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

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SEC. 808. (10 U.S.C. 2501 note] COST REIMBURSEMENT RULES FOR IN

DIRECT COSTS ATTRIBUTABLE TO PRIVATE SECTOR

WORK OF DEFENSE CONTRACTORS. (a) DEFENSE CAPABILITY PRESERVATION AGREEMENT.-The Secretary of Defense may enter into an agreement, to be known as a “defense capability preservation agreement”, with a defense contractor under which the cost reimbursement rules described in subsection (b) shall be applied. Such an agreement may be entered into in any case in which the Secretary determines that the application of such cost reimbursement rules would facilitate the achievement of the policy objectives set forth in section 2501(b) of title 10, United States Code.

(b) COST REIMBURSEMENT RULES.-(1) The cost reimbursement rules applicable under an agreement entered into under subsection (a) are as follows:

(A) The Department of Defense shall, in determining the reimbursement due a contractor for its indirect costs of performing a defense contract, allow the contractor to allocate indirect costs to its private sector work only to the extent of the contractor's allocable indirect private sector costs, subject to subparagraph (C).

(B) For purposes of subparagraph (A), the allocable indirect private sector costs of a contractor are those costs of the contractor that are equal to the sum of

(i) the incremental indirect costs attributable to such work; and

(ii) the amount by which the revenue attributable to such private sector work exceeds the sum of

(I) the direct costs attributable to such private sector work; and

(II) the incremental indirect costs attributable to

such private sector work.

(C) The total amount of allocable indirect private sector costs for a contract in any year of the agreement may not exceed the amount of indirect costs that a contractor would have allocated to its private sector work during that year in accordance with the contractor's established accounting practices.

(2) The cost reimbursement rules set forth in paragraph (1) may be modified by the Secretary of Defense if the Secretary of Defense determines that modifications are appropriate to the particular situation to facilitate achievement of the policy set forth in section 2501(b) of title 10, United States Code.

(c) IMPLEMENTATION.—Not later than 90 days after the date of the enactment of this Act (Feb. 10, 1996), the Secretary of Defense shall establish application procedures and procedures for expeditious consideration of defense capability preservation agreements as authorized by this section.

(d) CONTRACTS COVERED.-An agreement entered into with a contractor under subsection (a) shall apply to each Department of Defense contract with the contractor in effect on the date on which the agreement is entered into and each Department of Defense contract that is awarded to the contractor during the term of the agreement.

(e) REPORTS.—Not later than one year after the date of the enactment of this Act (Feb. 10, 1996), the Secretary of Defense shall submit to the congressional defense committees a report setting forth

(1) the number of applications received and the number of applications approved for defense capability preservation agreements; and

(2) any changes to the authority in this section that the Secretary recommends to further facilitate the policy set forth in section 2501(b) of title 10, United States Code.

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SEC. 822. (10 U.S.C. 2302 note] DEFENSE FACILITY-WIDE PILOT PRO

GRAM. (a) AUTHORITY TO CONDUCT DEFENSE FACILITY-WIDE PILOT PROGRAM.-The Secretary of Defense may conduct a pilot program, to be known as the “defense facility-wide pilot program”, for the purpose of determining the potential for increasing the efficiency and effectiveness of the acquisition process in facilities by using commercial practices on a facility-wide basis.

(b) DESIGNATION OF PARTICIPATING FACILITIES.-1) Subject to paragraph (2), the Secretary may designate up to two facilities as participants in the defense facility-wide pilot program.

(2) The Secretary may designate for participation in the pilot program only those facilities that are authorized to be so designated in a law authorizing appropriations for national defense programs that is enacted after the date of the enactment of this Act [Feb. 10, 1996).

(c) SCOPE OF PROGRAM. At a facility designated as a participant in the pilot program, the pilot program shall consist of the following:

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(1) All contracts and subcontracts for defense supplies and services that are performed at the facility.

(2) All Department of Defense contracts and all subcontracts under Department of Defense contracts performed elsewhere that the Secretary determines are directly and substantially related to the production of defense supplies and services at the facility and are necessary for the pilot program.

(d) CRITERIA FOR DESIGNATION OF PARTICIPATING FACILITIES. The Secretary shall establish criteria for selecting a facility for designation as a participant in the pilot program. In developing such criteria, the Secretary shall consider the following:

(1) The number of existing and anticipated contracts and subcontracts performed at the facility

(A) for which contractors are required to provide certified cost or pricing data pursuant to section 2306а of title 10, United States Code; and

(B) which are administered with the application of cost accounting standards under section 26(f) of the Office of Federal Procurement Policy Act (41 U.S.C. 422(f)).

(2) The relationship of the facility to other organizations and facilities performing under contracts with the Department of Defense and subcontracts under such contracts.

(3) The impact that the participation of the facility under the pilot program would have on competing domestic manufacturers.

(4) Such other factors the Secretary considers appropriate.

(e) NOTIFICATION.—(1) The Secretary shall transmit to the Committee on Armed Services of the Senate and the Committee on National Security of the House of Representatives a written notification of each facility proposed to be designated by the Secretary for participation in the pilot program.

