
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 10USC2324]

 
                         TITLE 10--ARMED FORCES
 
                    Subtitle A--General Military Law
 
                PART IV--SERVICE, SUPPLY, AND PROCUREMENT
 
                   CHAPTER 137--PROCUREMENT GENERALLY
 
Sec. 2324. Allowable costs under defense contracts

    (a) Indirect Cost That Violates a FAR Cost Principle.--The head of 
an agency shall require that a covered contract provide that if the 
contractor submits to the agency a proposal for settlement of indirect 
costs incurred by the contractor for any period after such costs have 
been accrued and if that proposal includes the submission of a cost 
which is unallowable because the cost violates a cost principle in the 
Federal Acquisition Regulation or applicable agency supplement to the 
Federal Acquisition Regulation, the cost shall be disallowed.
    (b) Penalty for Violation of Cost Principle.--(1) If the head of the 
agency determines that a cost submitted by a contractor in its proposal 
for settlement is expressly unallowable under a cost principle referred 
to in subsection (a) that defines the allowability of specific selected 
costs, the head of the agency shall assess a penalty against the 
contractor in an amount equal to--
        (A) the amount of the disallowed cost allocated to covered 
    contracts for which a proposal for settlement of indirect costs has 
    been submitted; plus
        (B) interest (to be computed based on provisions in the Federal 
    Acquisition Regulation) to compensate the United States for the use 
    of any funds which a contractor has been paid in excess of the 
    amount to which the contractor was entitled.

    (2) If the head of the agency determines that a proposal for 
settlement of indirect costs submitted by a contractor includes a cost 
determined to be unallowable in the case of such contractor before the 
submission of such proposal, the head of the agency shall assess a 
penalty against the contractor in an amount equal to two times the 
amount of the disallowed cost allocated to covered contracts for which a 
proposal for settlement of indirect costs has been submitted.
    (c) Waiver of Penalty.--The Federal Acquisition Regulation shall 
provide for a penalty under subsection (b) to be waived in the case of a 
contractor's proposal for settlement of indirect costs when--
        (1) the contractor withdraws the proposal before the formal 
    initiation of an audit of the proposal by the Federal Government and 
    resubmits a revised proposal;
        (2) the amount of unallowable costs subject to the penalty is 
    insignificant; or
        (3) the contractor demonstrates, to the contracting officer's 
    satisfaction, that--
            (A) it has established appropriate policies and personnel 
        training and an internal control and review system that provide 
        assurances that unallowable costs subject to penalties are 
        precluded from being included in the contractor's proposal for 
        settlement of indirect costs; and
            (B) the unallowable costs subject to the penalty were 
        inadvertently incorporated into the proposal.

    (d) Applicability of Contract Disputes Procedure to Disallowance of 
Cost and Assessment of Penalty.--An action of the head of an agency 
under subsection (a) or (b)--
        (1) shall be considered a final decision for the purposes of 
    section 6 of the Contract Disputes Act of 1978 (41 U.S.C. 605); and
        (2) is appealable in the manner provided in section 7 of such 
    Act (41 U.S.C. 606).

    (e) Specific Costs Not Allowable.--(1) The following costs are not 
allowable under a covered contract:
        (A) Costs of entertainment, including amusement, diversion, and 
    social activities and any costs directly associated with such costs 
    (such as tickets to shows or sports events, meals, lodging, rentals, 
    transportation, and gratuities).
        (B) Costs incurred to influence (directly or indirectly) 
    legislative action on any matter pending before Congress, a State 
    legislature, or a legislative body of a political subdivision of a 
    State.
        (C) Costs incurred in defense of any civil or criminal fraud 
    proceeding or similar proceeding (including filing of any false 
    certification) brought by the United States where the contractor is 
    found liable or has pleaded nolo contendere to a charge of fraud or 
    similar proceeding (including filing of a false certification).
        (D) Payments of fines and penalties resulting from violations 
    of, or failure to comply with, Federal, State, local, or foreign 
    laws and regulations, except when incurred as a result of compliance 
    with specific terms and conditions of the contract or specific 
    written instructions from the contracting officer authorizing in 
    advance such payments in accordance with applicable provisions of 
    the Federal Acquisition Regulation.
        (E) Costs of membership in any social, dining, or country club 
    or organization.
        (F) Costs of alcoholic beverages.
        (G) Contributions or donations, regardless of the recipient.
        (H) Costs of advertising designed to promote the contractor or 
    its products.
        (I) Costs of promotional items and memorabilia, including 
    models, gifts, and souvenirs.
        (J) Costs for travel by commercial aircraft which exceed the 
    amount of the standard commercial fare.
        (K) Costs incurred in making any payment (commonly known as a 
    ``golden parachute payment'') which is--
            (i) in an amount in excess of the normal severance pay paid 
        by the contractor to an employee upon termination of employment; 
        and
            (ii) is paid to the employee contingent upon, and following, 
        a change in management control over, or ownership of, the 
        contractor or a substantial portion of the contractor's assets.

        (L) Costs of commercial insurance that protects against the 
    costs of the contractor for correction of the contractor's own 
    defects in materials or workmanship.
        (M) Costs of severance pay paid by the contractor to foreign 
    nationals employed by the contractor under a service contract 
    performed outside the United States, to the extent that the amount 
    of severance pay paid in any case exceeds the amount paid in the 
    industry involved under the customary or prevailing practice for 
    firms in that industry providing similar services in the United 
    States, as determined under the Federal Acquisition Regulation.
        (N) Costs of severance pay paid by the contractor to a foreign 
    national employed by the contractor under a service contract 
    performed in a foreign country if the termination of the employment 
    of the foreign national is the result of the closing of, or the 
    curtailment of activities at, a United States military facility in 
    that country at the request of the government of that country.
        (O) Costs incurred by a contractor in connection with any 
    criminal, civil, or administrative proceeding commenced by the 
    United States or a State, to the extent provided in subsection (k).
        (P) Costs of compensation of senior executives of contractors 
    for a fiscal year, regardless of the contract funding source, to the 
    extent that such compensation exceeds the benchmark compensation 
    amount determined applicable for the fiscal year by the 
    Administrator for Federal Procurement Policy under section 39 of the 
    Office of Federal Procurement Policy Act (41 U.S.C. 435).

    (2)(A) The Secretary of Defense may provide in a military banking 
contract that the provisions of paragraphs (1)(M) and (1)(N) shall not 
apply to costs incurred under the contract by the contractor for payment 
of mandated foreign national severance pay. The Secretary may include 
such a provision in a military banking contract only if the Secretary 
determines, with respect to that contract, that the contractor has taken 
(or has established plans to take) appropriate actions within the 
contractor's control to minimize the amount and number of incidents of 
the payment of severance pay by the contractor to employees under the 
contract who are foreign nationals.
    (B) In subparagraph (A):
        (i) The term ``military banking contract'' means a contract 
    between the Secretary and a financial institution under which the 
    financial institution operates a military banking facility outside 
    the United States for use by members of the armed forces stationed 
    or deployed outside the United States and other authorized 
    personnel.
        (ii) The term ``mandated foreign national severance pay'' means 
    severance pay paid by a contractor to a foreign national employee 
    the payment of which by the contractor is required in order to 
    comply with a law that is generally applicable to a significant 
    number of businesses in the country in which the foreign national 
    receiving the payment performed services under the contract.

