Public Law 108-375
 
SECTION 1. SHORT TITLE.
 
This Act may be cited as the ``Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005''.
 
 
SEC. 327. <<NOTE: 10 USC 2461 note.>> LIMITATIONS ON CONVERSION OF WORK 
 PERFORMED BY DEPARTMENT OF DEFENSE CIVILIAN EMPLOYEES TO 
 CONTRACTOR PERFORMANCE.
 
 (a) Required Cost-Savings Threshold for Conversion.--If a public-
private competition conducted under the Office of Management and Budget 
Circular A-76 dated May 29, 2003 (68 Fed. Reg. 32134), regarding an 
activity or function performed by civilian employees of the Department 
of Defense is required to include a formal comparison of the cost of 
civilian employee performance of the activity or function with the cost 
of contractor performance, the Secretary of Defense shall maintain the 
continued performance of the activity or function by civilian employees 
unless the competitive sourcing official determines that, over all 
performance periods stated in the solicitation of offers for performance 
of the activity or function, the cost of performance of the activity or 
function by a contractor would be less costly to the Department of 
Defense by an amount that equals or exceeds the lesser of the following:
  (1) $10,000,000.
 (2) 10 percent of the most efficient organization's 
 personnel-related costs for performance of the activity or 
 function by civilian employees.
 
 (b) Prohibition on Modification of Functions to Permit Streamlined 
A-76 Study.--The Secretary of Defense shall ensure that no organization, 
function, or activity of the Department of Defense is consolidated, 
restructured, reengineered, or otherwise modified in any way for the 
purpose of exempting any public-private competition conducted under the 
Office of Management and Budget Circular A-76 dated May 29, 2003 (68 
Fed. Reg. 32134), regarding a commercial or industrial type function of 
the Department of Defense from the requirement to formally compare, in 
accordance with such Circular, the cost of civilian employee performance 
of the function with the cost of contractor performance.
 
 (c) Exception.--Subsection (a) does not apply in the case of a 
public-private competition conducted as part of the best-value source 
selection pilot program authorized by section 336 of the National 
Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136; 10 
U.S.C. 2461 note).
 
 
SEC. 328. COMPETITIVE SOURCING REPORTING REQUIREMENT.
 
 Not later than February 1, 2005, the Inspector General of the 
Department of Defense shall submit to Congress a report addressing 
whether the Department of Defense--
 (1) employs a sufficient number of adequately trained 
 civilian employees--
 (A) to conduct satisfactorily, taking into account 
 equity, efficiency and expeditiousness, all of the 
 public-private competitions that are scheduled to be 
  undertaken by the Department of Defense during the next 
 fiscal year (including a sufficient number of employees 
 to formulate satisfactorily the performance work 
 statements and most efficient organization plans for the 
 purposes of such competitions); and
 (B) to administer any resulting contracts; and
 (2) has implemented a comprehensive and reliable system to 
 track and assess the cost and quality of the performance of 
 functions of the Department of Defense by service contractors.

Latest Conference Report, 108-767

RONALD W. REAGAN NATIONAL DEFENSE

AUTHORIZATION ACT FOR

FISCAL YEAR 2005

Limitations on conversion of work performed by Department of Defense civilian employees to contractor performance (sec. 327)

The House bill contained a provision (sec. 323) that would: (1) codify the prohibition on converting an activity or function to private sector performance unless the conversion would result in savings of at least 10 percent or $10.0 million; (2) prohibit the Department from breaking up a function to avoid applicable thresholds for conducting a public competition; (3) ensure that a public competitor is not disadvantaged by the offer of a private competitor to reduce costs by reducing health care benefits for its employees; and (4) require the Department to conduct a competition, including an agency tender, a most efficient organization plan, and a formal cost comparison for any function performed by 10 or more civilian employees.

The Senate amendment contained a similar provision (sec. 851).

The Senate recedes with an amendment that would: (1) codify the prohibition on converting an activity or function to private sector performance unless the conversion would result in savings of at least 10 percent or $10.0 million when conducting a public-private competition under OMB circular A-76 dated May 29, 2003; and (2) prohibit the Department of Defense from breaking up a function to avoid applicable thresholds for conducting a public-private competition under A-76 Circular A-76, May 29, 2003.

