Congress is putting the final touches on legislation that would limit the Pentagon’s ability to award cost-type contracts to defense companies.
The measure, in the final House-Senate defense authorization bill unveiled Tuesday, is a slightly-modified version of contracting limitations Sen. Claire McCaskill (D-Mo.) added to an earlier version of the legislation.
House and Senate negotiators agreed to the contracting limitations not long after the Pentagon recognized, in its revised Better Buying Power guidance, that varied types of business deals–including cost-type contracts lawmakers like to criticize–are appropriate at different times (Defense Daily, Nov. 15).
House and Senate conference committee members–who finished reconciling their chambers’ version of the bill on Tuesday–were faced with language in the Senate legislation that banned the use of cost-type contracts for the production of major defense-acquisition programs unless the under secretary of defense for acquisition, technology, and logistics determines that type of contract is needed to ensure the capability is provided in a timely and cost-effective way.
The House conferees–members of the often-industry-friendly House Armed Services Committee–sought changes to that Senate measure to ensure the under secretary has appropriate discretion to allow for cost-type contracting at times.
“The conferees believe that the Department of Defense should select the contract type for a production program that is consistent with the level of risk for the program,” the conference committee says in its Joint Explanatory Statement. “Consistent with sound acquisition practice, however, very few major defense acquisition programs should be in production unless program risk has already been reduced to a manageable level. Therefore, the conferees expect the under secretary to be judicious in applying the authority to grant exceptions (to the cost-plus prohibition) under this provision.”
The actual House-Senate compromise bill directs the defense secretary to modify the Pentagon’s acquisition regulations within 120 days of the bill’s enactment “to prohibit the (Defense) Department from entering into cost-type contracts for the production of major defense acquisition programs,” with exceptions.
The bill says the prohibition will not apply if the under secretary provides written certification to the congressional defense committees that a cost-type contact is required for the capability’s timely and cost-effective production. It further says that when exceptions are granted, “the under secretary shall take affirmative steps to make sure that the use of cost-type pricing is limited to only those line items or portions of the contract where such pricing is needed to achieve the purposes of the exception.”
The conference committee unveiled the final bill Tuesday, and the House is poised to pass it today. Then the Senate is expected to quickly pass it and send it to President Barack Obama for his signature before the weekend.
Frank Kendall, the under secretary of defense for acquisition, technology, and logistics, said this fall that the Pentagon’s new Better Buying Power initiative—the “2.0” version—recognizes that need for multiple types of contracts. The Pentagon’s first Better Buying Power effort overemphasized the need for fixed-price, incentive-fee contracts, he said.
“We want them to use the right type of contract for whatever it is they’re doing,” Kendall said in September. “We have eight contract types for a reason.” (Defense Daily, Sept. 20).