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and Low Intensity Conflict, with the advice and assistance of the commander of the special operations command, shall provide overall supervision of the preparation and justification of program recommendations and budget proposals to be included in such major force program category. (d) PROGRAM AND BUDGET EXECUTION.—To the extent that there is authority to revise programs and budgets approved by Congress for special operations forces, such authority may be exercised only by the Secretary of Defense, after consulting with the commander of the special operations command. (e) GRADE FOR COMMANDERS OF CERTAIN AREA SPECIAL OPERATIONS

COMMANDS.—The commander of the special operations command of the United States European Command, the United States Pacific Command, and any other unified combatant command that the Secretary of Defense may designate for the purposes of this section shall be of general or flag officer grade. (f) BOARD FOR LOW INTENSITY CONFLICT.—Section 101 of the

National Security Act of 1947 (50 U.S.C. 402) is amended by adding at the end the following new subsection: "(f) The President shall establish within the National Security Council a board to be known as the 'Board for Low Intensity Conflict'. The principal function of the board shall be to coordinate the policies of the United States for low intensity conflict.". (g) DEPUTY ASSISTANT TO THE PRESIDENT FOR NATIONAL SECURITY AFFAIRS FOR LOW INTENSITY CONFLICT.—It is the sense of Congress

that the President should designate within the Executive Office of the President a Deputy Assistant to the President for National Security Affairs to be the Deputy Assistant for Low Intensity Conflict. (h) REPORTS.—(1) Not later than 120 days after the date of the enactment of this Act, the Secretary of Defense shall submit to Congress a report on the plans of the Secretary for implementation of this section, including a description of the progress made on such implementation. (2) Not later than one year after the date of the enactment of this Act, the President shall transmit to Congress a report on the capabilities of the United States to conduct special operations and low intensity conflicts. The report shall include a description of the following: (A) Deficiencies in such capabilities. (B) Actions being taken throughout the executive branch to correct such deficiencies. (C) The principal low intensity conflict threats to the interests of the United States. (D) The actions taken and to be taken to implement this section. (i) EFFECTIVE DATE.—Section 167 of title 10, United States Code (as added by subsection (b)), shall be implemented not later than 180 days after the date of the enactment of this Act. (j) FUNDING FOR FISCAL YEAR 1987.—The Secretary of Defense

may spend unobligated funds appropriated to the Department of Defense for fiscal years before fiscal year 1987 in such sums as necessary in order to carry out this section and section 167 of title 10, United States Code (as added by subsection (b)), during fiscal year 1987. SEC. 9116. (a) The Secretary of Defense shall award to a United States firm a contract pursuant to a solicitation issued on or after

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the date of enactment of this Act under the Department of Defense overseas fuel procurement programs that would otherwise be awarded to a foreign firm if such United States firm— (1) has a crude oil refining capacity of not more than 75,000 barrels a day; (2) participates in the Department of Defense overseas fuel procurement program; (3) agrees to the contract on the terms proposed by the foreign firm to which the contract would otherwise be awarded; and (4) does not use processing agreements in order to fulfill the contract. Ob) This provision shall not apply if the total cost of supplies offered by the United States firm, including transportation as specified in the solicitation, would exceed the total evaluated cost to the government if the contract were awarded to the foreign firm. (c) This provision shall not supersede any status of forces agreement and shall not apply to acquisitions subject to the Agreement on Government Procurement of 1979 and the Trade Agreements Act of 1979 (19 U.S.C. 2501-2582) and including acquisitions from countries designated under the Caribbean Basin Economic Recovery Act (19 U.S.C. 2701, et seq.). (d) For purposes of this section, the term "United States firm" means a corporation, partnership, association, joint stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States. SEC. 9117. (a) None of the funds appropriated in this Act may be available for any country if the President determines that the government of such country is failing to take adequate measures to prevent narcotic drugs or other controlled substances cultivated or produced or processed illicitly, in whole or in part, in such country, or transported through such country, from being sold illegally within the jurisdiction of such country to United States personnel or their dependents, or from being smuggled into the United States. Such prohibition shall continue in force until the President determines and reports to the Congress in writing that— (1) the government of such country has prepared and commit: ted itself to a plan presented to the Secretary of State that would eliminate the cause or basis for the application to such country of the prohibition contained in the first sentence; and (2) the government of such country has taken appropriate law -' enforcement measures to implement the plan presented to the Secretary of State. (b) The provisions of subsection (a) shall not apply in the case of any country with respect to which the President determines that the application of the provisions of such subsection would be inconsistent with the national security interests of the United States. SEC. 9118. (a) None of the funds made available by this Act to the Department of Defense may be used to procure the Federal Supply Classes of machine tools set forth in subsection (b) of this section, for use in any government-owned facility or property under control of the Department of Defense, which machine tools were not manufactured in the United States or Canada. (b) The procurement restrictions contained in subsection (a) shall apply to Federal Supply Classes of metalworking machinery in

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categories numbered 3408, 3410-3419, 3426, 3433, 3441-3443, 3446, 3448, 3449, 3460, and 3461. (c) When adequate domestic supplies of the classifications of machine tools identified in subsection (b) are not available to meet Department of Defense requirements on a timely basis, the procurement restrictions contained in subsection (a) may be waived on a case by case basis by the Secretary of the Service Branch responsible for the procurement. (d) Subsection (a) shall not apply to contracts which are binding as of the date of enactment of this Act. SEC. 9119. (a) Notwithstanding sections 2394(b) and 2690 of title 10, United States Code, the Secretary of the Army may use funds appropriated for the construction and operation of the Louisiana Army Ammunition Plant for the provision and operation of energy production facilities at such plant. (b) Funds available to the Secretary of the Army under subsection (a) may be obligated without seeking third party contracts for the financing and construction of heating and power plants. SEC. 9120. Of the funds appropriated by this Act, $8,100,000 shall be made available to the Department of Defense in order to implement the recommendations of its Security Review Commission concerning personnel and industrial security programs: Provided, That the Department shall submit a reprogramming notification identifying funds for this purpose. SEC. 9121. No funds shall be expended for implementation of the Department of Defense Federal Acquisition Regulation Supplement; Cargo Preference, published as proposed regulations on July 28, 1986, at page 27016 of volume 51, numbered 144 of the Federal Register. SEC. 9122. Section 672 of title 10, United States Code, is amended by adding at the end the following new subsection: "(f) The consent of a Governor described in subsections (b) and (d) may not be withheld (in whole or in part) with regard to active duty outside the United States, its territories, and its possessions, because of any objection to the location, purpose, type, or schedule of such active duty.". SEC. 9123. (a)(1) Notwithstanding any other provision of law, except as provided in p a r ^ r a p h (1) or (2), the Secretary of the Navy shall reimburse Valerie S. Ford of Richmond, Virginia, for the expenses she incurred for her travel and the travel of her two dependent children and the transportation of her household goods in moving herself and her children from Makakilo, Hawaii, to Richmond, Virginia, in May, 1984. (2) The Secretary of the Navy may not make the reimbursement authorized in paragraph (1) unless, within one year after the date of enactment of this Act, the Secretary receives from Valerie S. Ford such application for reimbursement and documentation of expenses as the Secretary considers appropriate. (3) The amount paid to Valerie S. Ford pursuant to paragraph (1) may not exceed the amount that would have been payable for the travel and transportation referred to in such paragraph if the travel and transportation had been timely and a proper and timely application had been submitted in the case of the said Valerie S. Ford as provided by law or applicable regulations. (b) No part of any amount reimbursed pursuant to subsection (a) of this section in excess of 10 per centum thereof shall be paid or delivered to or received by any agent or attorney on account of

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services rendered in connection with such reimbursement, and the same shall be unlawful, any contract to the contrary notwithstanding. Violation of the provisions of this section is a misdemeanor punishable by a fine not to exceed $1,000. SEC. 9124. From existing funds the Secretary of Defense shall take additional steps for further development of planning, research, and facilities for physical acoustics and related matters and shall develop facilities for advanced microelectronics design research and development including but not restricted to military components replacement and the Mapped Array Differential Equation Machine. SEC. 9125. Notwithstanding any other provision of law, appropriations available to the Department of Defense during the current fiscal year shall be available to make payments to a hospital that obtains 12 percent or more of its operating funds from contributions and that limits the care it provides to the treatment of heart and lung conditions: Provided, That payment may not be denied for a claim for otherwise reimbursable services submitted under a plan contracted for under sections 1079(a) and 1086(a) of title 10, United States Code, solely on the basis that such hospital does not impose a legal obligation, including a patient cost share or deductible, on its patients to pay for such services. SEC. 9126. Notwithstanding the provisions of subsection 502(a)(1) of the National Security Act of 1947, funds appropriated by this Act may be obligated and expended for particular intelligence activities contained in this Act: Provided, That the funds appropriated or made available by this Act may be obligated and expended for the particular activities contained in this Act should the enactment of a National Defense Authorization Act for fiscal year 1987 fail to occur and this Act shall then be considered to provide the authorization and appropriation authority necessary to obligate and expend the funds provided herein. SEC. 9127. Notwithstanding any other provision of law, where an error of the magnitude of four or greater in a financial ratio is made in the evaluation of an application for extension made by any firm in accordance with C.F.R. Section 124.1—(l)(f)(4)(i) (effective January 1, 1986), the maximum extension shall be granted. SEC. 9128. None of the funds provided by this Act may be used to pay the salaries of any person or persons who authorize the transfer of unobligated and deobligated appropriations into the Reserve for Contingencies of the Central Intelligence Agency. SEC. 9129. Of the funds appropriated in this Act for the procurement of P-3C aircraft, the Secretary of the Navy may carry out Navy obligations under the classified Maritime Surveillance Agreement of 1986: Provided, That two of the P-3C aircraft to be procured may be used to implement United States obligations under such classified agreement. SEC. 9130. Funds appropriated by this Act for construction projects of the Central Intelligence Agency, which are transferred to another Agency for execution, shall remain available until expended. SEC. 9131. Section 642 of S. 2638, as passed by the Senate on August 9, 1986, shall be deemed to be enacted into law as fully as if set forth herein: Provided, That the total amount herein appropriated for "Military Personnel" appropriations accounts shall be reduced by $350,000,000. SEC. 9132. During the current fiscal year, the Department of Defense shall conduct a new competition for 9mm handguns, with

