Letter on Defense Authorization Bill

September 29, 2005

The Honorable John Warner

Chairman

Senate Armed Services Committee

United States Senate

Washington, DC 20510

Dear Chairman Warner:

On behalf of the US Chamber of Commerce, the world's largest business federation representing more than 3 million businesses of every size, sector and region, I am writing to highlight several filed amendments to the Fiscal Year 2006 National Defense Authorization Act (S. 1042). As you deliberate on how to proceed with the bill and which amendments to accept, I urge you to take into consideration our comments on the following amendments.

1. The U.S. Chamber of Commerce opposes Senate Amendments 1311, 1353, and 1467, which would all alter the Committee on Foreign Investment in the United States (CFIUS) review process and give Congress more authority to block the consummation of an approved merger or acquisition. The U.S. has benefited enormously from growth-oriented economic policies that encourage incoming foreign investment without too many obstacles. CFIUS has worked well over the years to balance the need for growth-inducing foreign investment with the need to ensure that investment does not also compromise our security. These amendments would do much to increase political uncertainty over the viability of a potential foreign investment in the U.S. Consequences would include a higher cost of capital here in the US, slower economic growth and foreign retaliation against U.S. investment abroad, without materially improving U.S. national security or providing other benefits.

2. The Chamber urges you to oppose Senate Amendment 1442, which would severely impede the competitive sourcing initiative at the Department of Defense. It would mandate the use of full public-private competitions to competitively source Department of Defense functions performed by ten or more employees, force the private sector to "win" competitions by 10% or $10 million to obtain the contract, and mandates that guidelines be issued to allow federal employees to perform jobs that have been contracted out since 1980. This amendment will drive up personnel costs, decrease efficiencies, and shut the door on businesses, particularly small enterprises, that are vying for a share of government contracts. The competitive sourcing process is far from slanted toward the private sector—federal employees win 90% of competitions—thus the private sector does not need any other impediments to entering into public-private competitions under Circular A-76.

3. The Chamber supports Senate Amendments 1468 and 1535, and urges you to combine them and accept them in lieu of Senate Amendment 1442. Together, these amendments will ensure fair and open public-private competitions undertaken by DoD by mandating that they follow procedures outlined in the Competition in Contracting Act. They will also alleviate an impediment enacted in previous years to small businesses competing in competitive sourcing competitions by allowing them to utilize innovative health care plans. Currently if a company does not provide as much or more than the government in their health care package, the company is barred from competing, which disregards the overall benefits packages offered in the private sector.

4. The Chamber opposes Senate Amendment 1497 on Time and Material contracting and supports allowing the regulatory process to proceed before legislating a change. The proposed rule published in the Federal Register on September 26, 2005, which solicits public comments from all parties, will address the areas for potential abuse and transparency that the amendment hopes to address. This amendment states that if a subcontractor's name is not disclosed in the initial contract—this happens frequently, especially for contracts off a GSA schedule—the prime contractor will be forced to bill at the direct labor hour rate of the subcontractor. It will effectively force prime contractors to not use subcontractors in certain circumstances. This will not allow the reimbursement of costs to the prime contractor for managing the contract and overhead costs, which include integrating all subcontracts, planning, supervising, and verifying performance. Therefore, companies would be losing money on time and material contracts under this situation. Allowing the regulatory process to proceed will allow all sides to have input, which will assure that appropriate oversight is granted without creating severe impediments to the use of the contracting vehicle.

5. The Chamber opposes part of Senate Amendment 1555 as currently drafted. We are concerned with the third part of the amendment that addresses management contracts—more than 80% of cost of manufacturing is subcontracted. The third part requires the Secretary of Defense to prescribe additional regulations for management contracts for major defense acquisitions. These regulations establish further requirements for management contracts that are already well regulated and addressed in the Federal Acquisition Regulations (FAR). It will force DoD to create unnecessary rules for areas already under thorough oversight by agencies, and the implementation of the new regulations will conflict with some current ones. In addition, it requires the development of regulations prohibiting pass-through charges on covered contracts—more than 90% of cost of performance is subcontracted—which would have the effect of prohibiting contractors from recouping overhead expenses, which includes the management and supervision of subcontracts.

The overall result of this amendment, if enacted as is, will cause companies to keep more work in house rather than make decisions based on best value or cost to avoid the impacts of the management contract thresholds. It will increase overall costs of the contract to the government and reduce the expertise gained from subcontractors that are experts in their field. While we appreciate the intent to improve oversight of management contracts and avoid abuses, the current regulatory and oversight process provides significant and appropriate direction for the use of management contracts.

The U.S. Chamber of Commerce appreciates your thoughtful consideration of each of these amendments as you deliberate on the 2006 National Defense Authorization Act (S. 1042).

Sincerely,

R. Bruce Josten

Executive Vice President, Government Affairs
U.S. Chamber of Commerce