     the acquisition of major defense acquisition programs.
       (b) Elements.--The report required by subsection (a) shall 
     include the results of a review, conducted by the Comptroller 
     General for purposes of the report, regarding the feasibility 
     and advisability of, at a minimum, the following:
       (1) Establishing system commands within each military 
     department, each of which commands would be headed by a 4-
     star general officer, to whom the program managers and 
     program executive officers for major defense acquisition 
     programs would report.
       (2) Revising the acquisition process for major defense 
     acquisition programs by establishing shorter, more frequent 
     acquisition program milestones.
       (3) Requiring certifications of program status to the 
     defense acquisition executive and Congress prior to milestone 
     approval for major defense acquisition programs.
       (4) Establishing a new office (to be known as the ``Office 
     of Independent Assessment'') to provide independent cost 
     estimates and performance estimates for major defense 
     acquisition programs.
       (5) Establishing a milestone system for major defense 
     acquisition programs utilizing the following milestones (or 
     such other milestones as the Comptroller General considers 
     appropriate for purposes of the review):
       (A) Milestone 0.--The time for the development and approval 
     of a mission need statement for a major defense acquisition 
     program.
       (B) Milestone 1.--The time for the development and approval 
     of a capability need definition for a major defense 
     acquisition program, including development and approval of a 
     certification statement on the characteristics required for 
     the system under the program and a determination of the 
     priorities among such characteristics.
       (C) Milestone 2.--The time or technology development and 
     assessment for a major defense acquisition program, including 
     development and approval of a certification statement on 
     technology maturity of elements under the program.
       (D) Milestone 3.--The time for system development and 
     demonstration for a major defense acquisition program, 
     including development and approval of a certification 
     statement on design proof of concept.
       (E) Milestone 4.--The time for final design, production 
     prototyping, and testing of a major defense acquisition 
     program, including development and approval of a 
     certification statement on cost, performance, and schedule in 
     advance of initiation of low-rate production of the system 
     under the program.
       (F) Milestone 5.--The time for limited production and field 
     testing of the system under a major defense acquisition 
     program.
       (G) Milestone 6.--The time for initiation of full-rate 
     production of the system under a major defense acquisition 
     program.
       (6) Requiring the Milestone Decision Authority for a major 
     defense acquisition program to specify, at the time of 
     Milestone B approval, or Key Decision Point B approval, as 
     applicable, the period of time that will be

[[Page S6469]]

     required to deliver an initial operational capability to the 
     relevant combatant commanders.
       (7) Establishing a materiel solutions process for 
     addressing identified gaps in critical warfighting 
     capabilities, under which process the Under Secretary of 
     Defense for Acquisition, Technology, and Logistics circulates 
     among the military departments and appropriate Defense 
     Agencies a request for proposals for technologies and systems 
     to address such gaps.
       (c) Consultation.--In conducting the review required under 
     subsection (b) for the report required by subsection (a), the 
     Comptroller General shall obtain the views of the following:
       (1) Senior acquisition officials currently serving in the 
     Department of Defense.
       (2) Individuals who formerly served as senior acquisition 
     officials in the Department of Defense.
       (3) Participants in previous reviews of the organization 
     and structure of the Department of Defense for the 
     acquisition of major weapon systems, including the 
     President's Blue Ribbon Commission on Defense Management in 
     1986.
       (4) Other experts on the acquisition of major weapon 
     systems.
       (5) Appropriate experts in the Government Accountability 
     Office.

     SEC. 9. CHANGES TO MILESTONE B CERTIFICATIONS.

       Section 2366a of title 10, United States Code, is amended--
       (1) by redesignating subsections (b), (c), (d), and (e) as 
     subsections (c), (d), (e), and (f), respectively;
       (2) by inserting after subsection (a) the following new 
     subsection (b):
       ``(b) Changes to Certification.--(1) The program manager 
     for a major defense acquisition program that has received 
     certification under subsection (a) shall immediately notify 
     the milestone decision authority of any changes to the 
     program that are--
       ``(A) inconsistent with such certification; or
       ``(B) deviate significantly from the material provided to 
     the milestone decision authority in support of such 
     certification.
       ``(2) Upon receipt of information under paragraph (1), the 
     milestone decision authority may withdraw the certification 
     concerned or rescind Milestone B approval (or Key Decision 
     Point B approval in the case of a space program) if the 
     milestone decision authority determines that such action is 
     in the best interest of the national security of the United 
     States.'';
       (3) in subsection (c), as redesignated by paragraph (1)--
       (A) by inserting ``(1)'' before ``The certification''; and
       (B) by adding at the end the following new paragraph (2):
       ``(2) Any information provided to the milestone decision 
     authority pursuant to subsection (b) shall be summarized in 
     the first Selected Acquisition Report submitted under section 
     2432 of this title after such information is received by the 
     milestone decision authority.''; and
       (4) in subsection (e), as so redesignated, by striking 
     ``subsection (c)'' and inserting ``subsection (d)''.