    (C) Subparagraph (A) does not apply to a contract with a financial 
institution that is owned or controlled by citizens or nationals of a 
foreign country, as determined by the Secretary of Defense. Such a 
determination shall be made in accordance with the criteria set out in 
paragraph (1) of section 4(g) of the Buy American Act \1\ (41 U.S.C. 
10b-1) and the policy guidance referred to in paragraph (2)(A) of that 
section.
---------------------------------------------------------------------------
    \1\ See References in Text note below.
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    (3)(A) Pursuant to the Federal Acquisition Regulation and subject to 
the availability of appropriations, the head of an agency awarding a 
covered contract (other than a contract to which paragraph (2) applies) 
may waive the application of the provisions of paragraphs (1)(M) and 
(1)(N) to that contract if the head of the agency determines that--
        (i) the application of such provisions to the contract would 
    adversely affect the continuation of a program, project, or activity 
    that provides significant support services for members of the armed 
    forces stationed or deployed outside the United States;
        (ii) the contractor has taken (or has established plans to take) 
    appropriate actions within the contractor's control to minimize the 
    amount and number of incidents of the payment of severance pay by 
    the contractor to employees under the contract who are foreign 
    nationals; and
        (iii) the payment of severance pay is necessary in order to 
    comply with a law that is generally applicable to a significant 
    number of businesses in the country in which the foreign national 
    receiving the payment performed services under the contract or is 
    necessary to comply with a collective bargaining agreement.

    (B) The head of an agency shall include in the solicitation for a 
covered contract a statement indicating--
        (i) that a waiver has been granted under subparagraph (A) for 
    the contract; or
        (ii) whether the head of the agency will consider granting such 
    a waiver, and, if the agency head will consider granting a waiver, 
    the criteria to be used in granting the waiver.

    (C) The head of an agency shall make the final determination 
regarding whether to grant a waiver under subparagraph (A) with respect 
to a covered contract before award of the contract.
    (4) The provisions of the Federal Acquisition Regulation 
implementing this section may establish appropriate definitions, 
exclusions, limitations, and qualifications.
    (f) Required Regulations.--(1) The Federal Acquisition Regulation 
shall contain provisions on the allowability of contractor costs. Such 
provisions shall define in detail and in specific terms those costs 
which are unallowable, in whole or in part, under covered contracts. The 
regulations shall, at a minimum, clarify the cost principles applicable 
to contractor costs of the following:
        (A) Air shows.
        (B) Membership in civic, community, and professional 
    organizations.
        (C) Recruitment.
        (D) Employee morale and welfare.
        (E) Actions to influence (directly or indirectly) executive 
    branch action on regulatory and contract matters (other than costs 
    incurred in regard to contract proposals pursuant to solicited or 
    unsolicited bids).
        (F) Community relations.
        (G) Dining facilities.
        (H) Professional and consulting services, including legal 
    services.
        (I) Compensation.
        (J) Selling and marketing.
        (K) Travel.
        (L) Public relations.
        (M) Hotel and meal expenses.
        (N) Expense of corporate aircraft.
        (O) Company-furnished automobiles.
        (P) Advertising.
        (Q) Conventions.

    (2) The Federal Acquisition Regulation shall require that a 
contracting officer not resolve any questioned costs until he has 
obtained--
        (A) adequate documentation with respect to such costs; and
        (B) the opinion of the contract auditor on the allowability of 
    such costs.

    (3) The Federal Acquisition Regulation shall provide that, to the 
maximum extent practicable, the contract auditor be present at any 
negotiation or meeting with the contractor regarding a determination of 
the allowability of indirect costs of the contractor.
    (4) The Federal Acquisition Regulation shall require that all 
categories of costs designated in the report of the contract auditor as 
questioned with respect to a proposal for settlement be resolved in such 
a manner that the amount of the individual questioned costs that are 
paid will be reflected in the settlement.
    (g) Applicability of Regulations to Subcontractors.--The regulations 
referred to in subsections (e) and (f)(1) shall require prime 
contractors of a covered contract, to the maximum extent practicable, to 
apply the provisions of such regulations to all subcontractors of the 
covered contract.
    (h) Contractor Certification Required.--(1) A proposal for 
settlement of indirect costs applicable to a covered contract shall 
include a certification by an official of the contractor that, to the 
best of the certifying official's knowledge and belief, all indirect 
costs included in the proposal are allowable. Any such certification 
shall be in a form prescribed in the Federal Acquisition Regulation.
    (2) The head of the agency or the Secretary of the military 
department concerned may, in an exceptional case, waive the requirement 
for certification under paragraph (1) in the case of any contract if the 
head of the agency or the Secretary--
        (A) determines in such case that it would be in the interest of 
    the United States to waive such certification; and
        (B) states in writing the reasons for that determination and 
    makes such determination available to the public.

    (i) Penalties for Submission of Cost Known as Not Allowable.--The 
submission to an agency of a proposal for settlement of costs for any 
period after such costs have been accrued that includes a cost that is 
expressly specified by statute or regulation as being unallowable, with 
the knowledge that such cost is unallowable, shall be subject to the 
provisions of section 287 of title 18 and section 3729 of title 31.
    (j) Contractor To Have Burden of Proof.--In a proceeding before the 
Armed Services Board of Contract Appeals, the United States Court of 
Federal Claims, or any other Federal court in which the reasonableness 
of indirect costs for which a contractor seeks reimbursement from the 
Department of Defense is in issue, the burden of proof shall be upon the 
contractor to establish that those costs are reasonable.
    (k) Proceeding Costs Not Allowable.--(1) Except as otherwise 
provided in this subsection, costs incurred by a contractor in 
connection with any criminal, civil, or administrative proceeding 
commenced by the United States or a State are not allowable as 
reimbursable costs under a covered contract if the proceeding (A) 
relates to a violation of, or failure to comply with, a Federal or State 
statute or regulation, and (B) results in a disposition described in 
paragraph (2).
    (2) A disposition referred to in paragraph (1)(B) is any of the 
following:
        (A) In the case of a criminal proceeding, a conviction 
    (including a conviction pursuant to a plea of nolo contendere) by 
    reason of the violation or failure referred to in paragraph (1).
        (B) In the case of a civil or administrative proceeding 
    involving an allegation of fraud or similar misconduct, a 
    determination of contractor liability on the basis of the violation 
    or failure referred to in paragraph (1).
        (C) In the case of any civil or administrative proceeding, the 
    imposition of a monetary penalty by reason of the violation or 
    failure referred to in paragraph (1).
        (D) A final decision--
            (i) to debar or suspend the contractor;
            (ii) to rescind or void the contract; or
            (iii) to terminate the contract for default;

    by reason of the violation or failure referred to in paragraph (1).
        (E) A disposition of the proceeding by consent or compromise if 
    such action could have resulted in a disposition described in 
    subparagraph (A), (B), (C), or (D).

