Acquisition Reform in the House and Senate Versions of the FY2017 National Defense Authorization Act

Contents

• Introduction
• Comparison of House and Senate Bills
• House Version
• Senate Version

Introduction

This report focuses on the sections of the House and Senate versions of the Fiscal Year 2017 National Defense Authorization Act (H.R. 4909 and S. 2943, respectively) that appear closely linked to the respective armed services committees' stated efforts to reform the acquisition system.¹ For purposes of this analysis, CRS selected 31 sections of the House bill and 67 sections of the Senate bill. Each section is identified as fitting into one or more of the following six overarching categories:

• 1. Gathering information for future action,
• 2. Streamlining the current process (focusing on schedule and minimizing bureaucratic effort),
• 3. Improving the effectiveness of the current process (focusing on cost, performance, and public policy),
• 4. Improving the performance of the workforce (through recruitment/retention, professional development, or empowering decisionmaking),
• 5. Improving the use of data in decisionmaking, or
• 6. Reorganizing the acquisition management structure within the Department of Defense.

Comparison of House and Senate Bills

Conceptually, both bills prioritize general reform in the Department of Defense (DOD), and call specific attention to acquisition reform. The House committee report states

The committee believes that reform of the Department of Defense is necessary to increase the effectiveness and efficiency of the defense enterprise to get more defense for the dollar. But more importantly, reform is necessary to improve the military's agility and the speed at which it can adapt and respond to an increasingly complex security environment and unprecedented technological challenges.²

The House report goes on to outline five major reform initiatives contained in the bill, the first of which is acquisition reform.³

The Senate bill also addresses reform, stating

The National Defense Authorization Act for Fiscal Year 2017 continues the committee's commitment to defense reforms that enable our military to rise to the challenges of a more dangerous world both today and in the future. The NDAA…

Continues a comprehensive reform of the defense acquisition system designed to drive innovation and ensure accountability for delivering military capabilities to our warfighters on time, on budget, and as promised.⁴

Substantively, the acquisition reform sections of H.R. 4909 and S. 2943 have many similarities and in a number of instances seek to address the same issues. (See Appendix A and Appendix B for lists of corresponding sections in the two bills.)

Both bills have a subtitle dedicated exclusively to commercial items (Senate bill Title VIII, Subtitle E; House bill Title VIII, Subtitle C). Both take aim at what is perceived as improper use of Lowest Price Technically Acceptable (LPTA) source selection criteria, with each bill setting forth similar criteria for when LPTA can be used (House §§847, 804, 841; Senate §§825, 829D). And both require reports on bid protests (House §831; Senate §822) and amend protests on task orders (House §1862; Senate §819). The Senate bill goes further, seeking to require large contractors who lose a GAO protest to cover the cost of processing the protest, and withhold payments above costs to an incumbent who receives a bridge or temporary contract when the bridge or extension occurred because the incumbent filed a protest (§821).⁵

Both bills also have a number of sections aimed at updating and rationalizing acquisition laws. These sections seek to clarify statutory language (i.e., House §806; Senate §§802, 813, 814) conform statutes (i.e. Senate §§801, 833), re-categorize sections of law to create a more structured taxonomy (i.e., House §842; Senate §803), or otherwise update statutes and regulations (i.e., House §839; Senate §§812, 833). Taken as a whole, these sections are not intended to change acquisitions, but seek to help create a more consistent, clear, streamlined, and updated statutory governance structure.

Despite these similarities, the bills have striking differences: in length (the Senate version is longer), the philosophical approach taken to reform acquisitions, and the content of the bills. The acquisition reform effort in the House version is generally intended to be part of a continuation of a comprehensive, long-term, and collaborative effort that builds upon the FY2016 NDAA.⁶ The House bill requests more information than does its Senate counterpart, in part as a way to inform reform efforts that are expected to occur in the next few years. In contrast, the Senate bill takes a more sweeping, immediate, and in some instances, controversial, approach to acquisition reform.