     SEC. 10. BUSINESS CASE ANALYSIS FOR CERTAIN MAJOR DEFENSE 
                   ACQUISITION PROGRAMS.

       (a) Analysis Before Milestone B Approval.--The milestone 
     decision authority for a major defense acquisition program 
     may not grant Milestone B approval for the program until the 
     milestone decision authority obtains from a federally funded 
     research and development center (FFRDC) a business case 
     analysis for the program meeting the requirements of 
     subsection (c).
       (b) Analysis Following Deviations From Milestone B Approval 
     Certification.--If the milestone decision authority for a 
     major defense acquisition program determines that information 
     provided to the milestone decision authority by the program 
     manager reveals changes to the program that are inconsistent 
     with the certification for Milestone B approval with respect 
     to the program under section 2366a(a) of title 10, United 
     States Code, or that significantly deviate from the material 
     provided to the milestone decision authority in support of 
     such certification, the milestone decision authority shall 
     require the conduct by a federally funded research and 
     development center of a new business case analysis for the 
     program meeting the requirements of subsection (c).
       (c) Elements of Business Case Analysis.--The business case 
     analysis for a major defense acquisition program under this 
     section shall ensure the following:
       (1) That the needs of the user for the system under the 
     program have been accurately defined.
       (2) That alternative approaches to satisfying such needs 
     have been properly analyzed, and that the quantities of the 
     system required are well understood.
       (3) That the system developed or, in the case of a new 
     developmental program, the system to be developed, is 
     producible at a cost that matches the expectations and 
     financial resources of the system user.
       (4) That the developer has the resources to design the 
     system with the features that the user wants and to deliver 
     the system when the user needs the system.
       (d) Submittal to Congress.--Each business case analysis 
     conducted under this section shall be submitted to the 
     congressional defense committees not later than seven days 
     after the date on which such business case analysis is 
     submitted to the milestone decision authority under this 
     section.
       (e) Definitions.--In this section:
       (1) The term ``major defense acquisition program'' means a 
     major defense acquisition program for purposes of chapter 144 
     of title 10, United States Code.
       (2) The term ``Milestone B approval'', with respect to a 
     major defense acquisition program, has the meaning given that 
     term in section 2366(e)(7) of title 10, United States Code.

     SEC. 11. GUIDANCE ON UTILIZATION OF AWARD FEES IN CONTRACTS 
                   UNDER DEPARTMENT OF DEFENSE ACQUISITION 
                   PROGRAMS.