    (3) In the case of a proceeding referred to in paragraph (1) that is 
commenced by the United States and is resolved by consent or compromise 
pursuant to an agreement entered into by a contractor and the United 
States, the costs incurred by the contractor in connection with such 
proceeding that are otherwise not allowable as reimbursable costs under 
such paragraph may be allowed to the extent specifically provided in 
such agreement.
    (4) In the case of a proceeding referred to in paragraph (1) that is 
commenced by a State, the head of the agency or Secretary of the 
military department concerned that awarded the covered contract involved 
in the proceeding may allow the costs incurred by the contractor in 
connection with such proceeding as reimbursable costs if the agency head 
or Secretary determines, in accordance with the Federal Acquisition 
Regulation, that the costs were incurred as a result of (A) a specific 
term or condition of the contract, or (B) specific written instructions 
of the agency or military department.
    (5)(A) Except as provided in subparagraph (C), costs incurred by a 
contractor in connection with a criminal, civil, or administrative 
proceeding commenced by the United States or a State in connection with 
a covered contract may be allowed as reimbursable costs under the 
contract if such costs are not disallowable under paragraph (1), but 
only to the extent provided in subparagraph (B).
    (B)(i) The amount of the costs allowable under subparagraph (A) in 
any case may not exceed the amount equal to 80 percent of the amount of 
the costs incurred, to the extent that such costs are determined to be 
otherwise allowable and allocable under the Federal Acquisition 
Regulation.
    (ii) Regulations issued for the purpose of clause (i) shall provide 
for appropriate consideration of the complexity of procurement 
litigation, generally accepted principles governing the award of legal 
fees in civil actions involving the United States as a party, and such 
other factors as may be appropriate.
    (C) In the case of a proceeding referred to in subparagraph (A), 
contractor costs otherwise allowable as reimbursable costs under this 
paragraph are not allowable if (i) such proceeding involves the same 
contractor misconduct alleged as the basis of another criminal, civil, 
or administrative proceeding, and (ii) the costs of such other 
proceeding are not allowable under paragraph (1).
    (6) In this subsection:
        (A) The term ``proceeding'' includes an investigation.
        (B) The term ``costs'', with respect to a proceeding--
            (i) means all costs incurred by a contractor, whether before 
        or after the commencement of any such proceeding; and
            (ii) includes--
                (I) administrative and clerical expenses;
                (II) the cost of legal services, including legal 
            services performed by an employee of the contractor;
                (III) the cost of the services of accountants and 
            consultants retained by the contractor; and
                (IV) the pay of directors, officers, and employees of 
            the contractor for time devoted by such directors, officers, 
            and employees to such proceeding.

        (C) The term ``penalty'' does not include restitution, 
    reimbursement, or compensatory damages.

    (l) Definitions.--In this section:
        (1)(A) The term ``covered contract'' means a contract for an 
    amount in excess of $500,000 that is entered into by the head of an 
    agency, except that such term does not include a fixed-price 
    contract without cost incentives or any firm fixed-price contract 
    for the purchase of commercial items.
        (B) Effective on October 1 of each year that is divisible by 
    five, the amount set forth in subparagraph (A) shall be adjusted to 
    the equivalent amount in constant fiscal year 1994 dollars. An 
    amount, as so adjusted, that is not evenly divisible by $50,000 
    shall be rounded to the nearest multiple of $50,000. In the case of 
    an amount that is evenly divisible by $25,000 but is not evenly 
    divisible by $50,000, the amount shall be rounded to the next higher 
    multiple of $50,000.
        (2) The term ``head of the agency'' or ``agency head'' does not 
    include the Secretary of a military department.
        (3) The term ``agency'' means the Department of Defense, the 
    Coast Guard, and the National Aeronautics and Space Administration.
        (4) The term ``compensation'', for a year, means the total 
    amount of wages, salary, bonuses and deferred compensation for the 
    year, whether paid, earned, or otherwise accruing, as recorded in an 
    employer's cost accounting records for the year.
        (5) The term ``senior executives'', with respect to a 
    contractor, means the five most highly compensated employees in 
    management positions at each home office and each segment of the 
    contractor.
        (6) The term ``fiscal year'' means a fiscal year established by 
    a contractor for accounting purposes.

(Added Pub. L. 99-145, title IX, Sec. 911(a)(1), Nov. 8, 1985, 99 Stat. 
682; amended Pub. L. 99-190, Sec. 101(b) [title VIII, Sec. 8112(a)], 
Dec. 19, 1985, 99 Stat. 1185, 1223; Pub. L. 100-26, Sec. 7(k)(3), Apr. 
21, 1987, 101 Stat. 284; Pub. L. 100-180, div. A, title VIII, 
Sec. 805(a), Dec. 4, 1987, 101 Stat. 1126; Pub. L. 100-370, 
Sec. 1(f)(2)(A), (3)(A), July 19, 1988, 102 Stat. 846; Pub. L. 100-456, 
div. A, title III, Sec. 322(a), title VIII, Secs. 826(a), 832(a), Sept. 
29, 1988, 102 Stat. 1952, 2022, 2023; Pub. L. 100-463, title VIII, 
Sec. 8105(a), Oct. 1, 1988, 102 Stat. 2270-36; Pub. L. 100-526, title I, 
Sec. 106(a)(2), Oct. 24, 1988, 102 Stat. 2625; Pub. L. 100-700 
Sec. 8(b), Nov. 19, 1988, 102 Stat. 4636; Pub. L. 101-189, div. A, title 
III, Sec. 311(a)(1), title VIII, Sec. 853(a)(1), (b)(3), Nov. 29, 1989, 
103 Stat. 1411, 1518; Pub. L. 101-510, div. A, title XIII, 
Sec. 1301(10), Nov. 5, 1990, 104 Stat. 1668; Pub. L. 102-190, div. A, 
title III, Sec. 346(a), Dec. 5, 1991, 105 Stat. 1346; Pub. L. 102-484, 
div. A, title VIII, Sec. 818(a), title X, Sec. 1052(26), title XIII, 
Sec. 1352(b), Oct. 23, 1992, 106 Stat. 2457, 2500, 2559; Pub. L. 103-
355, title II, Sec. 2101(a)-(d), Oct. 13, 1994, 108 Stat. 3306-3308; 
Pub. L. 104-106, div. D, title XLIII, Sec. 4321(a)(5), (b)(9), Feb. 10, 
1996, 110 Stat. 671, 672; Pub. L. 105-85, div. A, title VIII, 
Sec. 808(a), Nov. 18, 1997, 111 Stat. 1836; Pub. L. 105-261, div. A, 
title VIII, Sec. 804(a), Oct. 17, 1998, 112 Stat. 2083.)


                      Historical and Revision Notes

    Subsection (e)(1)(L) is based on section 2399 of this title as 
enacted by Pub. L. 97-295, Sec. 1(29)(A), Oct. 12, 1982, 96 Stat. 1293.
    Section 1(f)(2) of the bill would transfer the provisions of 
existing 10 U.S.C. 2399 to a new subparagraph (L) of 10 U.S.C. 
2324(e)(1). The existing section 2399 prohibits the use of appropriated 
funds to reimburse a defense contractor for insurance against the 
contractor's costs of correcting defects in the contractor's materials 
or workmanship. The transfer would add the provision to the list of 
contractor costs which are not allowable as expenses which may be paid 
by the Department of Defense under a contract. This allowable cost 
limitation applies only to contracts for more than $100,000 other than 
fixed price contracts without cost incentives (see 10 US.C. 2324(k)). 
The committee determined that it is appropriate to treat the subject 
matter of section 2399 in the same manner as other provisions relating 
to allowable costs of defense contractors and notes that section 2324, 
providing a more comprehensive treatment of allowable costs, was enacted 
after section 2399. The committee recognizes that contracts for amounts 
less than $100,000 and fixed price contracts without cost incentives are 
covered by the existing section 2399 and would not be covered by the 
provision as transferred. The committee determined that in practice the 
existing section 2399 would not have significant applicability to such 
contracts and that the transfer is appropriate as part of this bill.
    Subsection (j) is based on Pub. L. 99-145, title IX, Sec. 933, Nov. 
8, 1985, 99 Stat. 700.