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procurement starting in fiscal year 1988 in parallel with the current contract. SEC. 9133. Funds appropriated to the Department of Defense during fiscal year 1987, or otherwise available for obligation during fiscal year 1987, shall be available for obligation notwithstanding any provisions contained in any Act authorizing appropriations for the Department of Defense for fiscal year 1987, heretofore or hereafter enacted, that would otherwise limit obligations of the aggregate amount that may be obligated at the appropriation account level, appropriations subdivision level, or appropriation budget activity level, unless a subsequently enacted provision expressly and specifically references this provision and directly amends or repeals this provision. SEC. 9134. (a) Notwithstanding any other provision of this Joint Resolution, none of the funds appropriated in this or any other Act shall be used to sell, lease, transfer, or otherwise dispose of any portion of the approximately twenty-six acres of Fort DeRussy, Hawaii, lying southwest of Kalia Road, which includes the Hale Koa Hotel, the Armed Forces Recreation Center, and beachfront area. (b) Notwithstanding any other provision of this Joint Resolution, to include section 509 of the Department of the Treasury, Postal Service, and General Government Appropriations Act as contained in this Joint Resolution, or any other provision of the law, including section 809 of the Military Construction Authorization Act, 1968, section 807(d) of the Military Construction Authorization Act, 1984, or any other provision of an annual Appropriation Act restricting use of funds for the sale, lease, rental, or excessing of Fort DeRussy, Hawaii, any right or interest of the United States in the remaining forty-five acres of Fort DeRussy, Hawaii, Iying northeast of Kalia Road, which comprises the three United States Army Reserve Centers and miscellaneous facilities, may not be sold, leased, or transferred in accordance with Federal laws and Department of Defense regulations governing the disposal of Defense installations prior to August 1, 1987: Provided, That no such sale, lease, transfer, or other disposition proposed by the Secretary of the Army after August 1, 1987 shall occur until 60 legislative days after notification of the proposed action to the Committees on Armed Services and Appropriations of the House of Representatives and Senate. (c) The exact a c r e ^ e and legal descriptions of the property addressed by this section shall be determined by surveys which are satisfactory to the Secretary of the Army. SEC. 9135. None of the funds appropriated or otherwise made available by this or any other Act may be obligated or expended during fiscal year 1987 for, or in connection with, a Strategic Defense Initiative Institute unless— (1) obligation or expenditure of funds for such purpose is specifically authorized by law in an Act other than this Act; and (2) funds are specifically appropriated for such purpose in an Act other than this Act. For purposes of this section, a Strategic Defense Initiative Institute is a Federally Funded Research and Development Center intended to lend technical support to the Strategic Defense Initiative Organization, as described in the Federal Register on March 18, 1986, April 24, 1986, and May 21, 1986. SEC. 9136. (a) The Secretary of Defense shall conduct through the Civilian Health and Mediced Program of the Uniformed Services (CHAMPUS) a demonstration project on the treatment of alcohol-

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ism designed to compare the use of chemical aversion therapy with the use of other treatments. The Secretary shall submit to the Committees on Appropriations and Armed Services of the Senate and House of Representatives a report describing the proposed conduct of the demonstration project not later than November 1, 1986. The Secretary shall implement the demonstration project not later than February 1, 1987. At the conclusion of the demonstration project, the Secretary shall submit to such committees a report on the results of the project: Provided, That the demonstration project shall be conducted at only one location: Provided further, That coverage for chemical aversion therapy under this demonstration project is extended to those beneficiaries referred for such treatment by a physician, psychiatrist or psychologist recognized as an authorized provider under CHAMPUS. (b) Until the report required by subsection (a) on the results of the demonstration project is submitted, the Secretary of Defense shall ensure that coverage of beneficiaries under section 1079(a) or 1086(a) of title 10, United States Code, shall continue under the provisions of subsection (a). TITLE X—DEFENSE ACQUISITION IMPROVEMENT SEC. 900. SHORT TITLE

This title may be cited as the "Defense Acquisition Improvement Act of 1986". PART A—MANAGEMENT OF THE ACQUISITION PROCESS SEC. 901. D U T I E S A N D PRECEDENCE OF UNDER SECRETARY OF DEFENSE FOR ACQUISITION.

Section 133 of title 10, United States Code (as redesignated by section 101(a) of the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Public Law 99-433)), is amended to read as follows: "§ 133. Under Secretary of Defense for Acquisition "(a) There is an Under Secretary of Defense for Acquisition, appointed from civilian life by the President, by and with the advice and consent of the Senate. The Under Secretary shall be appointed from among persons who have an extensive management background in the private sector. "(b) Subject to the authority, direction, and control of the Secretary of Defense, the Under Secretary of Defense for Acquisition shall perform such duties and exercise such powers relating to acquisition as the Secretary of Defense may prescribe, including— "(1) supervising Department of Defense acquisition; "(2) establishing policies for acquisition (including procurement, research and development, logistics, developmental testing, and contract administration) for all elements of the Department of Defense; "(3) establishing policies of the Department of Defense for maintenance of the defense industrial base of the United States; and "(4) the authority to direct the Secretaries of the military departments and the heads of all other elements of the Depart-

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ment of Defense with regard to matters for which the Under Secretary has responsibility. "(c) The Under Secretary— "(1) is the senior procurement executive for the Department of Defense for the purposes of section 16(3) of the Office of Federal Procurement Policy Act (41 U.S.C. 414(3)); "(2) is the Defense Acquisition Executive for purposes of regulations and procedures of the Department providing for a Defense Acquisition Executive; and "(3) to the extent directed by the Secretary, exercises overall supervision of all personnel (civilian and military) in the Office of the Secretary of Defense with regard to matters for which the Under Secretary has responsibility, unless otherwise provided by law. "(d)(1) The Under Secretary shall prescribe policies to ensure that audit and oversight of contractor activities are coordinated and carried out in a manner to prevent duplication by different elements of the Department. "(2) In carrying out this subsection, the Under Secretary shall consult with the Inspector General of the Department of Defense. "(3) Nothing in this subsection shall affect the authority of the Inspector General of the Department of Defense to establish audit policy for the Department of Defense under the Inspector General Act of 1978 and otherwise to carry out the functions of the Inspector General under that Act. "(e)(1) With regard to all matters for which he has responsibility by law or by direction of the Secretary of Defense, the Under Secretary of Defense for Acquisition takes precedence in the Department of Defense after the Secretary of Defense and the Deputy Secretary of Defense. "(2) With regard to all matters other than matters for which he has responsibility by law or by direction of the Secretary of Defense, the Under Secretary takes precedence in the Department of Defense after the Secretary of Defense, the Deputy Secretary of Defense, and the Secretaries of the military departments.". SEC. 902. ESTABLISHMENT OF POSITION OF DEPUTY UNDER SECRETARY OF DEFENSE FOR ACQUISITION. (a) ESTABLISHMENT OF POSITION.—(1) Chapter 4 of title 10, United States Code (as amended by title I of the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Public Law 99-433)), is amended by inserting sifter section 133 the following new section: "§ 133a. Deputy Under Secretary of Defense for Acquisition "(a) There is a Deputy Under Secretary of Defense for Acquisition, appointed from civilian life by the President, by and with the advice and consent of the Senate. "(b) The Deputy Under Secretary of Defense for Acquisition shall assist the Under Secretary of Defense for Acquisition in the performance of his duties. The Deputy Under Secretary shall act for, and exercise the powers of, the Under Secretary when the Under Secretary is absent or disabled.". (2) The table of sections at the beginning of such chapter is amended by inserting after the item relating to section 133 the following new item: "133a. Deputy Under Secretary of Defense for Acquisition.".