(2) The Secretary shall include in the notification regarding a facility designated for participation in the program a management plan addressing the following:

(A) The proposed treatment of research and development contracts or subcontracts to be performed at the facility during the pilot program.

(B) The proposed treatment of the cost impact of the use of commercial practices on the award and administration of contracts and subcontracts performed at the facility.

(C) The proposed method for reimbursing the contractor for existing and new contracts.

(D) The proposed method for measuring the performance of the facility for meeting the management goals of the Secretary.

(E) Estimates of the annual amount and the total amount of the contracts and subcontracts covered under the pilot program.

(3)(A) The Secretary shall ensure that the management plan for a facility provides for attainment of the following objectives:

(i) A significant reduction of the cost to the Government for programs carried out at the facility.

(ii) A reduction of the schedule associated with programs carried out at the facility.

(iii) An increased use of commercial practices and procedures for programs carried out at the facility.

(iv) Protection of a domestic manufacturer competing for contracts at such facility from being placed at a significant competitive disadvantage by the participation of the facility in the pilot program.

(B) The management plan for a facility shall also require that all or substantially all of the contracts to be awarded and performed at the facility after the designation of that facility under subsection (b), and all or substantially all of the subcontracts to be awarded under those contracts and performed at the facility after the designation, be

(i) for the production of supplies or services on a firm-fixed price basis;

(ii) awarded without requiring the contractors or subcontractors to provide certified cost or pricing data pursuant to section 2306а of title 10, United States Code; and

(iii) awarded and administered without the application of cost accounting standards under section 26(f) of the Office of Federal Procurement Policy Act (41 U.S.C. 422(f)).

(f) EXEMPTION FROM CERTAIN REQUIREMENTS. In the case of a contract or subcontract that is to be performed at a facility designated for participation in the defense facility-wide pilot program and that is subject to section 2306а of title 10, United States Code, or section 26(f) of the Office of Federal Procurement Policy Act (41 U.S.C. 422(f)), the Secretary of Defense may exempt such contract or subcontract from the requirement to obtain certified cost or pricing data under such section 2306a or the requirement to apply mandatory cost accounting standards under such section 26(f) if the Secretary determines that the contract or subcontract

(1) is within the scope of the pilot program (as described in subsection (c)); and

(2) is fairly and reasonably priced based on information other than certified cost and pricing data.

(g) SPECIAL AUTHORITY.—The authority provided under subsection (a) includes authority for the Secretary of Defense

(1) to apply any amendment or repeal of a provision of law made in this Act to the pilot program before the effective date of such amendment or repeal, and

(2) to apply to a procurement of items other than commercial items under such program

(A) the authority provided in section 34 of the Office of Federal Procurement Policy Act (41 U.S.C. 430) to waive a provision of law in the case of commercial items, and

(B) any exception applicable under this Act or the Federal Acquisition Streamlining Act of 1994 (Public Law 103–355) (or an amendment made by a provision of either

Act) in the case of commercial items, before the effective date of such provision (or amendment) to the extent that the Secretary determines necessary to test the application of such waiver or exception to procurements of items other than commercial items.

(h) APPLICABILITY.—(1) Subsections (f) and (g) apply to the following contracts, if such contracts are within the scope of the pilot program at a facility designated for the pilot program under subsection (b):

(A) A contract that is awarded or modified during the period described in paragraph (2).

(B) A contract that is awarded before the beginning of such period, that is to be performed (or may be performed), in whole or in part, during such period, and that may be modified as appropriate at no cost to the Government.

(2) The period referred to in paragraph (1), with respect to a facility designated under subsection (b), is the period that

(A) begins 45 days after the date of the enactment of the Act authorizing the designation of that facility in accordance with paragraph (2) of such subsection; and

(B) ends on September 30, 2000. (i) COMMERCIAL PRACTICES ENCOURAGED.—With respect to contracts and subcontracts within the scope of the defense facility-wide pilot program, the Secretary of Defense may, to the extent the Secretary determines appropriate and in accordance with applicable law, adopt commercial practices in the administration of contracts and subcontracts. Such commercial practices may include the following:

(1) Substitution of commercial oversight and inspection procedures for Government audit and access to records.

(2) Incorporation of commercial oversight, inspection, and acceptance procedures.

(3) Use of alternative dispute resolution techniques (including arbitration).

(4) Elimination of contract provisions authorizing the Government to make unilateral changes to contracts.

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SEC. 4308. [10 U.S.C. 1701 note] DEMONSTRATION PROJECT RELATING

TO CERTAIN PERSONNEL MANAGEMENT POLICIES AND

PROCEDURES. (a) COMMENCEMENT.—The Secretary of Defense is encouraged to take such steps as may be necessary to provide for the commencement of a demonstration project, the purpose of which would be to determine the feasibility or desirability of one or more proposals for improving the personnel management policies or procedures that apply with respect to the acquisition workforce of the Department of Defense and supporting personnel assigned to work directly with the acquisition workforce..

(b) TERMS AND CONDITIONS.—

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