House Version

Of the sections in the House bill related to acquisition reform, approximately

• 20% seek to gather information by requiring reports or mandating reviews;
• 40% seek to streamline the acquisition process;
• 35% seek to improve the effectiveness of the acquisition process; and
• 15% seek to improve the use of data to inform acquisition decision.⁷

As the data above indicate, many of the sections in the House bill seek to streamline the acquisition system, in some cases waiving or amending recurring reporting requirements (§§803, 811, 813, 836, 921), establishing specific deadlines for activities (§802) or providing various authorities and flexibilities that may enable faster procurement cycles (§§807, 1702).

The House bill has five provisions that focus on the acquisition of commercial items, which taken together seek to expand the definition of commercial items, promote a more effective use of data to promote commercial item acquisition decisions, and establish a pilot program for acquiring innovative commercial items (§§821-825).

Among the committee's chief concerns is the time it takes to develop and field Major Defense Acquisition Programs (MDAPs)⁸ and related technologies. To address these concerns, a separate section of the bill—Title XVII (entitled Department of Defense Acquisition Agility)—promotes designing weapon system platforms as open-system architectures to allow components and technologies to evolve faster and be incorporated into platforms more easily.⁹ Specifically, this title would require MDAPs to be designed and developed using a modular open system approach (§1701) and require that only sufficiently mature technologies that will not delay scheduled deployment be incorporated into a program (§1702). The title would also provide additional authorities for developing and incubating technologies for insertion into MDAPs (§1702); require creation of a scorecard against which to measure key acquisition metrics (such as cost and schedule) at each milestone; and make a number of amendments to technical data rights (§1705).

H.R. 4909 would provide the Secretary of Defense flexibility in funding the Defense Acquisition Workforce Development Fund for FY2017 and transfer funds from the fund to the Treasury (§§839 and 1002, respectively). This section does not eliminate the fund; as the committee report notes, the section "addresses an overfunding of the fund that has resulted from carryovers from prior years."¹⁰ (To see how each section is categorized, see Appendix A, Table A-1.)

Senate Version

Of the sections in the Senate version of S. 2943 that relate to acquisition reform, approximately

• 40% seek to streamline the acquisition process;
• 50% seek to improve the effectiveness of the acquisition process;
• 10% seek to improve the performance of the acquisition workforce; and
• 10% seek to improve the use of data to inform decisionmaking.¹¹

One of the more controversial sections of the Senate bill is Section 901, which aims to alter the structure of DOD by eliminating the position of Under Secretary of Defense for Acquisition, Technology, and Logistics (AT&L), as enshrined in 10 U.S.C. 133, and instead creating the position of Under Secretary of Defense for Research and Engineering (to serve as the chief acquisition officer and chief technology officer). Section 901 would also amend 10 U.S.C. 132a by changing the name of the Under Secretary of Defense for Business Management and Information to the Under Secretary of Defense for Management and Support. Under this section, the responsibilities of the current AT&L would generally be divided between the Under Secretary for R&E, the Under Secretary for Management and Support, and the military services. Related to Section 901 is Section 894, which would move certain testing offices out of AT&L and place them under the authority of the Director of Operational Test and Evaluation (who reports directly to the Secretary of Defense). According to the committee report:

In the 1960s and the 1970s, the Director of Defense for Research and Engineering which later became the Undersecretary of Defense for Research and Engineering.... led technological innovation in the Department of Defense. The position was held by leaders such as Harold Brown and William Perry, each of whom later became the Secretary of Defense. The USD(R&E) was the catalyst behind the Department's Second Offset program, which led to the development of stealth, precision guided munitions, and other revolutionary capabilities that advanced our nation's military technological dominance to this day.

During a series of hearings on defense reform, the committee heard from a wide range of experts that the U.S. military was falling behind technologically and that the current acquisition structure and process were significant factors in the inability to access new sources of innovation. The committee believes that reestablishing the position of USD(R&E) is particularly important in a time when U.S. technological dominance is eroding....