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(b) PAY GRADE.—Section 5314 of title 5, United States Code, is amended by adding at the end the following: "Deputy Under Secretary of Defense for Acquisition.". SEC. 903. OTHER SENIOR CIVILIAN ACQUISITION OFFICIALS. (a) PRECEDENCE OF UNDER SECRETARY FOR POLICY.—Section 134 of

title 10, United States Code (as designated by section 105 of the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Public Law 99-433)), is amended by inserting "the Under Secretary of Defense for Acquisition," in subsection (c) after "Deputy Secretary of Defense,". (b) FUNCTIONS AND GRADE OF DIRECTOR OF DEFENSE RESEARCH AND

ENGINEERING.—(1) Section 135 of title 10, United States Code (as amended by section 105 of the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Public Law 99-433)), is amended— (A) by striking out subsection (b) and inserting in lieu thereof the following: "(b) Except as otherwise prescribed by the Secretary of Defense, the Director of Defense Research and Engineering shall perform such duties relating to research and engineering as the Under Secretary of Defense for Acquisition may prescribe."; and (B) by striking out subsection (c). (2)(A) Section 5314 of title 5, United States Code, is amended by striking out "Director of Defense Research and Engineering.". (B) Section 5315 of such title is amended by adding at the end the following: "Director of Defense Research and Engineering.". (c) INDEPENDENCE AND STAFF OF DIRECTOR OF OPERATIONAL TEST

AND EVALUATION.—Section 138 of title 10, United States Code (as redesignated by section 101(a), of the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Public Law 99-433)) is amended— (1) by inserting "and the Under Secretary of Defense for Acquisition" after "Secretary of Defense" in the first sentence of subsection (b); (2) by inserting "and the Under Secretary of Defense for Acquisition" after "Secretary of Defense" in subsection (b)(2); (3) by inserting ", to the Under Secretary of Defense for Acquisition," in subsection (b)(5) after "Secretary of Defense"; (4) by inserting ", to the Under Secretary of Defense for Acquisition," in subsection (c) after "Secretary of Defense" the first place such term appears; (5) by inserting "personally" in the first sentence of subsection (d) after "Secretary of Defense"; (6) by inserting ", the Under Secretary of Defense for Acquisition," in the second sentence of subsection (g)(1) after "Secretary of Defense"; and (7) by adding at the end the following new subsection: "(i) The Director shall have sufficient professional staff of military and civilian personnel to enable the Director to carry out the duties and responsibilities of the Director prescribed by law.". (d) DIRECTOR OF OFFICE OF SMALL AND DISADVANTAGED BUSINESS

UTILIZATION.—Section 15(k)(3) of the Small Business Act (15 U.S.C. 644(k)(3)) is amended by inserting ", except that in the case of the Department of Defense the Director of the Office of Small and

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Disadvantaged Business Utilization shall be responsible to, and report directly to, the Under Secretary of Defense for Acquisition", (e) CONFORMING AMENDMENT FOR ARMED FORCES POLICY COUNCIL

MEMBERSHIP.—Section 171(a) of title 10, United States Code is amended— (1) by redesignating paragraphs (3) through (11) as paragraphs (4), (5), (6), (7), (9), (10), (11), (12), and (13), respectively; (2) by inserting after paragraph (2) the following new paragraph (3): "' "(3) the Under Secretary of Defense for Acquisition;"; and (3) by striking out paragraph (7) (as so redesignated) and '^' inserting in lieu thereof the following: "(7) the Under Secretary of Defense for Policy; "(8) the Deputy Under Secretary of Defense for Acquisition;". SEC. 904. ENHANCED PROGRAM STABILITY FOR MAJOR DEFENSE ACQUISITION PROGRAMS.

(a) PROGRAM STABILITY.—(1) Chapter 144 of title 10, United States Code, is amended by adding after section 2434 (as redesignated by section 101(a) of the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Public Law 99-433)) the following new section: "§ 2435. Enhanced program stability "(a) BASELINE DESCRIPTION REQUIREMENT.—(1) The Secretary of a

military department shall establish a baseline description for a major defense acquisition program under the jurisdiction of such Secretary— "(A) before such program enters full-scale engineering devel' opment; and "(B) before such program enters full-rate production. "(2) A baseline description required under paragraph (1) shall include the following: "(A) In the case of the full-scale development stage— "(i) a description of the performance goals for the weapons system to be acquired under the program; "(ii) a description of the technical characteristics and configuration of such system; "(iii) total development costs for such stage by fiscal year; and "(iv) the schedule of development milestones. "(B) In the case of the production stage— "(i) a description of the performance of the weapons ' ' system to be acquired under the program; "(ii) a description of the technical characteristics and ''• • configuration of such system; '" "(iii) number of end items by fiscal year; -** ' "(iv) the schedule of development milestones;,:;; "(v) testing; '^ •''u>-;', • ' "(vi) initial training; -'J if "(vii) initial provisioning; and "(viii) total procurement costs for such stage (including '^ *Aif'-'i the cost of all elements included in the baseline description) ' "' '-' ' by fiscal year, which may not exceed the amount of the •* ^ p the Secretary of Defense under section 2434 of this title.
 * ' * ' independent cost estimate for that program submitted to

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"(b) PROGRAM DEVIATION REPORTS.—(1) The program manager of a major defense acquisition program shall immediately submit a program deviation report for such program to the Secretary of the military department concerned and to the senior procurement executive of such military department (designated pursuant to section 16(3) of the Office of Federal Procurement Policy Act (41 U.S.C. 414(3))) if such manager determines at any time during the full-scale engineering development stage or the production stage that there is reasonable cause to believe that— "(A) the total cost of completion of the program will be more ' than the amount specified in the baseline description estab;: lished under subsection (a) for such stage; "(B) any milestone specified in such baseline description will not be completed as scheduled; or "(C) the system to be acquired under the program will not fulfill the description of performance, technical characteristics, or configuration specified in such baseline description. "(2) The Secretary of the military department concerned shall, with respect to any major defense acquisition program for which a program deviation report is received under paragraph (1)— "(A) establish a review panel to review such program; and "(B) submit a report containing the program deviation report and the results of such review to the Under Secretary of Defense for Acquisition before the end of the 45-day period beginning on the date that the program deviation report is submitted under paragraph (1). "(c) DEFINITION.—In this section, the term 'major defense acquisition program' has the meaning given that term in section 2432(a)(1) of this title.". (2) The table of sections at the beginning of such chapter is amended by adding after the item relating to section 2434 the following new item: "2435. Enhanced program stability.".

(b) EFFECTIVE DATE.—Section 2435 of title 10, United States Code (as added by subsection (a)(1)), shall apply to major defense acquisition programs that enter full-scale engineering development or fullrate production after the date of the enactment of this Act. SEC. 905. DEFENSE ENTERPRISE PROGRAMS.

(a) IN GENERAL.—(1) Chapter 144 of title 10, United States Code, is amended by adding after section 2435 (as added by section 904) the following new section: "§ 2436. Defense enterprise programs "(a) IN GENERAL.—The Secretary of Defense shall conduct, through the Secretaries of the military departments, a program with respect to increasing the efficiency of the management structure of defense acquisition programs by reducing the number of officials through whom a program manager reports to the senior procurement executive of the military department concerned. "(b) DESIGNATION OF PARTICIPATING PROGRAMS.—The Secretary of

a military department may designate any defense acquisition program under the jurisdiction of the Secretary to participate in the program described in subsection (a). A program designated under this subsection shall be known as a 'defense enterprise program'.

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"(c) GuiDEUNES.—The Secretary of Defense shall issue guidelines governing the management of defense enterprise programs. Such guidelines shall include the following requirements: "(1) The Secretary concerned shall designate a program executive officer for each program. "(2) The program manager for each program shall report with respect to such program directly, without intervening review or approval, to the program executive officer for the program. "(3) The program executive officer for a program shall report with respect to such program directly, without intervening review or approval, to the senior procurement executive of the military department concerned designated pursuant to section 16(3) of the Office of Federal Procurement Policy Act (41 U.S.C. 414(3)). "(4) The program executive officer to whom a defense enterprise program manager reports shall evaluate the job performance of such manager on an annual basis. In conducting an evaluation under this paragraph, a program executive officer ',* shall consider the extent to which the manager has achieved the objectives of the program for which the manager is responsible, including quality, timeliness, and cost objectives. "(5) The manager of a defense enterprise program shall be authorized staff positions for a technical staff, including experts in business management, contracting, auditing, engineering, testing, and logistics. "(d) APPLICABLE RULES AND REGULATIONS.—(1) Except as specified

by the senior procurement executive of the military department concerned, a defense enterprise program shall not be subject to any regulation, policy, directive, or administrative rule or guideline relating to the acquisition activities of the Department of Defense other than the Federal Acquisition Regulation and the Department of Defense supplement to the Federal Acquisition Regulation. "(2) Paragraph (1) shall not be construed to limit or modify the application of Federal legislation relating to the acquisition activities of the Department of Defense. "(3) In this subsection the term 'Federal Acquisition Regulation' has the meaning given such term in section 2320(a)(4) of this title.". (2) The table of sections at the beginning of such chapter is amended by adding after the item relating to section 2435 (as added by section 904) the following new item: "2436. Defense enterprise programs.".

(b) The Secretary of each military department shall designate for fiscal year 1988 not less than three defense acquisition programs under the jurisdiction of the Secretary to participate in the program described in section 2436(a) of title 10, United States Code (as added by subsection (a)(1)). SEC. 906. MILESTONE AUTHORIZATION OF DEFENSE ENTERPRISE PROGRAMS.

