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113th Congress                                                   Report
                                 SENATE
 2d Session                                                     113-216
_______________________________________________________________________

                                     

                                                       Calendar No. 485

 
                   NEVER CONTRACT WITH THE ENEMY ACT

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                 S. 675

                 TO PROHIBIT CONTRACTING WITH THE ENEMY




                 July 23, 2014.--Ordered to be printed

        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                  THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan                 TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  MICHAEL B. ENZI, Wyoming
TAMMY BALDWIN, Wisconsin             KELLY AYOTTE, New Hampshire
HEIDI HEITKAMP, North Dakota

                  Gabrielle A. Batkin, Staff Director
               John P. Kilvington, Deputy Staff Director
                    Mary Beth Schultz, Chief Counsel
         Troy H. Cribb, Chief Counsel for Governmental Affairs
               Keith B. Ashdown, Minority Staff Director
         Christopher J. Barkley, Minority Deputy Staff Director
               Andrew C. Dockham, Minority Chief Counsel
            Kathryn M. Edelman, Minority Senior Investigator
                     Laura W. Kilbride, Chief Clerk


                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background.......................................................1
III. Legislative History..............................................4
 IV. Section-by-Section Analysis of the Bill, as Reported.............5
  V. Estimated Cost of Legislation....................................9
 VI. Evaluation of Regulatory Impact.................................10
VII. Changes in Existing Law.........................................10


                                                       Calendar No. 485
113th Congress                                                   Report
                                 SENATE
 2d Session                                                     113-216

======================================================================




                   NEVER CONTRACT WITH THE ENEMY ACT

                                _______
                                

                 July 23, 2014.--Ordered to be printed

                                _______
                                

 Mr. Carper, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 675]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 675), to prohibit 
contracting with the enemy, having considered the same, reports 
favorably thereon with an amendment and recommends that the 
bill, as amended, do pass.

                         I. Purpose and Summary

    The Never Contract with the Enemy Act provides federal 
agencies with streamlined procedures for stopping money from 
federal contracts, grants and cooperative agreements from going 
to people and entities who actively oppose U.S. forces engaged 
in hostilities.

