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Mr. CHAMBLISS. Mr. President, I rise to call up two amendments that have been filed at the desk, No. 1053 and No. 1054. I want to start by recognizing the great work Senators LEVIN and MCCAIN have done on this issue. I have been extremely concerned about the acquisition process at the Department of Defense for years--during my House years as well as my Senate years. There have been no two greater champions on the issue than Senators LEVIN and MCCAIN.
They put together a piece of legislation that I think really does move us down the road in the right direction. We are dealing with less money in the defense budget than we have ever had. Yet the needs are greater. So I commend them for the great work they have done.
One of the amendments I am going to talk about has already been accepted. I am very appreciative of their support of that amendment.
Both of these amendments relate to the organizational conflict of interest--OCI--area of the bill.
The first amendment, No. 1053, deals with the ways in which contractors
that have affiliates that provide systems engineering and technical assistance, or ``SETA'' services, must organize their SETA affiliates in order to mitigate conflict of interest.
In relation to large contractors having affiliates that perform SETA functions, this amendment would allow for a closer modeling of the arrangements that large U.S. companies that are foreign-owned or controlled currently have for their defense-related operations in order to protect classified information.
One aspect of these arrangements relates to how the corporate board for the U.S. company, or SETA affiliate in this case, is organized.
One model is ``proxy board'' which cannot communicate in any way with the parent company and prohibits any board member for the affiliate from serving on the board of or having other responsibilities within the parent company.
The proxy board model requires all outside board members and removes all prerogatives of ownership for the parent company. It does not allow the parent company to exercise any management control or oversight over the separate entity and, as such, is a huge liability for the parent company. As such, it is not an attractive model in many cases.
The other approach is a ``special security agreement'' which is what BAE, Rolls Royce, and other large defense contractors who have a reputation for responsibility and trustworthiness use for their U.S. affiliates. This approach requires some board members to be totally independent of the parent company but also permits some communication between the board of the affiliate and the parent company.
This model allows for regulated discussions between the affiliate and the parent and protects sensitive--versus routine--information from being shared.
This model has other aspects to it that provide for independence and security, and it makes sense and is less onerous for the parent company.
My amendment specifies that the arrangements between large contractors and their SETA affiliates should be similar to the ``special security agreement'' I have discussed above.
I am pleased that the managers have agreed to accept the amendment. I thank them for that.
The second amendment which I have filed, No. 1054, relates to prime contractor ``make-buy'' decisions. These decisions relate to which aspects of a contract the prime contractor chooses to either make themselves or contract out to another company.
The current bill prescribes what I believe to be onerous procedures for regulating the prime contractors' decisions in this regard and provides for
``government oversight of the process by which prime contractors consider such sources'' and authorizes ``program managers to disapprove the determination by a prime contractor to conduct development or construction in-house rather than through a subcontract.''
In my opinion, this is an example of the Government interfering in a private company's legitimate business decisions and adds little value to the process.
Current acquisition regulations already provide for oversight of ``make-buy'' decisions by the Government. The ``Acquisition Reform Working Group'' composed of industry associations has strong language in their recent report on this bill opposing further Government intervention in ``make-buy'' decisions.
Prime contractors are already incentivized through the market to make wise choices in this area and are held accountable to the Government for their choices, both through the terms of the contract in question and through future competitions for which past performance is always a consideration.
My amendment strikes much of the provision in the bill and is intended to account for the fact that there are already procedures in place to address this issue. My amendment also attempts to prohibit excessive Government involvement in private sector business decisions.
I would like to quote from the Acquisition Reform Working Group's, position paper they issued on this bill in relation to this issue.
The acquisition regulations already grant the government oversight of contractors' make/buy programs ..... The government has an appropriate oversight role, but that role must be managed to assure that the government is able to hold a contractor accountable for results. If the government is to determine which subcontractors will be part of a major program, the government will necessarily assume responsibility for that choice which will result in a corresponding reduction in the prime contractor 's responsibility for the program.
Make-buy decisions are critical to program success. The prime contractor must consider the selection of a major subcontractor much as the government considers the selection of the prime contractor in the source selection process. The selection of the major subcontractors is made early in the proposal process ..... To have the government substitute an agency decision concerning these selections after award would likely put the prime contractor's performance against the contract awarded base-line at risk. Any additional emphasis on the make-buy process should take into account the program risk created by Government direction for contractor source selection decisions.
There is a fine balance that must be maintained to hold contractors accountable for performance and results while affording the government an appropriate oversight role. It is unreasonable to expect a contractor to be held accountable for results if the government does not both provide the responsibility and the right incentives for that performance. Better and earlier planning and program management by the Government will mitigate a contractor's performance risks more effectively than taking away a contractor's intellectual property rights, innovation incentives, and accountability. Taking away such rights will also render the Defense market less attractive for new companies, especially commercial companies, with high risk and little chance of reward.
That is a rather extensive quote from that report by the Acquisition Reform Working Group, but I thought it was important to rationalize the way of thinking related to how we look at this issue. Basically, what we are proposing is, not to change the way the situation works today with respect to make-buy contracts.
So if you have a major weapons system contractor that is awarded a contract, and under that contract, let's say for an automobile that obviously requires a steering wheel, then the contractor ought to have the ability to decide whether to make that steering wheel themselves or whether to subcontract that steering wheel out to another contractor. If the contractor has a right to make those decisions then the numbers that were contained in their bid are going to reflect that and accurately reflect the ultimate price the Government pays. But if the Government has the right, as the bill says, to step in after the award and tell the prime contractor: You are not going to subcontract out, we are going to mandate that you make that steering wheel, then I think it does take away some of the flexibility and the ability on the part of the prime contractor to be able to adhere to the numbers and pricing that their bid contains.
This is a situation where, if we think contractors in the defense community are taking advantage of the system, the language in the bill is the direction in which we ought to go. But there are safeguards in every contract that the Department of Defense awards. I think what we need to do is focus more on making sure contractors are giving us the best possible buy we can get and the best quality of product we can get, and not hamstring those contractors who are making these bids. This will allow us to take the most advantage of taxpayer dollars that we have to use in equipping our men and women who wear the uniform of the United States.
I understand the committee may have issues with this amendment, but I think it is a good amendment. I urge its adoption.
I want to close by saying again that Senator McCain and I have talked about this issue of acquisition reform a number of times during my years in the Senate. There is no stronger advocate for doing what is right related to proper expenditure of taxpayer money than Senator McCain. I applaud him and Senator Levin for taking this on, getting in the weeds on it, because the contracts for which the Pentagon solicits bids and that they award on a daily basis are extremely complex, they are very large in the amount of money they spend, and this type of reform is not easy to put together.
But I think Senators LEVIN and MCCAIN have done an excellent job of coming up with what I think is a good product. I think with some of the amendments that have come forward today it is going to be an even better product.
I yield the floor.
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