(a) IN GENERAL.—(1) Chapter 144 of title 10, United States Code, is amended by adding after section 2436 (as inserted by section 905) the following new section: "§ 2437. Defense enterprise programs: milestone authorization "(a) DESIGNATION OF PARTICIPATING PROGRAMS.—(1) The Secretary

of Defense may designate defense enterprise programs in each

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military department (as designated by the Secretary of the military department under section 2436 of this title) to be considered for milestone authorization under subsection (b). "(2) The Secretary may designate a defense enterprise program under paragraph (1) only if the program— "(A) is ready to proceed into the full-scale engineering development stage or the full-rate production stage; or "(B) is in either of such stages. "(b) SUBMISSION OF BASELINE DESCRIPTIONS.—Not later than the end of the 90-day period beginning on the date that a defense enterprise program is designated under subsection (a), the Secretary of Defense shall— "(1) in the case of a program that is subject to section 2435(a) ,-, of this title, submit to the Committees on Armed Services of the Senate and House of Representatives the baseline description for the program required to be submitted under such section; "(2) in the case of a program that is not subject to such section— "(A) establish a baseline description that meets the requirements of such section; and ^ "(B) submit the baseline description to such committees; and "(3) request from Congress the authority to obligate funds in a single amount sufficient to carry out the stage for which the baseline description is submitted. "(c) MILESTONE AUTHORIZATION.—Congress shall authorize funds for the full-scale engineering development stage or the full-rate production stage of a program designated by the Secretary of Defense under subsection (a) in a single amount sufficient to carry out that stage, but not for a period in excess of five years, if such program is approved by Congress to— "(1) proceed into or complete the full-scale engineering development stage; or "(2) proceed into or complete the full-rate production stage. "(d) PROGRAM DEVIATIONS.—(1) If the Secretary of Defense re-

ceives a program deviation report under section 2435(b) of this title with respect to a defense enterprise program for which funds are authorized under subsection (b)— "(A) the Secretary of Defense shall notify the Committees on Armed Services of the Senate and House of Representatives of the receipt of such report before the end of the 15-day period i beginning on the date on which the Secretary receives such report; and I "(B) except as provided in paragraph (2), after the end of the 45-day period beginning on the date on which the Secretary of Defense receives such report, the Secretary concerned may not ? obligate amounts appropriated or otherwise made available to the Department of Defense for purposes of carrying out the program. "(2) Paragraph (1)(B) does not apply if the Secretary of Defense notifies Congress that the Secretary intends to— "(A) convene a board to formally review the program; and "(B) submit to Congress a revised baseline description for the program and the recommendations of the board convened under subparagraph (A) concurrent with the submission by the President of the budget for the next fiscal year under section 1105(a) of title 31.

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"(3) The Secretary concerned may not obligate, for the purpose of carrying out a program described in paragraph (1) for which a program deviation report is received, amounts appropriated or otherwise made available to the Department of Defense for the fiscal year following the fiscal year during which the program deviation report was received unless such amounts are authorized to be appropriated after the date on which such report was received.". (2) The table of sections at the beginning of such chapter is amended by adding after the item relating to section 2436 (as inserted by section 905) the following new item: "2437. Defense enterprise programs: milestone authorization.".

(b) INITIAL DESIGNATION OF PARTICIPATING PROGRAMS.—The Secretary of Defense shall designate for fiscal year 1988 not less than three defense enterprise programs to be considered for milestone authorization under subsection (b). The Secretary shall make such designations as part of the budget submission of the Department of Defense for such fiscal year. SEC. 907. PREFERENCE FOR NONDEVELOPMENTAL ITEMS.; (a) IN GENERAL.—(1) Chapter 137 of title 10, United States Code, is amended by adding at the end the following new section: "§ 2325. Preference fornondevelopmental items "(a) PREFERENCE.—The Secretary of Defense shall ensure that, to the maximum extent practicable— "(1) requirements of the Department of Defense with respect to a procurement of supplies are stated in terms of— ,, "(A) functions to be performed; "(B) performance required; or fs "(C) essential physical characteristics; "(2) such requirements are defined so that nondevelopmental ' i.- items may be procured to fulfill such requirements; and "(3) such requirements are fulfilled through the procurement of nondevelopmental items. "(b) IMPLEMENTATION.—The Secretary of Defense shall carry out this section through the Under Secretary of Defense for Acquisition, who shall have responsibility for its effective implementation. "(c) REGULATIONS.—The Secretary of Defense shall prescribe regulations to carry out this section. "(d) DEFINITION.—In this section, the term 'nondevelopmental item' means— "(1) any item of supply that is available in the commercial marketplace; "(2) any previously-developed item of supply that is in use by a department or agency of the United States, a State or local government, or a foreign government with which the United States has a mutual defense cooperation agreement; i;• "(3) any item of supply described in paragraph (1) or (2) that requires only minor modification in order to meet the requirements of the procuring agency; or "(4) any item of supply that is currently being produced that does not meet the requirements of paragraph (1), (2), or (3) solely because the item— "(A) is not yet in use; or "(B) is not yet available in the commercial marketplace.".

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(2) The table of sections at the beginning of such chapter is amended by adding at the end the following new item: "2325. Preference for nondevelopmental items.".

(3) The Secretary of Defense shall prescribe regulations as required by section 2325(c) of title 10, United States Code (as added by subsection (a)(1)), before the end of the 180-day period beginning on the date of the enactment of this Act. (b) REMOVAL OF IMPEDIMENTS TO ACQUISITION OF NONDEVELOPMENTAL ITEMS.—(1) The Secretary of Defense shall submit to

the Committees on Armed Services of the Senate and House of Representatives a report— (A) identifying actions taken, including training of personnel and changes in regulations and procurement procedures, to rj implement the requirements of section 2325 of title 10, United States Code (as added by subsection (a)(1)); I (B) identifying all statutes and regulations that are deteri mined by the Secretary to impede the acquisition of nondevelopmental items by the Department of Defense; and (C) recommending any legislation that the Secretary considers necessary or appropriate to promote maximum procurement of nondevelopmental items to fulfill the supply requirements of the Department of Defense. (2) The Secretary shall take appropriate steps to remove any impediments identified by the Secretary under paragraph (1)(A) that are under the jurisdiction of the Secretary. (3) The report required by paragraph (1) shall be submitted before the end of the one-year period beginning on the date of the enactment of this Act. (c) EVALUATION BY COMPTROLLER GENERAL.—(1) The Comptroller

General shall conduct an independent evaluation of the actions taken by the Secretary of Defense to carry out the requirements of section 2325 of title 10, United States Code (as added by subsection (a)(1)). (2) The Comptroller General shall submit to the Committees on Armed Services of the Senate and House of Representatives a report on the evaluation required by paragraph (1). Such report shall include— (A) an analysis of the effectiveness of the actions taken by the '* Secretary to carry out the requirements of section 2325 of title 10, United States Code (as added by subsection (a)(1)); '(B) a description of any programs conducted to notify acquisition personnel of the Department of Defense of the requirements of such section and to train such personnel in the appropriate procedures for carrying out such section; (C) a description of each law, regulation, and procedure which prevents or restricts maximum practicable use of nondevelopmental items to fulfill the supply requirements of the Department of Defense; and '' (D) such recommendations for additional legislation as the Comptroller General considers necessary or appropriate to promote maximum procurement of nondevelopmental items to fulfill the supply requirements of the Department of Defense. (3) The report required by paragraph (2) shall be submitted before the end of the two-year period beginning on the date of the enactment of this Act.

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(d) DEFINITION.—For the purposes of subsections (b) and (cj, the term "nondevelopmental items" has the meaning given such term in section 2325(d) of title 10, United States Oode (as added by subsection (a)(D)SEC. 908. REQUIREMENTS RELATING TO UNDEFINITIZED CONTRACTUAL ACTIONS. (a) LIMITATION ON USE OF FUNDS FOR UNDEFINITIZED CONTRACTUAL

ACTIONS.—(1) On the last day of each six-month period described in paragraph (4), the Secretary of Defense (with respect to the Defense Logistics Agency) and the Secretary of each military department shall determine— (A) the total amount of funds obligated for contractual actions during the six-month period; (B) the total amount of funds obligated during the six-month period for undefinitized contractual actions; and (C) the total amount of funds obligated during the six-month ' period for undefinitized contractual actions that are not definitized on or before the last day of such period. (2) On the last day of each six-month period described in paragraph (4), the amount of funds obligated for undefinitized contractual actions entered into by the Secretary of Defense (with respect to the Defense Logistics Agency) or the Secretary of a military department during the six-month period that are not deflnitized on or before such day may not exceed 10 percent of the amount of funds obligated for all contractual actions entered into by the Secretary during the six-month period. (3) If on the last day of a six-month period described in paragraph (4) the total amount of funds obligated for undefinitized contractual actions under the jurisdiction of a Secretary that were entered into during the six-month period exceeds the limit established in paragraph (2), the Secretary— (A) shall, not later than the end of the 45-day period beginning on the first day following the six-month period, submit to the defense committees an unclassified report concerning— (i) the amount of funds obligated for contractual actions under the jurisdiction of the Secretary that were entered into during the six-month period with respect to which the .,; report is submitted; and ,; (ii) the amount of such funds obligated for undefinitized contractual actions; and (B) except with respect to the six-month period described in paragraph (4)(A), may not enter into any additional undefinitized contractual actions until the date on which the Secretary certifies to Congress that such limit is not exceeded by the cumulative amount of funds obligated for undefinitized contractual actions under the jurisdiction of the Secretary that are not definitized on or before such date and were entered into— (i) during the six-month period for which such limit was exceeded; or (ii) after the end of such six-month period. (4) This subsection applies to the following six-month periods: (A) The period beginning on October 1, 1986, and ending on March 31, 1987. (B) The period beginning on April 1, 1987, and ending on September 30, 1987.