                II. Background and Need for Legislation

    The U.S. government contracts with many individuals and 
companies around the world in order to support U.S. government 
activities and promote U.S. interests, especially in times of 
major deployments of U.S. forces.\1\
---------------------------------------------------------------------------
    \1\For purposes of the discussion in this report, the term 
``contract'' includes contracts, grants and cooperative agreements and 
the term ``contractor'' includes contractors, recipients of grants and 
cooperative agreements.
---------------------------------------------------------------------------
    In 2008, Congress established the Commission on Wartime 
Contracting in Iraq and Afghanistan and tasked it with 
examining a range of issues related to wartime contracting, 
including the extent of waste, fraud, abuse and mismanagement 
of wartime contracts.\2\ The Commission identified diversion of 
U.S. government funds to insurgents in Afghanistan as a major 
concern. In their final report to Congress, the Commissioners 
recounted that experts they interviewed believed that extortion 
of funds from U.S. construction projects and transportation 
contracts was the second-largest funding source for the 
insurgents (the first being money from the drug trade).\3\
---------------------------------------------------------------------------
    \2\The independent and bipartisan Commission was established by 
section 841 of the National Defense Authorization Act for Fiscal Year 
2008, Public Law 110-181 (Jan. 28, 2008).
    \3\Commission on Wartime Contracting in Iraq and Afghanistan, Final 
Report to Congress (Aug. 31, 2011), p. 73.
---------------------------------------------------------------------------
    Another issue examined by the Commission was the use of 
suspension and debarment procedures in Iraq and Afghanistan to 
protect the government's interest in doing business only with 
responsible contractors. Suspensions and debarments are 
administrative remedies that allow agencies to bar additional 
U.S. government business with particular contractors in order 
to protect the government from fraud, noncompliance with 
contractual terms or applicable laws, poor performance, or 
other behavior that puts taxpayer dollars at risk of misuse. In 
2011, the Commission reported to Congress that agency officials 
cited the complexity of suspension and debarment procedures as 
a reason for not using those tools as often as they believed 
would be warranted in a wartime environment.\4\
---------------------------------------------------------------------------
    \4\Commission on Wartime Contracting in Iraq and Afghanistan, 
Second Interim Report to Congress (Feb. 24, 2011), p. 50.
---------------------------------------------------------------------------
    In the context of these concerns, Congress, in the National 
Defense Authorization Act for Fiscal Year 2012, directed the 
Secretary of Defense to develop a process under which the 
Combatant Commander of the Central Command (CENTCOM)\5\ would 
identify persons or entities actively supporting an insurgency 
or otherwise actively opposing U.S. or coalition forces in a 
contingency operation in the CENTCOM theater.\6\ Section 841 
further authorized the head of a contracting activity (i.e., 
the person designated by the head of an agency to manage the 
agency's contracting functions), pursuant to a request from the 
Combatant Commander, to restrict, terminate or void contracts 
that would provide funds directly or indirectly to such persons 
or entities.
---------------------------------------------------------------------------
    \5\CENTCOM is a unified command of the U.S. military whose 
geographic area of responsibility includes Afghanistan and Iraq.
    \6\Section 841 of the National Defense Authorization Act for Fiscal 
Year 2012, Public Law 112-81 (Dec. 31, 2011). A ``contingency 
operation'' is defined under 10 U.S.C. 101(a)(13) as ``a military 
operation that--(A) is designated by the Secretary of Defense as an 
operation in which members of the armed forces are or may become 
involved in military actions, operations or hostilities against an 
enemy of the United States or against an opposing military force; or 
(B) results in the call or order to, or retention on, active duty of 
members of the uniformed services under [other portions of this title], 
or any other provision of law during a war or during a national 
emergency declared by the President or Congress.''
---------------------------------------------------------------------------
    Section 841 also required the Secretary of Defense to 
develop a contract clause requiring funding recipients to 
exercise due diligence to prevent funds from directly or 
indirectly flowing to persons or entities actively supporting 
an insurgency or otherwise actively opposing U.S. or coalition 
forces. Section 841 applies to Department of Defense contracts 
in excess of $100,000 that are to be performed in the CENTCOM 
theater.
    Congress revisited and expanded the section 841 authority 
in section 831 of the National Defense Authorization Act for 
Fiscal Year 2014.\7\ Section 831 requires the Secretary of 
Defense to establish programs in each combatant command to 
identify persons actively opposing U.S. or coalition forces 
involved in a contingency operation in which members of the 
armed forces are actively engaged in hostilities.\8\ Section 
831 lays out a process similar to section 841 for restricting, 
terminating or voiding contracts, and it mandates a clause for 
Department of Defense contracts, requiring contractors to 
exercise due diligence to ensure that funds are not directly or 
indirectly given to enemies, as defined by the bill. The 
authorities and requirements of section 831 apply to contracts 
whose estimated value is in excess of $20,000. Section 831 also 
requires the establishment of a process allowing a recipient of 
funds to contest action taken under the section 831 authority 
within 30 days of notice of the action.
---------------------------------------------------------------------------
    \7\Section 831, National Defense Authorization Act for Fiscal Year 
2014, Public Law 113-66 (Dec. 26, 2013).
    \8\Combatant Commands covered by section 831 are: the United States 
Central Command, the United States European Command, the United States 
Africa Command, the United States Southern Command, and the United 
States Pacific Command.
---------------------------------------------------------------------------
    According to Department of Defense officials, as of May 
2014, the Department has used the section 841 authority 12 
times and has designated 29 entities as enemies, as defined by 
that section. As a result, ten subcontracts worth $31 million 
