The John Warner National Defense Authorization Act for Fiscal Year 2007 was passed out of a joint house and senate conference in late September and signed into law October 17.   The bill authorizes $463 Billion that includes $84.2 billion in procurement funding, $73 billion for research, development, test and evaluations, $155 billion for operation and maintenance and other programs and $110 billion for military personnel as well as an additional amount of $70 billion for “bridge funding” of operations in Iraq and Afghanistan.  Though the earlier House and Senate bills contained several more radical proposals, the final version took a more cautious role, leaving open for the future many key issues.

Technical Data Rights.  The final version marked a compromise.  The government put forth a proposal to purchase data rights “in full” for major defense systems so that that government rights over technical data would be preserved while industry objections argued the proposal would disrupt the careful balance between private and government-funded research that allocated rights to the party that has invested in developing the technical data at issue.  The compromised version would call on DOD program managers to assess long tem technical data needs and to establish acquisition strategies to ensure available technical data rights for major weapon system is sustained.  Specifically, the legislation will require contractors and subcontractors to prove, if challenged, that technical data in major weapons systems were developed at private expense in which case they will be entitled to special protections.  There is a pro-government presumption that the government is entitled to the data rights and the contractor must prove it was  produced exclusively at private expense.

Berry Amendment.  The Berry amendment, first passed in 1941 and extensively modified thereafter, prohibits DOD from purchasing a wide range of foreign-made goods including specialty metals.  A new section codifies specialty metals requirements that prohibits DOD from procuring certain end items or components for aircraft, missile and space systems, ships, tank and automotive items, weapons systems and ammunition that contain specialty metals not melted or produced in the US.  DOD is prohibited from procuring such metals either itself or though prime contractors.  The new section also provides for exceptions to the prohibition based on (1) availability – can not be procured for any prime or subcontract in the US (2) urgent needs outside the US for support of combat or contingency operations (3) when needed to comply with agreements with foreign countries to offset sales made by the US or US firms (4) when items are procured for resale in commissaries or exchanges (5) small purchases in amont below the simplified acquisition threshold and (6) electronic components where the special metal content is immaterial in value compared to the overall values of the component that uses the metal.

Excessive Pass-Through Charges.  Responding to various reports criticizing excessive add-ons to pass through charges, GAO is directed to report on pass-through charges on contracts, subcontracts, or task or delivery orders entered into or on behalf of DOD.  DOD will also be required to prescribe regulations that will ensure such charges are not excessive in relation to the cost of work performed by the relevant contractor or subcontractor.   Pass through charges are defined as a charge to the government for overhead or profit on work performed by a lower tier contractor or subcontractor; the definition does not apply to direct costs of managing such lower-tier contracts and subcontracts nor the overhead or profit based on such direct costs.    

Link Award Fees to Contractor Performance.  In response to various reports decrying unjustified award fees paid for unsatisfactory work, the secretary of defense must issue guidance linking award and incentive fees to acquisition outcomes.  The guidance must (1) ensure all new contracts using award fees link them to program cost, schedule and performance outcomes (2) establish standards for determining what level must approve such fees (3) provide guidance on what is considered to be “excellent” or “superior” performance and percentage of available fee to be paid for such performance (4) establish standards for determining what percentage fee, if any, should be paid for “acceptable”, “average”, “expected”, “good” or “satisfactory” (5) ensure no fee is paid for less than satisfactory or does not meet contract requirements and (6) provide specific direction on circumstances when an award fee not earned in one period can be rolled over to another.

A provision that would have prevented contractors from winning a public-private competition to perform Defense Department work if the only cost savings they offered came from a failure to provide retirement benefits equivalent to those of federal employees was stripped from the 2007 Defense Appropriations measure.  The amendment, sponsored by Sens. Kennedy (D-Mass) and Orrin Hatch (R-Utah), did not dictate what retirement benefits contractors should provide or require they change existing practices but rather it would have required DOD to exclude retirement costs from the public-private cost comparison conducted under OMB Circular A-76.  However, despite Bush administrations opposition to the policy, the FY 2007 spending measure does continue for another year the requirement that contractors’ health care coverage be taken into account when they are competing against in-house employees for DOD work.  The provision is intended to ensure they do not receive a competitive edge by providing less comprehensive benefits than those offered by in-house government employees.

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