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(C) The period beginning on October 1, 1987, and ending on March 31, 1988. (D) The period beginning on April 1, 1988, and ending on September 30, 1988. (E) The period beginning on October 1, 1988, and ending on March 31, 1989. (b) OVERSIGHT BY INSPECTOR GENERAL.—The Inspector General of the Department of Defense shall— (1) periodically conduct an audit of contractual actions under the jurisdiction of the Secretary of Defense (with respect to the Defense Logistics Agency) and the Secretaries of the military departments; and (2) after each audit, submit to Congress a report on the management of undefinitized contractual actions by each Secretary, including the amount of contractual actions under the jurisdiction of each Secretary that is represented by undefinitized contractual actions. (c) WAIVER AUTHORITY.—The Secretary of Defense may waive the application of this section for urgent and compelling considerations relating to national security or public safety if the Secretary notifies the Committees on Armed Services of the Senate and House of Representatives of such waiver before the end of the 30-day period beginning on the date that the waiver is made. (d) ESTABLISHMENT OF REQUIREMENTS WiTH R E S P E C T UNDEFINITIZED CONTRACTUAL ACTIONS.—(I)(A) Chapter 137 of

TO

title 10, United States Code, is amended by adding after section 2325 (as added by section 907) the following new section: "§ 2326. Undefinitized contractual actions: restrictions "(a) IN GENERAL.—The head of an agency may not enter into an undefinitized contractual action unless the request to the head of the agency for authorization of the contractual action includes a description of the anticipated effect on requirements of the military department concerned if a delay is incurred for purposes of determining contractual terms, specifications, and price before performance is begun under the contractual action. "(b) LIMITATIONS ON OBLIGATION AND EXPENDITURE OF FUNDS.—(1)

A contracting officer of the Department of Defense may not enter into an undefinitized contractual action unless the contractual action provides for agreement upon contractual terms, specifications, and price by the earlier of— "(A) the end of the 180-day period beginning on the date on which the contractor submits a qualifying proposal to definitize the contractual terms, specifications, and price; or "(B) the date on which the amount of funds obligated or expended under the contractual action is equal to more than 50 percent of the negotiated overall ceiling price for the contractual action. "(2) Except as provided in paragraph (3), the contracting officer for an undefinitized contractual action may not expend with respect to such contractual action an amount that is equal to more than 50 percent of the negotiated overall ceiling price until the contractual terms, specifications, and price are definitized for such contractual action. "(3) If a contractor submits a qualifying proposal (as defined in subsection (g)) to definitize an undefinitized contractual action before an amount equal to more than 50 percent of the negotiated

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overall ceiling price is expended on such action, the contracting officer for such action may not expend with respect to such contractual action an amount that is equal to more than 75 percent of the negotiated overall ceiling price until the contractual terms, specifications, and price are definitized for such contractual action. "(4) This subsection does not apply to an undefinitized contractual action for the purchase of initial spares. "(c) INCLUSION OF NON-URGENT REQUIREMENTS.—Requirements

for spare parts and support equipment that are not needed on an urgent basis may not be included in an undefinitized contractual action for spare parts and support equipment that are needed on an urgent basis unless the head of the agency approves such inclusion as being— "(1) good business practice; and "(2) in the best interests of the United States. "(d) MODIFICATION OF SCOPE.—The scope of an undefinitized contractual action under which performance has begun may not be modified unless the head of the agency approves such modification as being— "(1) good business practice; and "(2) in the best interests of the United States. "(e) ALLOWABLE PROFIT.—The head of an agency shall ensure that the profit allowed on an undefinitized contractual action for which the final price is negotiated after a substantial portion of the performance required is completed reflects— "(1) the possible reduced cost risk of the contractor with respect to costs incurred during performance of the contract before the final price is negotiated; and "(2) the reduced cost risk of the contractor with respect to costs incurred during performance of the remaining portion of the contract. "(f) APPLICABILITY.—This section does not apply to the Coast Guard or the National Aeronautics and Space Administration. "(g) DEFINITIONS.—In this section: "(1) The term 'undefinitized contractual action' means a new procurement action entered into by the head of an agency for which the contractual terms, specifications, or price are not agreed upon before performance is begun under the action. Such term does not include contractual actions with respect to the following "(A) Foreign military sales. "(B) Purchases of less than $25,000. "(C) Special access programs. "(D) Congressionally-mandated long-lead procurement contracts. "(2) The term 'qualifying proposal' means a proposal that .. contains sufficient information to enable the Department of Defense to conduct complete and meaningful audits of the information contained in the proposal and of any other information that the Department is entitled to review in connection with the contract, as determined by the contracting officer.". (B) The table of sections at the beginning of such chapter is amended by adding after the item relating to section 2325 (as added by section 907) the following new item: "2326. Undefinitized contractual actions: restrictions.".

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(2) Section 2326 of title 10, United States Code (as added by subsection (d)(D), applies to undefinitized contractual actions that are entered into after the end of the 180-day period beginning on the date of the enactment of this Act. (e) DEFINITION.—For purposes of this section, the term "undefinitized contractual action" has the meaning given such term in section 2325(g) of title 10, United States Code (as added by subsection (d)(D). SEC. 909. COMPETITIVE PROTOTYPE STRATEGY REQUIREMENT FOR MAJOR DEFENSE ACQUISITION PROGRAMS. (a) ESTABLISHMENT OF REQUIREMENT.—Chapter 139 of title 10, United States Code, is amended by adding after section 2364 (as added by section 234) the following new section: "§ 2365. Competitive prototype strategy requirement: major defense acquisition programs "(a) COMPETITIVE PROTOTYPE STRATEGY REQUIREMENT.—Except as

provided in subsection (c), the Secretary of Defense shall require the use of a competitive protot3T)e program strategy in the development of a major weapons system (or a subsystem of such system). "(b) QuAUFYiNG STRATEGIES.—An acquisition strategy qualifies as a competitive prototjT)e strategy if it— "(1) requires that contracts be entered into with not less than two contractors, using the same combat performance requirements, for the competitive design and manufacture of a protot3rpe system or subsystem for developmental test and evaluation; C "(2) requires that all systems or subsystems developed under contracts described in paragraph (1) be tested in a comparative side-by-side test that is designed to— "(A) reproduce combat conditions to the extent practicable; and "(B) determine which system or subsystem is most effective under such conditions; and "(3) requires that each contractor that develops a prototype system or subsystem, before the testing described in subparagraph (B) is begun, submit— "(A) cost estimates for full-scale engineering development and the basis for such estimates; and "(B) production estimates, whenever practicable. "(c) EXCEPTION.—Subsection (a) shall not apply to the development of a major weapons system (or subsystem of such system) after— "(1) the Secretary submits to Congress— "(A) written notification that use of a competitive proto' t)npe program strategy is not practicable with respect to such system or subsystem; and "(B) a report that fully explains why use of such a strategy is not practicable, including cost estimates (and the bases for such estimates) comparing the total program cost of the competitive prototype strategy with the total program cost of the alternative acquisition strategy; and "(2) 30 days elapse after the Secretary submits the notification and report required by paragraph (1). •*(d) DEFINITIONS.—In this section:

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"(1) The term 'major weapons system' means a major weapons system that is acquired under a program that is a major defense ,J, I acquisition program. "(2) The term 'major defense acquisition program' means a Department of Defense acquisition program that— "(A) is not a highly sensitive classified program (as deter^ mined by the Secretary of Defense); and "(B) that is estimated by the Secretary of Defense to require an eventual total expenditure for research, developMH • ment, test, and evaluation of more than $200,000,000 (based on fiscal year 1980 constant dollars). ,{ "(3) The term 'subsystem of such system' means a collection of ^^^. components (such as the propulsion system, avionics, or weapon ' controls) for which the prime contractors, major subcontractors, or government entities have responsibility for system integraP tion.". (2) The table of sections at the beginning of such chapter is amended by adding after the item relating to section 2364 (as added by section 234) the following new item: "2365. Competitive prototype strategy requirement: major defense acquisition programs.".

(b) EFFECTIVE DATE.—Section 2365 of title 10, United States Code (as added by subsection (a)(1)), shall apply to major weapons systems (as defined in subsection (c)(1) of such section) that enter the advanced development stage after September 30, 1986. SEC. 910. TESTING OF CERTAIN WEAPON SYSTEMS AND MUNITIONS. (a) SURVIVABILITY AND LETHAUTY TESTING AND OPERATIONAL TEST-

ING.—(1) Chapter 139 of title 10, United States Code, is amended by adding after section 2365 (as added by section 909) the following new section: "§ 2366. Major systems and munitions programs: survivability and lethality testing; operational testing "(a) REQUIREMENTS.—The Secretary of Defense shall provide that— r "(1) a covered system may not proceed beyond low-rate initial production until realistic survivability testing of the system is completed in accordance with this section; "(2) a major munition program or a missile program may not proceed beyond low-rate initial production until realistic lethality testing of the program is completed in accordance with this section; and "(3) a major defense acquisition program may not proceed V beyond low-rate initial production until initial operational test and evaluation of the program is completed in accordance with this section. "(b) TEST GUIDEUNES.—(1) Survivability and lethality tests re-

quired under subsection (a) shall be carried out sufficiently early in the development phase of the system or program to allow any design deficiency demonstrated by the testing to be corrected in the design of the system, munition, or missile before proceeding beyond lowrate initial production. "(2) In the case of a major defense acquisition program, no person employed by the contractor for the system being tested may be

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involved in the conduct of the operational test and evaluation required under subsection (a). "(3) The costs of all tests required under that subsection shall be paid from funds available for the system being tested. "(c) WAIVER AUTHORITY.—The Secretary of Defense may waive the application of the survivability and lethality tests of this section to a covered system, munitions program, or missile program if the Secretary, before the system or program enters full-scale engineering development, certifies to Congress that live-fire testing of such system or program would be unreasonably expensive and impractical. "(d) WAIVER IN TIME OF WAR OR MOBIUZATION.—In time of war or mobilization, the President may suspend the operation of any provision of this section. "(e) DEFINITIONS.—In this section: "(1) The term 'covered system' means a vehicle, weapon platform, or conventional weapon system— "(A) that includes features designed to provide some degree of protection to users in combat; and "(B) that is a major system within the meaning of that term in section 2303(5) of this title. "(2) The term 'major munitions program' means— "(A) a munition program for which more than 1,000,000 rounds are planned to be acquired; or "(B) a conventional munitions program that is a major system within the meaning of that term in section 2302(5) of this title. "(3) The term 'major defense acquisition program' means— "(A) a conventional weapons system that is a major system within the meaning of that term in section 2302(5) of this title; and "(B) is designed for use in combat. "(4) The term 'realistic survivability testing' means, in the case of a covered system, testing for vulnerability and survivability of the system in combat by firing munitions likely to be encountered in combat (or munitions with a capability similar to such munitions) at the system configured for combat, with the primary emphasis on testing vulnerability with respect to potential user casualties and taking into equal consideration the operational requirements and combat performance of the system. "(5) The term 'realistic lethality testing' means, in the case of a major munitions program or a missile program, testing for lethality by firing the munition or missile concerned at appropriate targets configured for combat. "(6) The term 'configured for combat', with respect to a weapon system, platform, or vehicle, means loaded or equipped with all dangerous materisds (including all flammables and explosives) that would normsilly be on board in combat. '(7) The term 'operational test and evaluation' has the meaning given that term in section 138(a)(2)(A) of this title.". (2) The table of sections at the beginning of such chapter is amended by adding after the item relating to section 2365 (as added by section 909) the following new item: "2366. Major systems and munitions programs: survivability and lethality testing; operational testing.".