Section 901 would also establish an Assistant Secretary of Defense for Acquisition Policy and Oversight; eliminate the statutory requirement for four Assistant Secretary positions (Acquisition; Logistics and Materiel Readiness; Research and Engineering; and Energy, Installations, and Environment); and eliminate the statutory requirement for three Deputy Assistant Secretary of Defense positions (Developmental Test and Evaluation; Systems Engineering; and Manufacturing and Industrial Base). While Section 901 would eliminate the statutory requirement for certain positions, it does not abolish the positions, thus granting the Secretary of Defense discretion in organizing these positions and responsibilities as deemed appropriate. The Administration strongly objects to Section 901. According to the Statement on Administration Policy,

Unlike the USD/AT&L, the new Under Secretary for Research and Engineering would not have responsibility for developmental testing, which provides critical feedback regarding the early identification of design problems that is crucial for successful acquisition programs. The new Under Secretary would not have responsibility for contractor oversight and life-cycle sustainment costs, which would undermine DOD's ability to control contractor costs and oversee performance through the life of a program. And the new Under Secretary would not have the authority to direct the military departments and DOD components, undermining the ability of the Secretary of Defense to provide guidance and direction to the military services on major acquisition programs. Finally, the assignment of logistics oversight functions to both a new Deputy Assistant Secretary of Defense for Logistics and Sustainment under the new Assistant Secretary for Acquisition Policy and Oversight and a new Under Secretary of Defense for Business Management would fracture and misalign logistics authorities, management, and execution and ignore the key logistics authorities and policies related to deploying, sustaining, and retrograding forces in contingency operations. Taken together, these changes would roll back the acquisition reforms of the last two decades and risk returning the Department to an era in which overly optimistic cost estimates, inadequate system engineering and developmental testing, inappropriate reliance on immature technologies, ineffective contractor management, and lack of focus on life-cycle costs by the military departments led to explosive cost growth and the failure of multiple major defense acquisition programs. It is particularly inappropriate for the Congress to do this now, when the data clearly shows that recent performance of the Department's acquisition system has improved markedly in recent years.¹²

The Senate bill has a number of sections that seek to push DOD into using more fixed price contracts. Section 826 would generally penalize military departments and defense agencies for using cost-type contracts (the section would sunset in 2021); Section 827 would require the Defense Federal Acquisition Regulation Supplement (DFARS) to be updated to reflect a preference for fixed-price contracts and would require approvals for certain cost-type contracts; and Section 828 would require the use of fixed-price contracts for foreign military sales.¹³ According to the committee report,

The committee is frustrated by the continuous dependence of the Department of Defense on the use of cost type contracts. While there are some circumstances where cost-type contracts may be appropriate, the Department has over the years expanded the use of these types of contacts as a forcing mechanism to achieve absolute certainty in visibility over contractor costs.... The effect of the overuse of cost-type contracts is the narrowing of the industrial base as commercial firms make a choice not to invest in the unique accounting and financial systems necessary to execute a cost contract. While the committee has not mandated a complete ban on cost contracting this provision is designed to set up incentives that limit its use to appropriate exceptional cases.

The Administration objects to Sections 826 and 827, stating

Section 826 would unnecessarily constrain flexibility to tailor contract types for a given requirement. It also creates a complex financial transaction process that, to be auditable, will require extremely burdensome procedures. The Administration also objects to section 827, which would require higher level approval for the use of other than fixed-price contracts. This requirement is unnecessary and would result in the Department experiencing increased costs in situations where a cost-type contract would have been more appropriate. Acquisition officials and contracting officers should have the full range of contract types available to structure business arrangements that achieve a reasonable balance of risk between the Government and the contractor, while providing the contractor with the greatest incentive for efficient and economical performance. There is extensive history that demonstrates conclusively that fixed-price development is not in the Government or industry's interest in many circumstances.¹⁴

The Senate bill also seeks to repeal the ban on A-76 public-private competitions (§806),¹⁵ and has sections that may have a significant effect on workforce policies, including Section 509, which could be used to retain uniform program managers and other senior uniform acquisition personnel beyond the regular mandatory retirement date. (To see how each section is categorized, see Appendix B, Table B-1.)