                       References in Text

    Section 4 of the Buy American Act (41 U.S.C. 10b-1), referred to in 
subsec. (e)(2)(C), was omitted from the Code in view of section 7004 of 
Pub. L. 100-418 which provided that the amendment by Pub. L. 100-418 
which enacted section 10b-1 of Title 41, Public Contracts, ceased to be 
effective on Apr. 30, 1996. Another section 4 of the Buy American Act is 
classified as an Effective Date note under section 10c of Title 41.

                          Codification

    Another section 2324 of this title was contained in chapter 138 and 
was renumbered section 2344 of this title.


                               Amendments

    1998--Subsec. (l)(5). Pub. L. 105-261 amended par. (5) generally. 
Prior to amendment, par. (5) read as follows: ``The term `senior 
executive', with respect to a contractor, means--
        ``(A) the chief executive officer of the contractor or any 
    individual acting in a similar capacity for the contractor;
        ``(B) the four most highly compensated employees in management 
    positions of the contractor other than the chief executive officer; 
    and
        ``(C) in the case of a contractor that has components which 
    report directly to the contractor's headquarters, the five most 
    highly compensated employees in management positions at each such 
    component.''
    1997--Subsec. (e)(1)(P). Pub. L. 105-85, Sec. 808(a)(1), added 
subpar. (P).
    Subsec. (l)(4) to (6). Pub. L. 105-85, Sec. 808(a)(2), added pars. 
(4) to (6).
    1996--Subsec. (e)(2)(C). Pub. L. 104-106, Sec. 4321(b)(9)(A), struck 
out ``awarding the contract'' after ``Secretary of Defense'' and 
substituted ``the Buy American Act (41 U.S.C. 10b-1)'' for ``title III 
of the Act of March 3, 1933 (41 U.S.C. 10b-1) (commonly referred to as 
the Buy American Act)''.
    Subsec. (f)(2) to (4). Pub. L. 104-106, Sec. 4321(a)(5), made 
technical correction to directory language of Pub. L. 103-355, 
Sec. 2101(a)(6)(B)(ii). See 1994 Amendment notes below.
    Subsec. (h)(2). Pub. L. 104-106, Sec. 4321(b)(9)(B), inserted ``the 
head of the agency or'' after ``in the case of any contract if''.
    1994--Subsec. (a). Pub. L. 103-355, Sec. 2101(a), inserted heading 
and substituted ``head of an agency'' for ``Secretary of Defense'', 
``agency'' for ``Department of Defense'', and ``applicable agency 
supplement'' for ``the Department of Defense Supplement''.
    Subsec. (b). Pub. L. 103-355, Sec. 2101(a)(2)(A), inserted heading.
    Subsec. (b)(1). Pub. L. 103-355, Sec. 2101(a)(2)(C), substituted 
``head of the agency'' for ``Secretary'' in two places in introductory 
provisions.
    Subsec. (b)(1)(B). Pub. L. 103-355, Sec. 2101(a)(2)(B), substituted 
``provisions in the Federal Acquisition Regulation'' for ``regulations 
issued by the Secretary''.
    Subsec. (b)(2). Pub. L. 103-355, Sec. 2101(a)(2)(C), substituted 
``head of the agency'' for ``Secretary'' in two places.
    Subsec. (c). Pub. L. 103-355, Sec. 2101(a)(3), inserted heading and 
substituted ``The Federal Acquisition Regulation shall provide'' for 
``The Secretary shall prescribe regulations providing''.
    Subsec. (d). Pub. L. 103-355, Sec. 2101(a)(4), inserted heading and 
substituted ``the head of an agency'' for ``the Secretary'' in 
introductory provisions.
    Subsec. (e). Pub. L. 103-355, Sec. 2101(a)(5)(A), inserted heading.
    Subsec. (e)(1)(B). Pub. L. 103-355, Sec. 2101(b), substituted ``, a 
State legislature, or a legislative body of a political subdivision of a 
State'' for ``or a State legislature''.
    Subsec. (e)(1)(D). Pub. L. 103-355, Sec. 2101(a)(5)(B), substituted 
``provisions of the Federal Acquisition Regulation'' for ``regulations 
of the Secretary of Defense''
    Subsec. (e)(1)(M). Pub. L. 103-355, Sec. 2101(a)(5)(C), substituted 
``the Federal Acquisition Regulation'' for ``regulations prescribed by 
the Secretary of Defense''.
    Subsec. (e)(2)(A). Pub. L. 103-355, Sec. 2101(a)(5)(D), substituted 
``the Secretary of Defense may provide'' for ``the Secretary may 
provide''.
    Subsec. (e)(2)(C). Pub. L. 103-355, Sec. 2101(a)(5)(E), substituted 
``Secretary of Defense'' for ``head of the agency''.
    Subsec. (e)(3)(A). Pub. L. 103-355, Sec. 2101(a)(5)(F), substituted 
``the Federal Acquisition Regulation'' for ``regulations prescribed by 
the Secretary''.
    Subsec. (e)(4). Pub. L. 103-355, Sec. 2101(a)(5)(G), amended par. 
(4) generally. Prior to amendment, par. (4) read as follows: ``The 
Secretary shall prescribe regulations to implement this section. Such 
regulations may establish appropriate definitions, exclusions, 
limitations, and qualifications.''
    Subsec. (f)(1). Pub. L. 103-355, Sec. 2101(a)(6)(A), inserted 
heading and substituted ``(1) The Federal Acquisition Regulation shall 
contain provisions on the allowability of contractor costs. Such 
provisions'' for ``(1) The Secretary shall prescribe proposed 
regulations to amend those provisions of the Department of Defense 
Supplement to the Federal Acquisition Regulation dealing with the 
allowability of contractor costs. The amendments'' and ``The 
regulations'' for ``These regulations''.
    Subsec. (f)(1)(Q). Pub. L. 103-355, Sec. 2101(c), added subpar. (Q).
    Subsec. (f)(2). Pub. L. 103-355, Sec. 2101(a)(6)(B)(ii), as amended 
by Pub. L. 104-106, Sec. 4321(a)(5), substituted ``Federal Acquisition 
Regulation'' for ``regulations''.
    Subsec. (f)(2)(B). Pub. L. 103-355, Sec. 2101(a)(6)(B)(i), struck 
out ``defense'' before ``contract auditor''.
    Subsec. (f)(3). Pub. L. 103-355, Sec. 2101(a)(6)(B)(ii), as amended 
by Pub. L. 104-106, Sec. 4321(a)(5), substituted ``Federal Acquisition 
Regulation'' for ``regulations''.
    Pub. L. 103-355, Sec. 2101(a)(6)(B)(i), struck out ``defense'' 
before ``contract auditor''.
    Subsec. (f)(4). Pub. L. 103-355, Sec. 2101(a)(6)(B)(ii), as amended 
by Pub. L. 104-106, Sec. 4321(a)(5), substituted ``Federal Acquisition 
Regulation'' for ``regulations''.
    Pub. L. 103-355, Sec. 2101(a)(6)(B)(i), struck out ``defense'' 
before ``contract auditor''.
    Subsec. (g). Pub. L. 103-355, Sec. 2101(a)(7), amended subsec. (g) 
generally. Prior to amendment, subsec. (g) read as follows: ``The 
regulations of the Secretary required to be prescribed under subsections 
(e) and (f)(1) shall require, to the maximum extent practicable, that 
such regulations apply to all subcontractors of a covered contract.''
    Subsec. (h). Pub. L. 103-355, Sec. 2101(a)(8), inserted heading and 
substituted ``in the Federal Acquisition Regulation'' for ``by the 
Secretary'' in par. (1) and ``head of the agency'' for ``Secretary of 
Defense'' in introductory provisions of par. (2).
    Subsec. (i). Pub. L. 103-355, Sec. 2101(a)(9), inserted heading and 
substituted ``The submission to an agency'' for ``The submission to the 
Department of Defense''.
    Subsec. (j). Pub. L. 103-355, Sec. 2101(a)(10), inserted heading and 
substituted ``United States Court of Federal Claims'' for ``United 
States Claims Court''.
    Subsec. (k). Pub. L. 103-355, Sec. 2101(a)(11)(A), inserted heading.
    Subsec. (k)(2)(D). Pub. L. 103-355, Sec. 2101(a)(11)(B), struck out 
``by the Department of Defense'' after ``decision'' in introductory 
provisions.
    Subsec. (k)(4). Pub. L. 103-355, Sec. 2101(a)(11)(C), inserted ``or 
Secretary of the military department concerned'' after ``head of the 
agency'', ``or Secretary'' after ``agency head'', and ``or military 
department'' before period at end and substituted ``in accordance with 
the Federal Acquisition Regulation'' for ``under regulations prescribed 
by such agency head''.
    Subsec. (l). Pub. L. 103-355, Sec. 2101(d), added subsec. (l) and 
struck out former subsec. (l) which related to periodic evaluation by 
Comptroller General of implementation of this section by Secretary of 
Defense.
    Subsec. (m). Pub. L. 103-355, Sec. 2101(d), struck out subsec. (m) 
which read as follows: ``In this section, the term `covered contract' 
means a contract for an amount more than $100,000 entered into by the 
Department of Defense other than a fixed-price contract without cost 
incentives.''
    1992--Subsec. (a). Pub. L. 102-484, Sec. 818(a)(1)(A), redesignated 
subsec. (a)(1) as entire subsection. Former subsec. (a)(2) redesignated 
subsec. (b)(1).
    Subsec. (b)(1). Pub. L. 102-484, Sec. 818(a)(1)(B), redesignated 
subsec. (a)(2) as subsec. (b)(1), in introductory provisions struck out 