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(b) EFFECTIVE DATE.—Section 2366 of title 10, United States Code (as added by subsection (a)), shall apply with respect to any decision to proceed with a program beyond low-rate initial production that is made— (1) after May 31, 1987, in the case of a decision referred to in subsection (a)(1) or (a)(2) of such section; or (2) after the date of the enactment of this Act, in the case of a decision referred to in subsection (a)(3) of such section. (c)

TIME FOR SUBMISSION OF ANNUAL REPORT OF DIRECTOR

(OT&E).—Subsection (g)(1) of section 138 of such title (as redesignated by section 101(a) of the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Public Law 99-433)) is amended by striking out "January 15" in the second sentence and all that follows through 'is prepared' and inserting in lieu thereof "10 days after the transmission of the budget for the next fiscal year under section 1105 of title 31". SEC. 911. GOALS FOR INCREASED USE OF MULTIYEAR CONTRACTING AUTHORITY IN FISCAL YEAR 1988.

(a) IN GENERAL.—The Secretary of Defense shall take appropriate actions to ensure that the Department of Defense increases the use of multiyear contracting authority in fiscal year 1988. (b) MULTIYEAR PROCUREMENT GOAL.—The total amount obligated under multiyear contracts (authorized by section 2306(h) of title 10, United States Code) for Department of Defense procurement program eligible for multiyear contracting during fiscal year 1988 should be an amount that is not less than 10 percent of the total obligational authority used by the Department of Defense for procurement programs of the Department during such fiscal year. (c) APPORTIONMENT OF GOAL.—The Secretary of Defense shall specify the percentage of obligational authority of each military department and Defense Agency that is to be used for multiyear contracts to achieve the goal prescribed in subsection Qy). (d) BASELINE REPORT.—Not later than January 1, 1987, the Secretary of Defense shall submit to the Committees on Armed Services and on Appropriations of the Senate and the House of Representatives a written report which contains— (1) a list of all procurement programs which the Secretary determines to be procurement programs eligible for multiyear contracting that are subject to the requirements of section 2432 of title 10, United States Code (as redesignated by section 101(a) of the Goldwater-Nichols Department of Defense Reorganization Act of 1986 (Public Law 99-433)); (2) the Secretary's assessment of the feasibility and desirability of the multiyear procurement goal prescribed in subsection (b); and (3) whether the Secretary expects to achieve the goal prescribed in subsection (b) for fiscal year 1988 and, if the Secretary does not expect to achieve such goal, the reasons why such goal will not be achieved. (e) DEFINITIONS.—As used in this section the term "procurement program eligible for multiyear contracting" means a procurement program of the Department of Defense— (1) which satisfies the conditions of clauses (A) through (F) of section 2306(h)(l) of title 10, United States Code; and (2) under which production of fully configured end items is planned for a period exceeding three fiscal years.

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SEC. 912. FEDERALLY FUNDED RESEARCH AND DEVELOPMENT CENTERS.

(a) IN GENERAL.—(1) Chapter 139 of title 10, United States Code, is amended by adding after section 2366 (as added by section 910) the following new section: "§ 2367. Use of federally funded research and development centers "(a)

LIMITATION ON USE OF CENTERS.—Except as

provided

in

subsection (h), the Secretary of Defense may not place work with a federally funded research and development center unless such work is within the purpose, mission, and general scope of effort of such center as established in the sponsoring agreement of the Department of Defense with such center. "(b) EXCEPTION FOR APPLIED SCIENTIFIC RESEARCH.—This section does not apply to a federally funded research and development center that performs applied scientific research under laboratory conditions. "(c) LIMITATION ON CREATION OF N E W CENTERS.—(1) The head of an agency may not obligate or expend amounts appropriated to the Department of Defense for purposes of operating a federally funded research center that was not in existence before June 2, 1986, until— "(A) the head of the agency submits to Congress a report with respect to such center that describes the purpose, mission, and general scope of effort of the center; and "(B) a period of 60 days beginning on the date such report is received by Congress has elapsed. "(2) In this subsection, the term 'head of an agency' has the meaning given such term in section 2302(1) of this title.". (2) The table of sections at the beginning of such chapter is amended by adding after the item relating to section 2366 (as added by section 910) the following new item: "2367. Use of federally funded research and development centers.".

(b) GAO STUDY.—The Comptroller General shall conduct a study of the national defense role of federally funded research and development centers. Such study shall consider the following: (1) The effectiveness of procedures in effect on the date of the enactment of this Act in ensuring that such centers are established on the basis of the criteria set forth in Office of Federal Procurement Policy Circular 84-1. (2) The effectiveness of such procedures in ensuring that work placed with such centers is within the purpose, mission, and general scope of effort of such center as established in the sponsoring agreement with such center. (3) The growth in the size of such centers during fiscal years 1982 through 1986, measured— (A) in dollar value of work placed with such centers; and (B) in man-years of effort required to complete work placed with such centers. (4) The effect of the exemption of con'^-acts with such centers from the competitive procedures required by section 2304 of title 10, United States Code. (5) The relationship of such centers to their sponsors. (c) GAO REPORT.—(1) The Comptroller General shall submit to Congress a report on the study required by subsection (b). Such report shall include a discussion of each of the matters listed in subsection (b).

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(2) The report required by paragraph (1) shall be submitted not later than one year after the date of the enactment of this Act. PART B—REQUIREMENTS RELATING TO THE ACQUISITION PROCESS

SEC. 921. SMALL BUSINESS SET-ASIDES.

.•

.-

(a) PROPORTION OF CONTRACTS SET ASIDE DETERMINED ON INDUSTRY CATEGORY BASIS.—Section 15(a) of the Small Business Act (15 U.S.C.

644(a)) is amended— (1) by inserting "in each industry category" in paragraph (3) after "Government", and (2) by adding at the end the following new sentences: "For purposes of clause (3) of the first sentence of this subsection, an industry category is a discrete group of similar goods and services. Such groups shall be determined by the Administration in accordance with the four-digit standard industrial classification codes contained in the Standard Industrial Classification Manual published by the Office of Management and Budget, except that the Administration shall limit such an industry category to a greater extent than provided under such classification codes if the Administration receives evidence indicating that further segmentation for purposes of this paragraph is warranted due to special capital equipment needs or special labor or geographic requirements or to recognize a new industry. A market for goods or services may not be segmented under the preceding sentence due to geographic requirements unless the Government t)^ically designates the area where work for contracts for such goods or services is to be performed and Government purchases comprise the major portion of the entire domestic market for such goods or services and, due to the fixed location of facilities, high mobilization costs, or similar economic factors, it is unreasonable to expect competition from business concerns located outside of the general areas where such concerns are located.". (b) AWARDING OF CONTRACTS AT FAIR MARKET PRICES.—(1) Section 15(a) of such Act (15 U.S.C. 644(a)) is further amended by adding at the end the following new sentence: "A contract may not be awarded under this subsection if the award of the contract would result in a cost to the awarding agency which exceeds a fair market price.". (2) Section 8(a)(l)(A) of such Act (15 U.S.C. 637(a)(l)(A)) is amended by striking out the semicolon at the end and adding in lieu thereof the following: ". A contract may not be awarded under this subsection if the award of the contract would result in a cost to the awarding agency which exceeds a fair market price;". (c) ASSURANCE AS TO COMPOSITION OF LABOR FORCE.—(1) Section 8(a) of such Act (15 U.S.C. 637(a)) is amended by adding at the end the following new paragraph: "(14XA) A concern may not be awarded a contract under this subsection as a small business concern unless the concern agrees that— "(i) in the case of a contract for services (except construction), at least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern; and ,