were terminated. In two instances, the Department made no 
contract or subcontract terminations because the entities 
identified as enemies did not have existing contracts. All 29 
entities were added to the prohibited source list for future 
contracts. Additionally, the Department is processing 11 
additional actions under the authorities of sections 841 and 
831.\9\
---------------------------------------------------------------------------
    \9\E-mail correspondence from the Office of Legislative Affairs, 
Office of the Secretary of Defense, to staff of Senator Ayotte (May 20, 
2014).
---------------------------------------------------------------------------
    The Special Inspector General for Afghanistan 
Reconstruction has pointed out several reasons that Congress 
may want to consider granting the Department of State and the 
U.S. Agency for International Development (USAID) similar 
authorities to those in place at the Department of Defense.\10\ 
The Department of State and USAID have numerous contracts in 
Afghanistan, and the two civilian agencies contract with many 
of the same contractors used by the Department of Defense. In 
addition, the Department of State and USAID will have an 
enduring presence in the country after the drawdown of U.S. 
military personnel.
---------------------------------------------------------------------------
    \10\Special Inspector General for Afghanistan Reconstruction 
(``SIGAR''), SIGAR Audit 13-6 (April 2013) and SIGAR Audit 13-14 (July 
2013).
---------------------------------------------------------------------------
    Building on the experience of the Department of Defense 
under sections 841 and 831, the Never Contract with the Enemy 
Act, S. 675, provides an effective tool to the Departments of 
Defense and State, USAID, and other civilian agencies to 
quickly cut off funds flowing to enemies of the United States. 
The bill requires the Secretary of Defense, in conjunction with 
the Director of National Intelligence and in consultation with 
the Secretary of State, to establish a program to identify 
people and entities that provide funds under a contract 
directly or indirectly, to people and entities who actively 
oppose U.S. or coalition forces involved in a contingency 
operation in which members of the armed forces are actively 
engaged in hostilities.\11\ The Secretary will also identify 
those who fail to exercise due diligence to ensure that U.S. 
government funds do not flow to enemies.
---------------------------------------------------------------------------
    \11\The bill uses the term ``covered person or entity'' to refer to 
a person or entity that is actively opposing United States or coalition 
forces involved in a contingency operation in which members of the 
armed forces are actively engaged in hostilities.
---------------------------------------------------------------------------
    This information would then be shared with heads of 
executive agencies and the commanders of the combatant 
commands. S. 675 then gives the heads of agencies and the 
combatant commanders the discretion to provide this information 
to the appropriate head of contracting activity (or other 
appropriate official in the case of grants and cooperative 
agreements). The bill provides those senior agency officials 
with an effective tool that will enable them to respond quickly 
and appropriately. Specifically, it authorizes those officials 
to restrict, terminate, or void contracts where funds would 
flow directly or indirectly to enemies, or where a contractor 
fails to exercise due diligence to ensure that funds do not 
flow directly or indirectly to enemies.
    S. 675 also requires the federal agencies responsible for 
rules governing contracts and grants to develop a clause to be 
included in contracts, requiring the recipient of the funding 
to exercise due diligence to prevent funds from directly or 
indirectly flowing to those who actively oppose U.S. or 
coalition forces involved in a contingency operation in which 
members of the armed forces are actively engaged in 
hostilities.\12\ The bill ensures that the process for 
promulgating regulations governing this clause will include an 
opportunity for the public to comment on the definition of the 
``due diligence'' required by the bill. S. 675 also requires 
agencies to provide written notification to contractors of any 
action taken under the bill to restrict, terminate or void a 
contract, and to allow the contractor to challenge the action 
by requesting administrative review not later than 30 days 
after receipt of notice of the action.
---------------------------------------------------------------------------
    \12\Specifically, the bill requires amendment of (1) the Federal 
Acquisition Regulation, which is the government-wide regulatory 
framework for procurement and is overseen by the Federal Acquisition 
Regulatory Council, consisting of the Administrator for Federal 
Procurement Policy at the Office of Management and Budget, the 
Secretary of Defense, the Administrator of the General Services 
Administration, and the Administrator of NASA; (2) the Defense Federal 
Acquisition Regulation Supplement, which is maintained by the 
Department of Defense; and (3) the Uniform Administrative Requirements, 
Cost Principles, and Account Requirements, which is the government-wide 
guidance for grants issued by the Office of Management and Budget.
---------------------------------------------------------------------------
    In order to help agencies get the information they need to 
avoid entering into contracts and other agreements with enemies 
(as defined by the bill), the bill requires the Secretary of 
Defense, in consultation with the Director of the Office of 
Management and Budget to carry out a program that will allow 
agencies to share information on funds that may be flowing to 
enemies. The program will be designed to facilitate and 
encourage the sharing of risk and threat information between 
agencies and combatant commands. Also, the bill ensures that 
actions taken to terminate or otherwise restrict contracts will 
be entered into the Federal Awardee Performance and Integrity 
Information System, which is a repository of information 
related to the business ethics and performance records of 
federal contractors.
    The bill provides for the repeal of the authorities granted 
under section 841 and section 831 upon implementation of the 
new authorities of S.675. The bill also includes a sunset date 
of December 31, 2019 for both the process and authorities for 
restricting, terminating or voiding contracts. This sunset will 
allow Congress to assess the use, or non-use, of the 
authorities and consider reauthorization or amendment as 
appropriate.