``by clear and convincing evidence'' after ``Secretary determines'' and 
substituted ``expressly unallowable under a cost principle referred to 
in subsection (a) that defines the allowability of specific selected 
costs'' for ``unallowable under paragraph (1)'', and in subpar. (A), 
substituted ``cost allocated to covered contracts for which a proposal 
for settlement of indirect costs has been submitted'' for ``costs''. 
Former subsec. (b) redesignated subsec. (b)(2).
    Subsec. (b)(2). Pub. L. 102-484, Sec. 818(a)(2), redesignated 
subsec. (b) as subsec. (b)(2), struck out ``, in addition to the penalty 
assessed under subsection (a),'' after ``against the contractor'', and 
substituted ``the amount of the disallowed cost allocated to covered 
contracts for which a proposal for settlement of indirect costs has been 
submitted'' for ``the amount of such cost''.
    Subsec. (c). Pub. L. 102-484, Sec. 818(a)(5), added subsec. (c). 
Former subsec. (c) redesignated (d).
    Subsec. (d). Pub. L. 102-484, Sec. 818(a)(3), (4), redesignated 
subsec. (c) as (d) and struck out former subsec. (d) which read as 
follows: ``If any penalty is assessed under subsection (a) or (b) with 
respect to a proposal for settlement of indirect costs, the Secretary 
may assess an additional penalty of not more than $10,000 per 
proposal.''
    Subsec. (e)(3), (4). Pub. L. 102-484, Sec. 1352(b), added par. (3) 
and redesignated former par. (3) as (4).
    Subsec. (f)(5). Pub. L. 102-484, Sec. 1052(26)(A), struck out par. 
(5) which read as follows: ``The regulations shall provide that costs to 
promote the export of products of the United States defense industry, 
including costs of exhibiting or demonstrating products, shall be 
allowable to the extent that such costs--
        ``(A) are allocable, reasonable, and not otherwise unallowable;
        ``(B) with respect to the activities of the business segment to 
    which such costs are being allocated, are determined by the 
    Secretary of Defense to be likely to result in future cost 
    advantages to the United States; and
        ``(C) with respect to a business segment which allocates to 
    Department of Defense contracts $2,500,000 or more of such costs in 
    any fiscal year of such business segment, are not in excess of the 
    amount equal to 110 percent of such costs incurred by such business 
    segment in the previous fiscal year.''
    Subsec. (l)(2). Pub. L. 102-484, Sec. 1052(26)(B)(i), substituted 
``paragraph (3)'' for ``subsection (e)(2)(C)''.
    Subsec. (l)(3). Pub. L. 102-484, Sec. 1052(26)(B)(ii), added par. 
(3).
    1991--Subsec. (e)(2), (3). Pub. L. 102-190 added par. (2) and 
redesignated former par. (2) as (3).
    1990--Subsec. (e)(2). Pub. L. 101-510 struck out ``(A)'' before 
``The Secretary'' and struck out subpars. (B) and (C) which read as 
follows:
    ``(B) The Secretary shall submit to the committees named in 
subparagraph (C) any proposed regulations that would make substantive 
changes to regulations prescribed under the second sentence of 
subparagraph (A) before the publication of such proposed regulations in 
accordance with section 22 of the Office of Federal Procurement Policy 
Act (41 U.S.C. 418b).
    ``(C) The committees named in this subparagraph are--
        ``(i) the Committees on Armed Services and on Government 
    Operations of the House of Representatives; and
        ``(ii) the Committees on Armed Services and on Governmental 
    Affairs of the Senate.''
    1989--Subsec. (e)(1)(N), (O). Pub. L. 101-189, Sec. 311(a)(1), added 
subpar. (N) and redesignated former subpar. (N) as (O).
    Subsec. (k)(5)(B)(i). Pub. L. 101-189, Sec. 853(b)(3), substituted 
``the Federal Acquisition Regulation'' for ``the single Government-wide 
procurement regulation issued pursuant to section 4(4)(A) of the Office 
of Federal Procurement Policy Act (41 U.S.C. 403(4)(A))''.
    Subsec. (k)(6). Pub. L. 101-189, Sec. 853(a)(1)(A), designated par. 
(2) of subsec. (l), set out first, as subsec. (k)(6) and substituted 
``In this subsection:'' for ``In subsection (k):'' in introductory 
provisions.
    Subsec. (l). Pub. L. 101-189, Sec. 853(a)(1)(A), (C), restored the 
text of subsec. (k) as in effect prior to being struck out by Pub. L. 
100-700, Sec. 8(b)(2) (see 1988 Amendment note below), designated such 
text as subsec. (l), and struck out former subsec. (l)(1), set out 
first, which defined ``covered contract''. Former subsec. (l)(2), set 
out first, was redesignated subsec. (k)(6). Former subsec. (l), set out 
second, was redesignated (m).
    Subsec. (m). Pub. L. 101-189, Sec. 853(a)(1)(B), redesignated 
subsec. (l), set out second, as (m).
    1988--Subsec. (e)(1)(L). Pub. L. 100-370, Sec. 1(f)(2)(A), added 
subpar. (L).
    Subsec. (e)(1)(M). Pub. L. 100-456, Sec. 322(a), added subpar. (M).
    Subsec. (e)(1)(N). Pub. L. 100-700, Sec. 8(b)(1)(A), which directed 
amendment of subsec. (e) by striking out subpar. (N) and inserting in 
lieu thereof a new subpar. (N), was executed to subsec. (e)(1)(N) of 
this section as the probable intent of Congress. Former subpar. (N) read 
as follows: ``Except as provided in paragraph (2), costs incurred in 
connection with any civil, criminal, or administrative action brought by 
the United States that results in a determination that a contractor has 
violated or failed to comply with any Federal law or regulation if the 
action results in any of the following:
        ``(i) In the case of a criminal action, a conviction (including 
    a conviction pursuant to a plea of nolo contendere).
        ``(ii) In the case of a civil or administrative action, (I) a 
    determination by the Secretary of Defense that the violation or 
    failure to comply was knowing or willful, and (II) the imposition of 
    a monetary penalty.
        ``(iii) A final decision by an appropriate official of the 
    Department of Defense to debar or suspend the contractor or to 
    rescind, void, or terminate a contract awarded to such contractor if 
    such decision is based on a determination by the Secretary of 
    Defense that the violation or failure to comply was knowing or 
    willful.''
    Pub. L. 100-456, Sec. 832(a)(1), added subpar. (N).
    Subsec. (e)(2), (3). Pub. L. 100-700, Sec. 8(b)(1)(B), (C), 
redesignated par. (3) as (2) and struck out former par. (2) which read 
as follows: ``If a civil, criminal, or administrative action referred to 
in paragraph (1)(N) is resolved by consent or compromise pursuant to an 
agreement entered into by a contractor and the United States, the 
contractor's costs that are otherwise not allowable under paragraph 
(1)(N) may be allowed to the extent provided in such agreement.''
    Pub. L. 100-456, Sec. 832(a)(2), (3), added par. (2) and 
redesignated former par. (2) as (3).
    Subsec. (f)(5). Pub. L. 100-463, Sec. 8105(a), and Pub. L. 100-456, 
Sec. 826(a), amended section identically, temporarily adding par. (5). 
Pub. L. 100-526 provided that Pub. L. 100-463, Sec. 8105, and amendment 
made by that section shall cease to be effective. See Effective and 
Termination Dates of 1988 Amendment note below.
    Subsec. (j). Pub. L. 100-370, Sec. 1(f)(3)(A)(ii), added subsec. 
(j). Former subsec. (j) redesignated (k).
    Subsec. (k). Pub. L. 100-700, Sec. 8(b)(2), added subsec. (k), and 
struck out former subsec. (k), the text of which was restored and 
redesignated subsec. (l) by Pub. L. 101-189, Sec. 853(a)(1)(C). See 1989 
Amendment note above.
    Pub. L. 100-370, Sec. 1(f)(3)(A)(i), redesignated subsec. (j) as 
(k). Former subsec. (k) redesignated (l).
    Subsec. (l). Pub. L. 100-700, Sec. 8(b)(2), added subsec. (l) 
defining terms ``covered contract'', ``proceeding'', ``costs'', and 
``penalty''.
    Pub. L. 100-370, Sec. 1(f)(3)(A)(i), redesignated subsec. (k) as 
(l).
    1987--Subsec. (e)(1)(K). Pub. L. 100-180 added subpar. (K).
    Subsec. (k). Pub. L. 100-26 inserted ``the term'' after ``In this 
section,''.
    1985--Subsec. (e)(2). Pub. L. 99-190, Sec. 101(b) [Sec. 8112(a)(1)], 
designated existing provisions as subpar. (A) and added subpars. (B) and 
(C).
    Subsec. (h)(2). Pub. L. 99-190, Sec. 101(b) [Sec. 8112(a)(2)], 
inserted ``, in an exceptional case,'' in provisions preceding subpar. 
(A).
    Subsecs. (j), (k). Pub. L. 99-190, Sec. 101(b) [Sec. 8112(a)(3)], 
added subsec. (j) and redesignated former subsec. (j) as (k).