       (a) Regulations Required.--Not later than 180 days after 
     the date of the enactment of this Act, the Secretary of 
     Defense shall prescribe in regulations guidance on the 
     appropriate use of award fees in contracts under Department 
     of Defense acquisition programs.
       (b) Utilization of Objective Criteria in Assessment of 
     Contractor Performance.--
       (1) In general.--The regulations required by subsection (a) 
     shall provide that, to the extent practicable, objective 
     criteria are utilized in the assessment of contractor 
     performance in Department acquisition programs.
       (2) Mixed utilization of objective and subjective 
     criteria.--The regulations shall provide that, in any case in 
     which objective criteria are available for the assessment of 
     contractor performance, the program manager and contracting 
     officer concerned may elect to assess contractor performance 
     through an appropriate mixture of objective criteria and such 
     subjective criteria as the program manager and contracting 
     officer jointly consider appropriate under a contract 
     providing both incentive fees and awards fees, including a 
     cost-plus-incentive/award fee contract or a fixed-price-
     incentive/award fee contract.
       (3) Utilization of subjective criteria.--
       (A) In general.--The regulations shall provide that, if it 
     is determined that objective criteria do not exist and it is 
     appropriate to use a cost-plus-award-fee contract, the head 
     of the contracting activity concerned shall find that the 
     work to be performed under the contract is such that it is 
     not feasible or effective to establish objective incentive 
     criteria for the contract.
       (B) Delegation.--The authority to make a determination and 
     finding under subparagraph (A) may be delegated by the head 
     of a contracting activity but only to an official in the 
     contracting activity who is one level lower in the 
     contracting chain of authority than the head of the 
     contracting activity.
       (c) Schedule for Award Fees.--
       (1) In general.--The regulations required by subsection (a) 
     shall set forth a schedule of ratings of contractor 
     performance for award fees in contracts under Department 
     acquisition programs, including--
       (A) a range of authorized ratings;
       (B) the contractor performance required for each authorized 
     rating; and
       (C) the percentage of potential award fees payable as a 
     result of the achievement of each authorized rating.
       (2) Authorized ratings and performance.--The schedule shall 
     set forth a range of authorized ratings and associated 
     contractor performance as follows:
       (A) Outstanding, for a contractor who meets--
       (i) the minimum essential requirements of the contract; and
       (ii) at least 90 percent of the criteria for the award of 
     award fees under the contract.
       (B) Excellent, for a contractor who meets--
       (i) the minimum essential requirements of the contract; and
       (ii) at least 75 percent of the criteria for the award of 
     award fees under the contract.
       (C) Good, for a contractor who meets--
       (i) the minimum essential requirements under the contract; 
     and
       (ii) at least 50 percent of the criteria for the award of 
     award fees under the contract.
       (D) Satisfactory, for a contractor who meets the minimum 
     essential requirements under the contract but does not meet 
     at least 50 percent of the criteria for the award of award 
     fees under the contract.
       (E) Unsatisfactory, for a contractor who does not meet the 
     minimum essential requirements under the contract.
       (3) Award fees payable.--The schedule shall provide that 
     the amount payable from amounts available for the payment of 
     award fees under a contract (commonly referred to as an 
     ``award fee pool'') to a contractor who achieves a particular 
     rating under the schedule shall be the percentage of such 
     amounts, as determined appropriate by the contracting 
     officer, from the percentages as follows:
       (A) In the case of outstanding, 90 percent to 100 percent.
       (B) In the case of excellent, 75 percent to 90 percent.
       (C) In the case of good, 50 percent to 75 percent.
       (D) In the case of satisfactory, not more than 50 percent.
       (E) In the case of unsatisfactory, 0 percent.
       (d) Establishment of Award Fee Requirements.--The 
     regulations required by subsection (a) shall provide that the 
     requirements to be satisfied for the award of award fees 
     under a contract shall be determined by the contracting 
     officer, in consultation with the program manager concerned 
     and the fee determining official for the contract. The 
     specification of such requirements in the contract may be 
     referred to as the ``Award Fee Plan'' for the contract.

[[Page S6470]]

       (e) Rollover of Award Fees to Later Award Periods.--
       (1) In general.--The regulations required by subsection (a) 
     shall establish a negative presumption against the rollover 
     of amounts available for the payment of award fees under a 
     contract from one award fee period under the contract to 
     another award fee period under the contract unless the 
     rollover of such amounts is specifically set forth in the 
     acquisition strategy under which the contract is entered 
     into.
       (2) Limitation on amount of rollover.--The regulations 
     shall set forth specific limits on the amount available for 
     the payment of award fees under a contract that may be rolled 
     over from one award fee period under the contract to another 
     award fee period under the contract. Such limits may be 
     expressed as specific dollar amounts or as percentages of the 
     amount available for payment of award fees under the contract 
     concerned.
       (3) Documentation of rollover.--The regulations shall 
     require that any determination by the fee determining 
     official to roll over amounts available for the payment of 
     award fees under a contract from one award fee period under 
     the contract to another award fee period under the contract 
     shall be included in writing in the contract file for the 
     contract.

     SEC. 12. SUBSTANTIAL SAVINGS UNDER MULTIYEAR CONTRACTS.