                        III. Legislative History

    On April 9, 2013, Senators Kelly Ayotte and Richard 
Blumenthal introduced S. 675. The bill was referred to the 
Committee on Homeland Security and Governmental Affairs. The 
bill is cosponsored by Senators Boozman, Burr, Chambliss, 
Manchin, Moran, Roberts, Shaheen, and Vitter.
    The Committee considered the bill at a business meeting on 
May 21, 2014. Senator Ayotte offered a substitute amendment, 
which made a number of changes to the bill to align the 
proposed government-wide authorities with those already in 
place for the Department of Defense under section 841 of the 
National Defense Authorization Act for Fiscal Year 2012 and 
section 831 of the National Defense Authorization Act for 
Fiscal Year 2014. The substitute also incorporates some 
suggestions provided to Committee staff by officials of the 
Department of State and USAID, including a provision clarifying 
that the authorities in the bill shall be in addition to, and 
not the exclusion of, any other authorities available to 
agencies to implement policies similar to those set out in the 
bill.
    The Committee adopted the substitute amendment and then 
ordered S. 675 reported favorably, both by voice vote. Members 
present for both votes were: Carper, Pryor, Landrieu, 
McCaskill, Tester, Begich, Coburn, Johnson, Portman, and Enzi.

        IV. Section-by-Section Analysis of the Bill, as Reported


Section 1. Short title

    Section 1 establishes the short title of the bill as the 
``Never Contract with the Enemy Act.''