The conferees agree to exclude the pilot program for best-value source selection authorized by section 336 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 103-136) from the requirement to apply a price differential of 10 percent or $10.0 million. The conferees expect the Secretary of Defense to utilize the price differential in the cost or price component of an evaluation under the pilot program, but understand that cost or price alone is not determinative in a best value competition.

The conferees note that the Department of Defense Appropriations Act for Fiscal Year 2005 (Public Law 108-257) includes a provision that would require the Department to ensure, in fiscal year 2005, that a public competitor is not disadvantaged by the offer of a private competitor to reduce costs by reducing health care benefits for its employees and that the Department must conduct a competition, including an agency tender, a most efficient organization plan, and a formal cost comparison for any function performed by 10 or more civilian employees.

The conferees direct the Comptroller General to review the implementation and impact of the Appropriations provision with regard to health care costs and competition of small agency functions. The Comptroller General's review should also address the full range of benefits provided by public and private sector employers, the manner in which these benefits are considered in a public-private competition, the impact of any benefit changes on employees who transition to private sector employment as a result of a public-private competition, and steps that could be taken to ameliorate any adverse impact of such a transition.

The conferees direct the Comptroller General to provide a preliminary report on this review to the congressional defense committees by no later than May 1, 2005, and a final report by no later than three months after the end of fiscal year 2005.

Competitive sourcing reporting requirement (sec. 328)

The House bill contained a provision (sec. 326) that would require the Inspector General of the Department of Defense to submit to Congress a report addressing whether the Department has implemented a comprehensive and reliable system to track and assess the results of public-private competitions. The House provision would establish a number of specific elements to be addressed in the tracking system.

The Senate amendment contained a compatible provision (sec. 853). The Senate provision would not establish the specific reporting elements to be addressed in the tracking system.

The House recedes.

The conferees note that section 354 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398) and section 385 of the National Defense Authorization Act for Fiscal Year 1998 (Public Law 105-85) required the Department to maintain a system for tracking the results of public-private competitions and established the specific elements to be addressed in the tracking system.

* * *

Public-private competition pilot program

The House bill contained a provision (sec. 324) that would require the Secretary of Defense to establish a pilot program to examine the use of public-private competition process on new requirements and functions currently being performed by contractors that could be performed by civilian employees. Under the pilot program, the Secretary would be required to allow civilian employees to compete through the standard competitive process of Office of Management and Budget Circular A-76 for: (1) approximately one-tenth of the new requirements of the Department of Defense; and (2) functions currently being performed by a number of contractor employees that is approximately one-tenth of the number of civilian employees subject to public-private competition during the same period.

The Senate amendment contained a provision (sec. 852) that would require the Secretary to prescribe guidelines and procedures for ensuring that fair consideration is given to using federal government employees to perform new work and functions that are currently performed by contractors. The provision would provide that no public-private competition may be required before assigning government employees to perform new work or work that was previously performed by contractors.

The conference report does not include either provision.

The conferees believe that the Department's workforce of civilian employees is an important resource that the Department should fully utilize. The National Security Personnel System gives the Secretary broad authority to hire new civilian employees and to develop new competencies within the Department's civilian workforce. The conferees believe that Department of Defense managers must have flexibility not only to assign work to civilian employees, but also to build and structure the civilian workforce to perform appropriate tasks, free of artificial or unneeded regulatory constraints.

The conferees direct the Secretary to work with the Director of the Office of Management and Budget and other appropriate officials to ensure that the Department has the flexibility that it needs to assign work to its civilian workforce and to build needed capabilities in that workforce.

* * *

Comptroller General analysis of use of transitional benefit corporations in connection with competitive sourcing of performance of Department of Defense activities and functions

The Senate amendment contained a provision (sec. 1029) that would require the Comptroller General to review the potential for use of transitional benefit corporations in connection with competitive sourcing of the performance of activities and functions of the Department of Defense.

The House amendment contained no similar provision.

The Senate recedes. The manner in which employee benefits are addressed in public-private competitions is addressed in a separate section of the conference report.