                    Effective Date of 1998 Amendment

    Pub. L. 105-261, div. A, title VIII, Sec. 804(d), Oct. 17, 1998, 112 
Stat. 2083, provided that: ``The amendments made by this section 
[amending this section, sections 256 and 435 of Title 41, Public 
Contracts, and provisions set out as a note under section 435 of Title 
41] shall apply with respect to costs of compensation of senior 
executives incurred after January 1, 1999, under covered contracts (as 
defined in section 2324(l) of title 10, United States Code, and section 
306(l) of the Federal Property and Administrative Services Act of 1949 
(41 U.S.C.256(l)) entered into before, on, or after the date of the 
enactment of this Act [Oct. 17, 1998].''


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-85 effective on date that is 90 days after 
Nov. 18, 1997, and applicable with respect to costs of compensation 
incurred after Jan. 1, 1998, under covered contracts entered into 
before, on, or after Nov. 18, 1997, see section 808(e) of Pub. L. 105-
85, set out as an Effective Date note under section 435 of Title 41, 
Public Contracts.


                    Effective Date of 1996 Amendment

    Section 4321(a) of Pub. L. 104-106 provided that the amendment made 
by that section is effective as of Oct. 13, 1994, and as if included in 
Pub. L. 103-355 as enacted.
    For effective date and applicability of amendment by section 
4321(b)(9) of Pub. L. 104-106, see section 4401 of Pub. L. 104-106, set 
out as a note under section 251 of Title 41, Public Contracts.


                    Effective Date of 1994 Amendment

    For effective date and applicability of amendment by Pub. L. 103-
355, see section 10001 of Pub. L. 103-355, set out as a note under 
section 251 of Title 41, Public Contracts.