Section 2. Prohibition on providing funds to the enemy

    Subsection 2(a) requires the Secretary of Defense, in 
conjunction with the Director of National Intelligence and in 
consultation with the Secretary of State, to establish a 
program in each combatant command to identify people and 
entities that provide funds received under a contract, grant or 
cooperative agreement directly or indirectly to an enemy 
(defined as a ``covered person or entity'' in Section 4 below), 
or who fail to exercise due diligence to ensure that funds 
received under a contract, grant or cooperative agreement are 
not provided directly or indirectly to an enemy.
    Subsection 2(b) provides that upon identification of a 
person or entity, pursuant to subsection 2(a), the head of an 
executive agency or the commander of a covered combatant 
command shall be notified of the identification in writing. 
Upon receipt of the notification, the head of the executive 
agency or the commander of the combatant command may notify the 
heads of contracting activities, or other appropriate officials 
of the agency or command, in writing of such identification.
    Under subsection 2(c), not later than 270 days after 
enactment of the Act, the Federal Acquisition Regulation, the 
Defense Federal Acquisition Regulation Supplement, and the 
Uniform Administrative Requirements, Cost Principles, and 
Account Requirements for Federal Awards (referred to hereafter 
as ``applicable regulations'')\13\ shall be revised to provide 
that certain actions may be taken upon written notice from the 
head of an executive agency or the commander of a combatant 
command to the head of contracting activity (the person 
designated by the head of an agency to carry out contract 
functions). Specifically, subsection 2(c) provides that the 
head of contracting activity may:
---------------------------------------------------------------------------
    \13\See footnote 12.
---------------------------------------------------------------------------
          (1) restrict the award of contracts, grants, or 
        cooperative agreements upon written determination that 
        a contract, grant or cooperative agreement so awarded 
        would provide funds received under such contract, grant 
        or cooperative agreement directly or indirectly to an 
        enemy;
          (2) terminate for default any contract, grant or 
        cooperative agreement upon a written determination that 
        the contractor, or the recipient of the grant or 
        cooperative agreement, has failed to exercise due 
        diligence to ensure that none of the funds received 
        under the contract, grant or cooperative agreement are 
        provided directly or indirectly to an enemy; or
          (3) void in whole or in part any contract, grant or 
        cooperative agreement upon a written determination that 
        the contract, grant or cooperative agreement provides 
        funds directly or indirectly to an enemy.
    Subsection 2(d) provides that within 270 days after the 
date of enactment, the applicable regulations shall be revised 
to require a clause to be included in each contract, grant, or 
cooperative agreement that will require the recipient of the 
funds to exercise due diligence to ensure that funds are not 
provided directly or indirectly to an enemy. The clause will 
also notify the recipient of the funds of the authority of the 
head of contracting authority (or other appropriate official in 
the case of grants or cooperative agreements) to terminate the 
contract, grant or cooperative agreement. This subsection also 
ensures that the process for amending regulations will include 
an opportunity for public comment on the standards of due 
diligence required by the Act.
    Subsection 2(e) requires, within 270 days of enactment, 
implementation of regulations to require that any head of 
contracting activity, or other official, taking action under 
subsection (c) to terminate or void a contract, grant or 
cooperative agreement notify in writing the recipient of the 
contract, grant or cooperative agreement of the action. This 
subsection also requires revision of the applicable 
regulations, so that the recipient of a contract, grant or 
cooperative agreement subject to such action has an opportunity 
to challenge the action by requesting administrative review not 
later than 30 days after receipt of the notice of the action.
    Under subsection 2(f), the Secretary of Defense, in 
conjunction with the Director of National Intelligence and in 
consultation with the Secretary of State, shall annually review 
the list of covered persons or entities previously covered by a 
notice under subsection (b) in order to determine whether those 
persons or entities continue to warrant identification pursuant 
to subsection (a). If it is determined that a person or entity 
no longer warrants identification, then the Secretary of 
Defense shall notify the head of an executive agency or 
commander, as the case may be, in writing of such a 
determination. Classified information relied upon to make an 
identification in accordance with subsection (a) may not be 
disclosed to the recipient of a contract, grant or cooperative 
agreement in the absence of a protective order issued by a 
court of jurisdiction established under Article I or Article 
III of the Constitution.
    Subsection 2(g) provides that the commander of a combatant 
command may delegate in writing the responsibilities granted by 
this section to any deputy specified by the commander. The 
authority provided by subsection (c) to terminate, void or 
restrict grants may not be delegated below the level of head of 
contracting activity, or equivalent official in the case of 
grants or cooperative agreements.
    Subsection 2(h) requires the Secretary of Defense, in 
consultation with the Director of the Office of Management and 
Budget, to carry out a program through which agency components 
may provide information to heads of executive agencies and 
commanders of combatant commands relating to persons or 
entities who may be providing funds, directly or indirectly, to 
enemies. The program shall be designed to facilitate and 
encourage the sharing of risk and threat information between 
agencies and combatant commands. Upon an action taken under 
subsection (c), the head of contracting activity shall provide 
for the inclusion in the Federal Awardee Performance and 
Integrity Information System, or other formal system of records 
on contractors, a notice of such action. The head of 
contracting activity that receives a notice pursuant to 
subsection (b) shall submit to the head of the executive agency 
concerned or the appropriate combatant command a report on the 
action taken, if any, pursuant to subsection (c), including any 
determination not to take action.
    Pursuant to subsection 2(i), by March 1 of 2016, 2017, and 
2018, the Director of the Office of Management and Budget shall 
submit to the appropriate committees of Congress a report on 
the use of the authorities in this section in the preceding 
calendar year, including instances in which an executive agency 
exercised authority to terminate, void, or restrict a contract, 
grant or cooperative agreement, or instances in which an agency 
did not exercise authority to take action pursuant to 
subsection (c). The reports required by this subsection may be 
submitted in unclassified form but with a classified annex, or 
in classified form.
    Subsection 2(j) provides that nothing in this section shall 
apply to the authorized intelligence or law enforcement 
activities of the U.S. government.
    Subsection 2(k) makes clear that, except as provided in 
subsection (l), the authorities in this section shall be in 
addition to, and not to the exclusion of, any other authorities 
available to executive agencies to implement similar policies 
and purposes.
    Subsection 2(l) provides that, 270 days after enactment, 
section 841 of the National Defense Authorization Act for 
Fiscal Year 2012, and section 831 of the National Defense 
Authorization Act for Fiscal Year 2014 are repealed. The 
Secretary of Defense may use and modify the regulations and 
procedures established under those provisions for purposes of 
satisfying the requirements of this section.
    Under subsection 2(m), the provisions of this section cease 
to be effective on December 31, 2019.