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"(ii) in the case of a contract for procurement of supplies (other than procurement from a regular dealer in such supplies), the concern will perform work for at least 50 percent of the cost of manufacturing the supplies (not including the cost of materials). "(B) The Administrator may change the percentage under clause (i) or (ii) of subparagraph (A) if the Administrator determines that such change is necessary to reflect conventional industry practices among business concerns that are below the numerical size standard for businesses in that industry category. A percentage established under the preceding sentence may not differ from a percentage established under section 15(n). "(C) The Administration shall establish, through public rulemaking, requirements similar to those specified in subparagraph (A) to be applicable to contracts for general and specialty construction and to contracts for any other industry category not otherwise subject to the requirements of such subparagraph. The percentage applicable to any such requirement shall be determined in accordance with subparagraph (B), except that such a percentage may not differ from a percentage established under section 15(n) for the same industry category.". (2) Section 15 of such Act (15 U.S.C 644) is amended by adding at the end the following new subsection: "(o)(l) A concern may not be awarded a contract under this subsection as a small business concern unless the concern agrees that— "(A) in the case of a contract for services (except construction), the concern will perform at least 50 percent of the cost of the contract with its own employees; and "(B) in the case of a contract for procurement of supplies (other than procurement from a regular dealer in such supplies), the concern will perform work for at least 50 percent of the cost of manufacturing the supplies (not including the cost of materials). "(2) The Administrator may change the percentage under subparagraph (A) or (B) of paragraph (1) if the Administrator determines that such change is necessary to reflect conventional industry practices among business concerns that are below the numerical size standard for businesses in that industry category. "(3) The Administration shall establish, through public rulemaking, requirements similar to those specified in paragraph (1) to be applicable to contracts for general and specialty construction and to contracts for any other industry category not otherwise subject to the requirements of such subparagraph.'. (d) EXPANSION OF ANNUAL PARTICIPATION GOALS.—Section 15(g) of

such Act is amended— (1) by striking out "having values of $10,000 or more" in the first sentence; and (2) by adding at the end the following: "For the purpose of establishing goals under this subsection, the head of each Federal agency shall make consistent efforts to annually expand participation by small business concerns from each industry category in procurement contracts of the agency, including participation by small business concerns owned and controlled by socially and economically disadvantaged individuals. The head of each Federal agency, in attempting to attain such participation, shall consider—

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PUBLIC LAW 99-591—OCT. 30, 1986 "(1) contracts awarded as the result of unrestricted competition; and "(2) contracts awarded after competition restricted to eligible small business concerns under this section and under the program established under section 8(a).".

(e) DISCLOSURE OF INFORMATION CONCERNING APPLICANTS FOR PROCUREMENT SET-ASIDES.—Section 15 of such Act is further

amended by adding at the end the following new subsection: "(p)(l) Except as provided in paragraphs (2) and (3), the head of any Federal agency shall, within five days of the agency's decision to set aside a procurement for small business concerns under this section, provide the names and addresses of the small business concerns expected to respond to the procurement to any person who requests such information. "(2) The Secretary of Defense may decline to provide information under paragraph (1) in order to protect national security interests. "(3) The head of a Federal agency is not required to release any information under paragraph (1) that is not required to be released under section 552 of title 5, United States Code.. (f) REVIEW OF SIZE STANDARDS.—Section 3 of the Small Business Act is amended— (1) by inserting "(1)" after "SEC. 3. (a)"; and (2) by adding at the end of subsection (a) the following: "(2)(A) The Small Business Administration shall establish a program for the review of the size standards for eligibility of business concerns in the industry categories described in subparagraph (B) for a procurement restricted to small business concerns under section 8(a) or 15(a). "(B) Subparagraph (A) shall apply only to business concerns in the following industry categories: "(i) Construction. "(ii) Architectural and engineering services (including surveying and mapping services), "(iii) Ship building and ship repair. "(iv) Refuse systems and related services. "(3) If the Administrator determines, on the basis of any such review, that contracts awarded under the set-aside programs under such sections exceed 30 percent of the dollar value of the total contract awards for that industry category, as determined under the last sentence of section 15(a)(3), the Administrator shall adjust the size standards for such industry category establishing eligibility for a set-aside program to a size that will likely reduce the number of contracts which may be set aside to approximately 30 percent of the value of contracts to be awarded under such sections. "(4)(A) An interested person may petition the Administrator at any time to review an adjustment to a size standard made under paragraph (3) or any designation of an industry category made under section 15(a)(3) if the petitioner presents credible evidence that any such adjustment or designation— (i) is not likely to further the purposes of paragraph (3)(A) or section 15(a); and "(ii) has caused the petitioner to suffer severe financial loss. "(B) The Administrator shall render a final determination on any petition filed under subparagraph (A) before the end of the 30-day period beginning on the date that such petition is received by the Administration. Such determination shall be reviewable in the manner prescribed in chapter 7 of title 5, United States Code.

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"(C) The Administrator shall prescribe regulations to carry out the provisions of this subsection. "(5) The Administrator shall conduct a review under the program established under paragraph (2) at least once during every three years. Such review shall be completed and appropriate size standard adjustments made with the expiration of 180 days after each threeyear review period.". (g) EFFECTIVE DATE.—Except as otherwise provided in subsection (h), the amendments made by this section shall take effect on October 1, 1987. (h) INITIAL REVIEW OF SIZE STANDARDS.—(1) Paragraph (2)

of

section 3(a) of the Small Business Act (as added by subsection (f)) shall take effect on the date of the enactment of this Act. (2) The first review conducted by the Administrator under such paragraph shall review the periods beginning on October 1, 1983, and ending on September 30, 1986, and shall be completed not later than 180 days after the date of the enactment of this Act. (3) If the Administrator of the Small Business Administration determines, on the basis of the review referred to in paragraph (2), that contracts awarded under the set-aside programs under sections 8(a) and 15(a) of the Small Business Act in any industry category subject to that review exceed 30 percent of the dollar value of the total contract awards for that industry category, as determined in accordance with the last sentence of section 15(a)(3) of such Act, the Administrator shall propose adjustments to the size standards for such industry category establishing eligibility for a set-aside program to a size that will likely reduce the number of contracts which may be set aside to approximately 30 percent of the value of contracts to be awarded under such sections. The Administrator shall publish such proposed adjustments in the Federal Register for public comment. The Administrator may not issue final regulations implementing revised size standards for an industry category under section 3(a)(3) of such Act (as added by subsection (f)) until October 1, 1987. (i) REPORT ON EFFECT OF AMENDMENTS MADE BY THIS SECTION.—(1)

The Administrator of the Small Business Administration shall submit to the Committees on Armed Services and the Committees on Small Business of the Senate and House of Representatives a report on the amendments made by this section. The report shall include the Administrator's views on the advisability and feasibility of implementing such amendments. (2) The report shall also include— (A) the Administrator's findings and determinations under the review of size standards for businesses that qualify as small businesses carried out pursuant to section 3(a)(2)(B) of the Small Business Act (as amended by subsection (f)); (B) a determination of whether or not the amendments made by subsection (f) will further the interests of the set-aside program; and (C) recommendations for furthering the interests described in suljparagraphs (A) and (B) in a more efficient or more effective manner than provided in such amendments. (3) In preparing the report required by paragraph (1), the Administrator of the Small Business Administration shall seek the views of all affected agencies of the Government and the views of the public, including the views of business concerns of all sizes and of trade, business, and professional organizations. The views of such

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agencies, and a summary of the views of the public, shall be included in the report. (4) The report shall be submitted not later than July 15, 1987. (j) LIMITATION RESPECTING GREAT LAKES NAS.—Of the total dollar amount of the contracts awarded for fiscal year 1987 for construction and of refuse systems and related services at Great Lakes Naval Training Station, Illinois, not more than 30 percent of such dollar amount may be under contracts awarded through the so-called small business set-aside programs under sections 8 and 15 of the Small Business Act. SEC. 922. THRESHOLDS FOR CERTAIN REQUIREMENTS RELATING TO SMALL PURCHASES. (a) SMALL BUSINESS ACT NOTICE THRESHOLDS.—Section 8(e)(1) of the Small Business Act (15 U.S.C. 637(e)(1)) is amended— (1) in subparagraph (A)— (A) by striking out "$10,000" both places such term appears and inserting in lieu thereof "$25,000"; (B) by striking out "or" at the end of clause (i); (C) by striking out the comma at the end of clause (ii) and inserting in lieu thereof "; or"; (D) by inserting after clause (ii) the following new clause: "(iii) solicit bids or proposals for a contract for property or services for a price expected to exceed $10,000, if there is not a reasonable expectation that at least two offers will be received from responsive and responsible offerors,"; and (E) by striking out "subsection (b); and" and inserting in lieu thereof "subsection (f);"; (2) by redesignating subparagraph (B) as subparagraph (C); and (3) by inserting after subparagraph (A) the following new subparagraph (B): "(B) an executive agency intending to solicit bids or proposals for a contract for property or services shall post, for a period of not less than ten days, in a public place at the contracting office issuing the solicitation a notice of solicitation described in subsection (f)— "(i) in the case of an executive agency other than the Department of Defense, if the contract is for a price ^^. expected to exceed $10,000, but not to exceed $25,000; and "(ii) in the case of the Department of Defense, if the contract is for a price expected to exceed $5,000, but not to exceed $25,000; and". 0)) OFFICE OF FEDERAL PROCUREMENT POLICY ACT NOTICE THRESH-

OLDS.—Section 18(a)(1) of the Office of Federal Procurement Policy Act (41 U.S.C. 416(a)(l)(A)) is amended— (1) in subparagraph (A)— (A) by striking out "$10,000" both places such term appears in and inserting in lieu thereof "$25,000"; (B) by striking out "or" at the end of clause (i); (C) by striking out the comma at the end of clause (ii) and inserting in lieu thereof "; or"; (D) by inserting after clause (ii) the following new clause: "(iii) solicit bids or proposals for a contract for property or services for a price expected to exceed $10,000, if there is not a reasonable expectation that at least two offers will be received from responsive and responsible offerors,"; and

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(E) by striking out "and" at the end; (2) by redesignating subparagraph (B) as subparagraph (C); and (3) by inserting after subparagraph (A) the following new sulaparagraph (B): "(B) an executive agency intending to solicit bids or proposals for a contract for property or services shall post, for a period of not less than ten days, in a public place at the contracting office issuing the solicitation a notice of solicitation described in subsection (f)— "(i) in the case of an executive agency other than the Department of Defense, if the contract is for a price expected to exceed $10,000, but not to exceed $25,000; and ^- =; "(ii) in the case of the Department of Defense, if the ' * contract is for a price expected to exceed $5,000, but not to exceed $25,000; and". (c) SMALL BUSINESS SET-ASIDES.—The first sentence of section 15(j) of the Small Business Act (15 U.S.C. 644(j)) is amended by striking out "$10,000" and inserting in lieu thereof "$25,000". (d) CONFORMING AMENDMENTS.—(1) Section 8(f) of the Small Business Act is amended by striking out "subsection (e)(1)(A)" and inserting in lieu thereof "subparagraph (A) or (B) of subsection (e)(1)". (2) Section 18(b) of the Office of Federal Procurement Policy Act is amended by striking out "subsection (a)(l)(A)" and inserting in lieu thereof "subparagraph (A) or (B) of subsection (a)(D". SEC. 923. REQUIREMENTS RELATING TO PROCEDURES OTHER THAN COMPETITIVE PROCEDURES.