Appendix A. Sections in the House Version Relating to Acquisition Reform

Table A-1 categorizes select sections of the House-passed H.R. 4909 into six overarching categories:

• 1. Gathering information for future action,
• 2. Streamlining the current process (focusing on schedule and minimizing bureaucratic effort),
• 3. Improving the effectiveness of the current process (focusing on cost, performance, and public policy),
• 4. Improving the performance of the workforce (through recruitment/retention, professional development, or empowering decisionmaking),
• 5. Improving the use of data in decisionmaking, or
• 6. Reorganizing the acquisition management structure within the Department of Defense.

Appendix B. Sections in the Senate Bill Relating to Acquisition Reform

Table B-1 categorizes select sections of the Senate-passed into six overarching categories or goals:

• 1. Gathering information for future action,
• 2. Streamlining the current process (focusing on schedule and minimizing bureaucratic effort),
• 3. Improving the effectiveness of the current process (focusing on cost, performance, and public policy),
• 4. Improving the performance of the workforce (through recruitment/retention, professional development, or empowering decisionmaking),
• 5. Improving the use of data in decisionmaking, or
• 6. Reorganizing the acquisition management structure within the Department of Defense.

Author Contact Information

Footnotes

1.	Because the House Armed Services Committee's focus on small business predates the current reform effort, and because small business provisions also affect a specific segment of the industrial base, not the overall acquisition system, such sections were generally excluded from this analysis. Sections making pilot programs permanent were also generally excluded from this analysis as were sections clarifying or conforming prior legislation.
2.	See U.S. Congress, House Committee on Armed Services, Report of the Committee on Armed Services House of Representatives on H.R. 4909 , 114th Cong., 2nd sess., May 4, 2016, H.Rept. 114-537, p. 3.
3.	Ibid., The initiatives, as listed, are "(1) acquisition reform, (2) healthcare reform, (3) commissary reform, (4) military justice reform, and (5) Goldwater-Nichols reform."
4.	See U.S. Congress, Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Year 2017, report to accompany S. 2943, 114th Cong., 2nd sess., May 18, 2016, S.Rept. 114-225 (Washington: GPO, 2016), p. 2.
5.	Both the House and Senate passed versions of the FY2016 NDAA had sections that would have required a report on bid protests but no such provision survived conference.
6.	U.S. Congress, House Committee on Armed Services, Report of the Committee on Armed Services House of Representatives on H.R. 1735, 114th Cong., 2nd sess., May 5, 2015, H.Rept. 114-102, p. 3. This is consistent with numerous prior statements of Chairman Mac Thornberry.
7.	Percentages do not equal 100% because some sections of the bill fall into more than one category.
8.	An MDAP is defined in 10 USC 2430 as an acquisition program (that is not a highly sensitive classified program), that is either designated by the Secretary of Defense as such, estimated to exceed $300 million in research, development, test, and evaluation costs (in 1990 dollars), or estimated to exceed $1.8 billion in procurement costs (including increments)(in 1990 dollars).
9.	Report of the Committee on Armed Services House of Representatives on H.R. 4909, page 336.
10.	Report of the Committee on Armed Services House of Representatives on H.R. 490, page 198.
11.	Percentages do not equal 100% because some sections of the bill fall into more than one category.
12.	Executive Office of the President, Office of Management and Budget, Statement of Administration Policy, S. 2943 - National Defense Authorization Act for Fiscal Year 2017, July 7, 2016, p. 4.
13.	Other sections in the Senate bill also seek to promote the use of fixed-price contracting, including sections 816, 832, 833, 867, and 868.
14.	See Statement of Administration Policy, p. 13.
15.	For a discussion on A-76, see CRS Report R40854, Circular A-76 and the Moratorium on DOD Competitions: Background and Issues for Congress, by [author name scrubbed].