       (a) Definition in Regulations of Substantial Savings Under 
     Multiyear Contracts.--
       (1) In general.--Not later than 60 days after the date of 
     the enactment of this Act, the Secretary of Defense shall 
     modify the regulations prescribed pursuant to subsection 
     (b)(2)(A) of section 2306b of title 10, United States Code, 
     to define the term ``substantial savings'' for purposes of 
     subsection (a)(1) of such section. Such regulations shall 
     specify the following:
       (A) Savings that exceed 10 percent of the total anticipated 
     costs of carrying out a program through annual contracts 
     shall be considered to be substantial.
       (B) Savings that exceed 8 percent of the total anticipated 
     costs of carrying out a program through annual contracts, but 
     do not exceed 10 percent of such costs, shall not be 
     considered to be substantial unless the following conditions 
     are satisfied:
       (i) The program has not breached any threshold under 
     section 2433 of title 10, United States Code, during the two-
     year period ending on the date on which the military 
     department concerned first submits to Congress a multiyear 
     procurement proposal with respect to the program.
       (ii) The program is estimated to save at least $500,000,000 
     under a multiyear contract, as compared to annual contracts
       (C) Savings that do not exceed 8 percent of the total 
     anticipated costs of carrying out a program through annual 
     contracts shall not be considered to be substantial.
       (2) Determination of savings.--The regulations required 
     under this subsection shall require that the determination of 
     the amount of savings to be achieved under a multiyear 
     contract, including whether or not such savings are treatable 
     as substantial savings for purposes of subsection (a)(1) of 
     section 2306b of title 10, United States Code, shall be made 
     by the Cost Analysis Improvement Group (CAIG) of the 
     Department of Defense.
       (3) Effective date.--The modification required by paragraph 
     (1) shall apply with regard to any multiyear contract that is 
     authorized after the date that is 60 days after the date of 
     the enactment of this Act.
       (b) Reports on Savings Achieved.--
       (1) Reports required.--Not later than January 15 of 2008, 
     2009, and 2010, the Secretary shall submit to the 
     congressional defense committees a report on the savings 
     achieved through the use of multiyear contracts that were 
     entered under the authority of section 2306b of title 10, 
     United States Code, and the performance of which was 
     completed in the preceding fiscal year.
       (2) Elements.--Each report under paragraph (1) shall 
     specify, for each multiyear contract covered by such report--
       (A) the savings that the Department of Defense estimated it 
     would achieve through the use of the multiyear contract at 
     the time such contract was awarded; and
       (B) the best estimate of the Department on the savings 
     actually achieved under such contract.

     SEC. 13. INVESTMENT STRATEGY FOR MAJOR DEFENSE ACQUISITION 
                   PROGRAMS.

       (a) Report Required.--Not later than 180 days after the 
     date of the enactment of this Act, the Secretary of Defense 
     shall submit to the congressional defense committees an 
     investment strategy for the allocation of funds and other 
     resources among major defense acquisition programs.
       (b) Elements.--The strategy required by subsection (a) 
     shall do the following:
       (1) Establish priorities among needed capabilities under 
     major defense acquisition programs, and to assess the 
     resources (including funds, technologies, time, and 
     personnel) needed to achieve such capabilities.
       (2) Balance cost, schedule, and requirements for major 
     defense acquisition programs to ensure the most efficient use 
     of Department of Defense resources.
       (3) Ensure that the budget, requirements, and acquisition 
     processes of the Department of Defense work in a 
     complementary manner to achieve desired results.
       (c) Recommendations.--In submitting the strategy required 
     by subsection (a), the Secretary shall include any 
     recommendations, including recommendations for legislative 
     action, that the Secretary considers appropriate to implement 
     the strategy.
       (d) Utilization for Budget Purposes.--The Secretary shall 
     utilize the strategy required by subsection (a) in developing 
     requests for funding and other resources to be allocated to 
     major defense acquisition programs under the budget of the 
     President to be submitted to Congress each fiscal year under 
     section 1105(a) of title 31, United States Code.
       (e) Current Programs Beyond Milestone B Approval.--Pending 
     completion of the strategy required by subsection (a), the 
     Secretary shall, to the extent practicable, establish 
     priorities in the allocation of funds and other resources for 
     major defense acquisition programs that have Milestone B 
     approval in order to ensure the acquisition of items under 
     such programs in the most cost-effective and efficient 
     manner.
       (f) Definitions.--In this section:
       (1) The term ``major defense acquisition program'' has the 
     meaning given that term in section 2430 of title 10, United 
     States Code.
       (2) The term ``Milestone B approval'' has the meaning given 
     that term in section 2366(e)(7) of title 10, United States 
     Code.

     SEC. 14. ETHICS COMPLIANCE BY DEPARTMENT OF DEFENSE 
                   CONTRACTORS.