(a) LIMITED SOURCES.—Section 2304(c)(l) of title 10, United States Code, is amended by inserting "or only from a limited number of responsible sources" after "only one responsible source". (b) UNSOUCITED PROPOSALS FOR SERVICE.—Subparagraph (A) of

section 2304(d)(1) of such title is amended by striking out "a unique and innovative concept" and all that follows and inserting in lieu thereof "a concept— "(i) that is unique and innovative or, in the case of a service, for which the source demonstrates a unique r^ capability of the source to provide the service; and "(ii) the substance of which is not otherwise available to the United States, and does not resemble the substance of a pending competitive procurement; and". (c) FOLLOW-ON CONTRACTS.—Subparagraph (B) of such section is amended— (1) by inserting ", or the continued provision of highly specialized services, such property or services may be deemed to be available only from the original source and may be procured through procedures other than competitive procedures" after "highly specialized equipment"; (2) by inserting a one-em dash after "would result in"; (3) by paragraphing clauses (i) and (ii) and aligning their margins so as to be cut in four ems; (4) by striking out the comma after "competition" at the end of clause (i) and inserting in lieu thereof a semicolon; and (5) by striking out ", such property" and all that follows and inserting in lieu thereof a period.

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(d) EFFECTIVE DATES.—(1) The amendment made by subsection (a) shall apply with respect to contracts for which solicitations are issued after the end of the 180-day period beginning on the date of the enactment of this Act. (2) The amendment made by subsection (b) shall apply with respect to contracts awarded on the basis of unsolicited research proposals after the end of the 180-day period beginning on the date of the enactment of this Act. (3) The amendments made by subsection (c) shall apply with respect to follow-on contracts awarded after the end of the 180-day period beginning on the date of the enactment of this Act. SEC. 924. EVALUATION FACTORS IN AWARD OF CONTRACTS.

(a) EVALUATION FACTORS.—Subsection (a) of section 2305 of title 10, United States Code, is amended— (1) in paragraph (2)(A)(i)— (A) by striking out "(including price)"; (B) by inserting "(including price)" after "sealed bids"; and •m?' (C) by inserting "(including cost or price)" after "competitive proposals"; and (2) by adding at the end the following new paragraph: "(3) In prescribing the evaluation factors to be included in each solicitation for competitive proposals, the head of an agency shall clearly establish the relative importance assigned to the quality of the services to be provided (including technical capability, management capability, and prior experience of the offeror).". (b) CONFORMING AMENDMENT.—Subsection (b) of such section is amended by inserting "cost or" in paragraph (4)(B) before "price". (c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to solicitations for sealed bids or competitive proposals issued after the end of the 180-day period beginning on the date of the enactment of this Act. SEC. 925. COMPUTATION OF CONTRACT BID PRICES.

(a) IN GENERAL.—Section 2301(a) of title 10, United States Code, is amended— (1) by striking out "and" at the end of paragraph (5); (2) by striking out the period at the end of paragraph (6) and inserting in lieu thereof; and"; and (3) by adding at the end the following new paragraph: "(7) the head of an agency, in issuing a solicitation for a contract to be awarded using sealed-bid procedures, not included in such solicitation a clause providing for the evaluation of prices under the contract for options to purchase additional supplies or services under the contract unless the head of the agency has determined that there is a reasonable likelihood that the options will be exercised.". (b) EFFECTIVE DATE.—Section 2301(a)(7) of title 10, United States Code (as added by subsection (a)), shall not apply to solicitations for sealed bids issued before the end of the 180-day period beginning on the date of the enactment of this Act. SEC. 926. PRICES FOR SPARE OR REPAIR PARTS SOLD COMMERCIALLY. (a) ESTABLISHMENT OF COMMERCIAL PRICING REQUIREMENT.—(1)

Section 2323 of title 10, United States Ckxie, is amended to read as follows:

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"§2323. Commercial pricing for spare or repair parts "(a) LIMITATION ON PRICE OF COMMERCIALLY AVAILABLE PARTS.—

Except in the case of an offer submitted with a written statement under subsection (b)(2) and except as provided in subsection (c), if the head of an agency, using procedures other than competitive procedures, enters into a contract with a contractor for the purchase of spare or repair parts which the contractor also offers for sale to the general public, the price charged the United States for such parts under the contract may not exceed the lowest commercial price charged by the contractor in sales of such parts during a period described in subsection (b)(1). "(b) REQUIREMENTS FOR INCLUSION IN OFFER.—The head of an agency, with respect to an offeror who submits an offer to the head of an agency to enter into a contract for the supply of spare or repair parts under a contract awarded using procedures other than competitive procedures, and who also offers such parts for sale to the general public, shall require that the offeror— "(1) certify in such offer that, to the best of the knowledge and belief of the offeror, the price proposed in the offer does not exceed the lowest commercial price at which such offeror sold such parts during the most recent regular monthly, quarterly, or other period for which sales data are reasonably available; or "(2) submit with such offer a written statement— "(A) specifying the amount of the difference between the price proposed in the offer and the lowest commercial price at which such offeror sold such parts during a period described in paragraph (1); and "(B) providing a justification for that difference. "(c) EXCEPTION TO LIMITATION.—Subsections (a) and

(b) do

not

apply in the case of a contract with respect to which the contracting officer includes in the file on the contract a written determination by such officer that the use of the lowest commercial price with respect to such contract is not appropriate because of— "(1) national security considerations; or "(2) significant differences between the terms of the commercial sales of the parts to be acquired under such contract and the terms of such contract, including differences in— "(A) quantity; "(B) quality; "(C) delivery requirements; or "(D) other terms and conditions. "(d) AUDITING.—(1) In order to verify any certification or statement made under subsection (b) with respect to a contract, the contracting officer who awards such contract (or any representative of the contracting officer who is an employee of the United States or a member of the armed forces), during the time period specified in paragraph (2), may examine and audit all records of sales (including contract terms and conditions) maintained by or for the contractor that are directly pertinent to sales by the contractor of spare or repair parts identical to those covered by the contract during the period covered by such certification or statement. "(2) The head of an agency shall require an offeror who submits a certification or written statement under subsection (b) to make available the records, books, data, and documents described in paragraph (1) for examination, audit, or reproduction for the purposes of such paragraph during the three-year period beginning on

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the date that the offeror submits such certification or statement to such head of an agency. "(3) The authority provided by this subsection is in addition to the authority of the head of an agency under section 2306a of this title. "(e) REGULATIONS.—The Secretary of Defense, after consultation with the Secretary of Transportation and the Administrator of the National Aeronautics and Space Administration, shall prescribe regulations to carry out this section. Such regulations may not require the disclosure or submission of any data related to any element underlying the price of a commercial product not otherwise required by law. "(f) DEFINITIONS.—In this section: "(1) The term 'spare or repair part' means any individual piece, part, subassembly, or component which is furnished for the logistic support or repair of an end item and not as an end item itself. "(2) The term 'lowest commercial price' means the lowest price at which a sale was made to the general public of a particular part Such term does not include the price at which a sale was made"(A) to any agency of the United States; t"(B) to any person for resale by such person after such person performs a service or function in connection with such part that increases the cost of the part, unless the agency procuring the part can demonstrate that the agency is procuring the part before such service or function has been performed by any such person, "(C) to a subsidiary, affiliate, or parent business organiza tion of the contractor, or any other branch of the same business entity; "(D) to any person at a price that, for the purpose of making a donation, has been substantially discounted below the fair market value or regular price of such part; or "(E) to a customer located outside the United States. "(g) APPLICABILITY.—This section does not apply to a contract entered into using simplified small purchase procedures established under section 2304(g) of this title.". (2) The item relating to section 2323 at the beginning of chapter 137 is amended to read as follows: "2323. Commercial pricing for spare or repair parts.".

(b) EFFECTIVE DATE.—Regulations prescribed under section 2323(e) of title 10, United States Code (as amended by subsection (a)(D), shall take effect on the date of the enactment of this Act. SEC. 927. ALLOCATION OF OVERHEAD TO PARTS TO WHICH CONTRACTOR HAS ADDED LITTLE VALUE.

(a) IN GENERAL.—Section 2304 of title 10, United States Code, is amended by adding at the end the following new subsection: "(i)(l) The Secretary of Defense shall prescribe by regulation the manner in which the Department of Defense negotiates prices for supplies to be obtained through the use of procedures other than competitive procedures, as defined in section 2302(2) of this title. "(2) The regulations required by paragraph (1) shall— "(A) specify the incurred overhead a contractor may appropriately allocate to supplies referred to in that paragraph; and

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