                    Effective Date of 1992 Amendments

    Amendment by Pub. L. 102-572 effective Oct. 29, 1992, see section 
911 of Pub. L. 102-572, set out as a note under section 171 of Title 28, 
Judiciary and Judicial Procedure.
    Section 818(b) of Pub. L. 102-484 provided that: ``The amendments 
made by subsection (a) [amending this section] shall take effect on the 
date of the enactment of this Act [Oct. 23, 1992] and shall apply, as 
provided in regulations prescribed by the Secretary of Defense, with 
respect to proposals for settlement of indirect costs for which the 
Federal Government has not formally initiated an audit before that 
date.''
    Section 1352(c) of Pub. L. 102-484 provided that: ``The amendments 
made by subsection (b) [amending this section] apply to covered 
contracts (as defined in section 2324 of title 10, United States Code) 
that are in effect or are entered into on or after October 1, 1991, for 
costs incurred on or after October 1, 1991.''


                    Effective Date of 1991 Amendment

    Section 346(b) of Pub. L. 102-190 provided that: ``The amendments 
made by subsection (a) [amending this section] shall not apply with 
respect to a foreign national whose employment under a military banking 
contract (defined in section 2324(e)(2)(B) of title 10, United States 
Code, as added by subsection (a)) was terminated before the date of the 
enactment of this Act [Dec. 5, 1991].''


                    Effective Date of 1989 Amendment

    Section 311(a)(2) of Pub. L. 101-189 provided that: ``Subparagraph 
(N) of such subsection [10 U.S.C. 2324(e)(1)(N)], as added by paragraph 
(1), shall not apply with respect to the termination of the employment 
of a foreign national employed under any covered contract (as defined in 
subsection (l) of such section [10 U.S.C. 2324(l)]) if such termination 
is the result of the closing of, or the curtailment of activities at, a 
United States military facility in a foreign country pursuant to an 
agreement entered into with the government of that country before the 
date of the enactment of this Act [Nov. 29, 1989].''
    Section 853(a)(3) of Pub. L. 101-189 provided that: ``The amendments 
made by this subsection [amending this section and provisions set out as 
a note below] shall take effect as of November 19, 1988.''


           Effective and Termination Dates of 1988 Amendments

    Section 8(e) of Pub. L. 100-700 provided that: ``The amendments made 
by subsections (a) and (b) [enacting section 256 of Title 41, Public 
Contracts, and amending this section] shall take effect with respect to 
contracts awarded after the date of the enactment of this Act [Nov. 19, 
1988].''
    Section 8105(d) of Pub. L. 100-463 provided that subsec. (f)(5) of 
this section, as enacted by section 8105(a) of Pub. L. 100-463, would 
cease to be effective three years after Oct. 1, 1988. Section 106(a)(2) 
of Pub. L. 100-526 provided that section 8105 of Pub. L. 100-463 ``and 
the amendment made by that section shall cease to be effective''.
    Section 322(b) of Pub. L. 100-456 provided that: ``Subparagraph (M) 
of section 2324(e)(1) of title 10, United States Code, as added by 
subsection (a), shall apply with respect to any contract entered into 
after the end of the 180-day period beginning on the date of the 
enactment of this Act [Sept. 29, 1988].''
    Section 826(d) of Pub. L. 100-456, as amended by Pub. L. 100-526, 
title I, Sec. 106(a)(1)(B), Oct. 24, 1988, 102 Stat. 2625, provided 
that: ``Section 2324(f)(5) of title 10, United States Code (as added by 
subsection (a)), shall cease to be effective on September 30, 1991.''


                    Effective Date of 1987 Amendment

    Section 805(b) of Pub. L. 100-180 provided that: ``Subparagraph (K) 
of section 2324(e)(1) of title 10, United States Code, as added by 
subsection (a), shall apply to any contract entered into after the end 
of the 120-day period beginning on the date of the enactment of this Act 
[Dec. 4, 1987].''


                             Effective Date

    Section 911(c) of Pub. L. 99-145 provided that: ``Section 2324 of 
title 10, United States Code, as added by subsection (a), shall apply 
only to contracts for which solicitations are issued on or after the 
date on which such regulations are prescribed.''


                               Regulations

    Section 2101(e) of Pub. L. 103-355 provided that: ``The regulations 
of the Secretary of Defense implementing section 2324 of title 10, 
United States Code, shall remain in effect until the Federal Acquisition 
Regulation is revised to implement the amendments made by this section 
[amending this section].''
    Section 8(d) of Pub. L. 100-700 provided that: ``The regulations 
necessary for the implementation of section 306(e) of the Federal 
Property and Administrative Services Act of 1949 [41 U.S.C. 256(e)] (as 
added by subsection (a)) and section 2324(k)(5) of title 10, United 
States Code (as added by subsection (b))--
        ``(1) shall be prescribed not later than 120 days after the date 
    of the enactment of this Act [Nov. 19, 1988]; and
        ``(2) shall apply to contracts entered into more than 30 days 
    after the date on which such regulations are issued.''
    Section 8105(b), (c) of Pub. L. 100-463 provided for the 
promulgation of regulations and the preparation of a report in 
connection with the operation of subsec. (f)(5), as enacted by section 
8105(a) of Pub. L. 100-463. Section 106(a)(2) of Pub. L. 100-526 
provided that section 8105 of Pub. L. 100-463 ``and the amendment made 
by that section shall cease to be effective''.
    Section 826(b) of Pub. L. 100-456 provided that: ``The Secretary of 
Defense shall prescribe final regulations under paragraph (5) of section 
2324(f) of title 10, United States Code (as added by subsection (a)), 
not later than 90 days after the date of the enactment of this Act 
[Sept. 29, 1988]. Such regulations shall apply with respect to costs 
referred to in such paragraph that are incurred by a Department of 
Defense contractor (or a subcontractor of such a contractor) on or after 
the first day of the contractor's (or subcontractor's) first fiscal year 
that begins on or after the date on which such final regulations are 
prescribed.''
    Section 832(b) of Pub. L. 100-456 related to regulations for the 
implementation of subsec. (e)(1)(N) of this section, prior to repeal by 
Pub. L. 100-700, Sec. 8(c), Nov. 19, 1988, 102 Stat. 4638.
    Section 101(b) [title VIII, Sec. 8112(b), (c)] of Pub. L. 99-190 
required the regulations required under section 911(b) of Pub. L. 99-
145, set out below, to be submitted to Congress before the publication 
of such regulations in accordance with 41 U.S.C. 418b and directed the 
Comptroller General, within 180 days of publication of the regulations, 
to submit to Congress a report on the Comptroller General's initial 
evaluation under subsection (j)(1) of this section.
    Section 911(b) of Pub. L. 99-145 provided that:
    ``(1) Not later than 150 days after the date of the enactment of 
this Act [Nov. 8, 1985], the Secretary of Defense shall prescribe the 
regulations required by subsections (e) and (f) of section 2324 of title 
10, United States Code, as added by subsection (a). Such regulations 
shall be published in accordance with section 22 of the Office of 
Federal Procurement Policy Act (41 U.S.C. 418b).
    ``(2) The Secretary shall review such regulations at least once 
every five years. The results of each such review shall be made 
public.''