       (a) In General.--Not later than 180 days after the date of 
     the enactment of this Act, the Secretary of Defense shall 
     prescribe in regulations a requirement that a contracting 
     officer of the Department of Defense may not determine a 
     contractor to be responsible for purposes of the award of a 
     new covered contract for the Department, or an agency or 
     component of the Department, unless the entity to be awarded 
     the contract has in place, by the deadline specified in 
     subsection (c), an internal ethics compliance program, 
     including a code of ethics and internal controls, to 
     facilitate the timely detection and disclosure of improper 
     conduct in connection with the award or performance of the 
     covered contract and to ensure that appropriate corrective 
     action is taken with respect to such conduct.
       (b) Elements of Ethics Compliance Program.--Each ethics 
     compliance program required of a contractor under subsection 
     (a) shall include the following:
       (1) Requirements for periodic reviews of the program for 
     which the covered contract concerned is awarded to ensure 
     compliance of contractor personnel with applicable Government 
     contracting requirements, including laws, regulations, and 
     contractual requirements.
       (2) Internal reporting mechanisms, such as a hot-line, for 
     contractor personnel to report suspected improper conduct 
     among contractor personnel.
       (3) Audits of the program for which the covered contract 
     concerned is awarded.
       (4) Mechanisms for disciplinary actions against contractor 
     personnel found to have engaged in improper conduct, 
     including the exclusion of such personnel from the exercise 
     of substantial authority.
       (5) Mechanisms for the reporting to appropriate Government 
     officials, including the contracting officer and the Office 
     of the Inspector General of the Department of Defense, of 
     suspected improper conduct among contractor personnel, 
     including suspected conduct involving corruption of a 
     Government official or individual acting on behalf of the 
     Government, not later than 30 days after the date of 
     discovery of such suspected conduct.
       (6) Mechanisms to ensure full cooperation with Government 
     officials responsible for investigating suspected improper 
     conduct among contractor personnel and for taking corrective 
     actions.
       (7) Mechanisms to ensure the recurring provision of 
     training to contractor personnel on the requirements and 
     mechanisms of the program.
       (8) Mechanisms to ensure the oversight of the program by 
     contractor personnel with substantial authority within the 
     contractor.
       (c) Deadline for Program.--The deadline specified in this 
     subsection for a contractor having in place an ethics 
     compliance program required under subsection (a) for purposes 
     of a covered contract is 30 days after the date of the award 
     of the contract.
       (d) Determination of Existence of Program.--In determining 
     whether or not contractor has in place an ethics compliance 
     program required under subsection (a), a contracting officer 
     of the Department may utilize the assistance of the Office of 
     the Inspector General of the Department of Defense.
       (e) Suspension or Debarment.--The regulations prescribed 
     under subsection (a) shall provide that any contractor under 
     a covered contract whose personnel are determined not to have 
     reported suspected improper conduct in accordance with the 
     requirements and mechanisms of the ethics compliance program 
     concerned may, at the election of the Secretary of Defense, 
     be suspended from the contract or debarred from further 
     contracting with the Department of Defense.
       (f) Covered Contract Defined.--In this section, the term 
     ``covered contract'' means any contract to be awarded to a 
     contractor of the Department of Defense if, in the year 
     before the contract is to be awarded, the total amount of 
     contracts of the contractor with the Federal Government 
     exceeded $5,000,000.

[[Page S6471]]

     SEC. 15. REPORT ON IMPLEMENTATION OF RECOMMENDATIONS ON TOTAL 
                   OWNERSHIP COSTS AND READINESS RATES FOR MAJOR 
                   WEAPON SYSTEMS.

       (a) Report Required.--Not later than 180 days after the 
     date of the enactment of this Act, the Secretary of Defense 
     shall submit to the congressional defense committees a report 
     on the extent of the implementation of the recommendations 
     set forth in the February 2003 report of the Government 
     Accountability Office entitled ``Setting Requirements 
     Differently Could Reduce Weapon Systems' Total Ownership 
     Costs''.
       (b) Elements.--The report required by subsection (a) shall 
     include the following:
       (1) For each recommendation described in subsection (a) 
     that has been implemented, or that the Secretary plans to 
     implement--
       (A) a summary of all actions that have been taken to 
     implement such recommendation; and
       (B) a schedule, with specific milestones, for completing 
     the implementation of such recommendation.
       (2) For each recommendation that the Secretary has not 
     implemented and does not plan to implement--
       (A) the reasons for the decision not to implement such 
     recommendation; and
       (B) a summary of any alternative actions the Secretary 
     plans to take to address the purposes underlying such 
     recommendation.
       (3) A summary of any additional actions the Secretary has 
     taken or plans to take to ensure that total ownership cost is 
     appropriately considered in the requirements process for 
     major weapon systems.
                                 ______