         Payment of Restructuring Costs Under Defense Contracts

    Pub. L. 103-337, div. A, title VIII, Sec. 818, Oct. 5, 1994, 108 
Stat. 2821, as amended by Pub. L. 105-85, div. A, title VIII, 
Sec. 804(d), Nov. 18, 1997, 111 Stat. 1834, provided that:
    ``[(a) Repealed. Pub. L. 105-85, div. A, title VIII, Sec. 804(d), 
Nov. 18, 1997, 111 Stat. 1834.]
    ``(b) Requirement for Regulations.--Not later than January 1, 1995, 
the Secretary of Defense shall prescribe regulations on the allowability 
of restructuring costs associated with business combinations under 
defense contracts.
    ``(c) Matters To Be Included.--At a minimum, the regulations shall--
        ``(1) include a definition of the term `restructuring costs'; 
    and
        ``(2) address the issue of contract novations under such 
    contracts.
    ``(d) Consultation.--In developing the regulations, the Secretary of 
Defense shall consult with the Administrator for Federal Procurement 
Policy.
    ``(e) Report.--Not later than November 13 in each of the years 1995, 
1996, and 1997, the Secretary of Defense shall submit to Congress a 
report on the following:
        ``(1) A description of the procedures being followed within the 
    Department of Defense for evaluating projected costs and savings 
    under a defense contract resulting from a restructuring of a defense 
    contractor associated with a business combination.
        ``(2) A list of all defense contractors for which restructuring 
    costs have been allowed by the Department, along with the identities 
    of the firms which those contractors have acquired or with which 
    those contractors have combined since July 21, 1993, that qualify 
    the contractors for such restructuring reimbursement.
        ``(3) The Department's experience with business combinations for 
    which the Department has agreed to allow restructuring costs since 
    July 21, 1993, including the following:
            ``(A) The estimated amount of costs associated with each 
        restructuring that have been or will be treated as allowable 
        costs under defense contracts, including the type and amounts of 
        costs that would not have arisen absent the business 
        combination.
            ``(B) The estimated amount of savings associated with each 
        restructuring that are expected to be achieved on defense 
        contracts.
            ``(C) The types of documentation relied on to establish that 
        savings associated with each restructuring will exceed costs 
        associated with the restructuring.
            ``(D) Actual experience on whether savings associated with 
        each restructuring are exceeding costs associated with the 
        restructuring.
            ``(E) Identification of any programmatic or budgetary 
        disruption in the Department of Defense resulting from 
        contractor restructuring.
    ``(f) Definition.--In this section, the term `business combination' 
includes a merger or acquisition.
    ``(g) Comptroller General Reports.--(1) Not later than March 1, 
1995, the Comptroller General shall submit to Congress a report on the 
adequacy of the regulations prescribed under subsection (b) with respect 
to--
        ``(A) whether such regulations are consistent with the purposes 
    of this section, other applicable law, and the Federal Acquisition 
    Regulation; and
        ``(B) whether such regulations establish policies, procedures, 
    and standards to ensure that restructuring costs are paid only when 
    in the best interests of the United States.
    ``(2) The Comptroller General shall report periodically to Congress 
on the implementation of the policy of the Department of Defense 
regarding defense industry restructuring.''


  Reimbursement of Indirect Costs of Institutions of Higher Education 
                  Under Department of Defense Contracts

    Pub. L. 103-160, div. A, title VIII, Sec. 841, Nov. 30, 1993, 107 
Stat. 1719, as amended by Pub. L. 105-244, title I, Sec. 102(a)(2)(C), 
Oct. 7, 1998, 112 Stat. 1617, provided that:
    ``(a) Prohibition.--The Secretary of Defense may not by regulation 
place a limitation on the amount that the Department of Defense may 
reimburse an institution of higher education for allowable indirect 
costs incurred by the institution for work performed for the Department 
of Defense under a Department of Defense contract unless that same 
limitation is applied uniformly to all other organizations performing 
similar work for the Department of Defense under Department of Defense 
contracts.
    ``(b) Waiver.--The Secretary of Defense may waive the application of 
the prohibition in subsection (a) in the case of a particular 
institution of higher education if the governing body of the institution 
requests the waiver in order to simplify the overall management by that 
institution of cost reimbursements by the Department of Defense for 
contracts awarded by the Department to the institution.
    ``(c) Definitions.--In this section:
        ``(1) The term `allowable indirect costs' means costs that are 
    generally considered allowable as indirect costs under regulations 
    that establish the cost reimbursement principles applicable to an 
    institution of higher education for purposes of Department of 
    Defense contracts.
        ``(2) The term `institution of higher education' has the meaning 
    given such term in section 101 of the Higher Education Act of 1965 
    [20 U.S.C. 1001].''


 Assessment of Regulations Relating to Allowability of Costs To Promote 
             Export of Defense Products; Report to Congress

    Section 826(c) of Pub. L. 100-456, as amended by Pub. L. 100-526, 
title I, Sec. 106(a)(1)(A), Oct. 24, 1988, 102 Stat. 2625, directed 
Comptroller General of United States and Inspector General of Department 
of Defense, not later than 2 years after Sept. 29, 1988, to submit to 
Congress a report including an assessment of whether the regulations 
required by subsec. (f)(5) of this section provide the appropriate 
incentives to stimulate exports by the United States defense industry 
and provide cost savings to the United States and whether such 
regulations provide appropriate criteria to ensure that costs allowed 
are reasonably likely to provide future cost savings to the United 
States.


           Air Travel Expenses of Defense Contractor Personnel

    Section 833 of Pub. L. 100-456, as amended by Pub. L. 101-189, div. 
A, title VIII, Sec. 853(a)(2), Nov. 29, 1989, 103 Stat. 1518, provided 
that:
    ``(a) Air Fare Discount Agreements.--The Administrator of General 
Services shall enter into negotiations with commercial air carriers with 
a view to achieving agreements that permit personnel of contractors who 
are traveling solely in the performance of covered contracts to be 
transported by such carriers at the same discount air passenger 
transportation rates as such carriers charge for travel by Federal 
Government employees traveling at Government expense.
    ``(b) Allowable Costs.--Not later than 120 days after the first 
agreement goes into effect between the Administrator of General Services 
and a commercial air carrier under subsection (a), the Secretary of 
Defense shall prescribe regulations that provide that costs for travel 
by commercial air carrier by an employee of a defense contractor that 
exceed the air passenger transportation rates established under the 
agreement are not allowable costs under section 2324 of title 10, United 
States Code, under a covered contract if--
        ``(1) the rate was available; and
        ``(2) travel could have reasonably been performed under the 
    conditions required by the air carrier to qualify for such rate.
    ``(c) Covered Contract.--In this section, the term `covered 
contract' has the meaning given such term by section 2324(m) of title 
10, United States Code.
    ``(d) Expiration.--This section shall cease to be effective three 
years after the date of the enactment of this Act [Sept. 29, 1988].''


        Burden of Proof in Government Contract Dispute Resolution

    Section 933 of Pub. L. 99-145, which provided that in proceeding 
before the Armed Services Board of Contract Appeals, United States 
Claims Court, or any other Federal court in which reasonableness of 
indirect costs for which a contractor seeks reimbursement from 
Department of Defense is in issue, the burden of proof is upon the 
contractor to establish that such costs are reasonable, was repealed and 
restated in subsec. (j) of this section by Pub. L. 100-370, 
Sec. 1(f)(3)(A)(ii), (B), July 19, 1988, 102 Stat. 846.

                  Section Referred to in Other Sections

    This section is referred to in sections 2325, 2372 of this title; 
title 41 section 435.