Section 3. Additional access to records

    Subsection 3(a) requires revision of applicable 
regulations, within 270 days after enactment, to allow for 
inclusion in contracts, grants and cooperative agreements a 
clause that authorizes the head of the executive agency to 
examine any records of the recipient or sub-recipient upon a 
written determination that funds under the contract, grant or 
cooperative agreement may have been provided directly or 
indirectly to a covered person or entity. A similar clause may 
be included in any subcontract or subgrant under a covered 
contract, grant or cooperative agreement with an estimated 
value in excess of $50,000.
    Under subsection 3(b), by March 1 of 2016, 2017, and 2018, 
the Director of the Office of Management and Budget shall 
submit to the appropriate committees of Congress a report on 
the use of authorities provided by this section.
    Subsection 3(c) provides that 270 days after the date of 
enactment, section 842 of the National Defense Authorization 
Act of Fiscal Year 2012, which provided similar authority to 
the Department of Defense, is repealed. The Secretary of 
Defense may use and modify the requirements and procedures 
established under section 842 for purposes of satisfying the 
requirements of this section.

Section 4. Definitions

    Section 4 provides that for purposes of this Act:
    (1) The term ``appropriate committees of Congress'' means: 
the Committee on Armed Services, the Committee on Homeland 
Security and Governmental Affairs, the Committee on Foreign 
Relations, and the Committee on Appropriations of the Senate; 
and the Committee on Armed Services, the Committee on Oversight 
and Government Reform, the Committee on Foreign Affairs, and 
the Committee on Appropriations of the House of 
Representatives.
    (2) The term ``contingency operation'' has the meaning 
given that term in section 101(a)(13) of title 10, United 
States Code.\14\
---------------------------------------------------------------------------
    \14\See footnote 6.
---------------------------------------------------------------------------
    (3) The term ``contract'' includes a contract for 
commercial items but is not limited to a contract for 
commercial items.
    (4) The term ``covered combatant command'' means the 
following: the United States Africa Command, the United States 
Central Command, the United States European Command, the United 
States Pacific Command, and the United States Southern Command.
    (5) The term ``covered contract, grant or cooperative 
agreement'' means a contract, grant or cooperative agreement 
with an estimated value in excess of $50,000 that is performed 
outside the United States, including its possessions and 
territories.
    (6) The term ``covered person or entity'' means a person or 
entity that is actively opposing United States or coalition 
forces in a contingency operation in which members of the armed 
forces are actively engaged in hostilities.
    (7) The term ``executive agency'' has the meaning given 
that term in section 133 of title 41, United States Code, which 
includes the major departments of the executive branch, the 
military departments, other government agencies (other than the 
United States Postal Service or the Postal Regulatory 
Commission) and wholly owned government corporations.
    (8) The term ``head of contracting activity'' has the 
meaning given that term in subpart 601 part 1 of the Federal 
Acquisition Regulation. The head of contracting activity is the 
person to whom an agency head delegates the authority to manage 
the contracting functions for the agency.

           V. Congressional Budget Office (CBO) Cost Estimate

                                                     June 20, 2014.
Hon. Tom Carper,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 675, the Never 
Contract With the Enemy Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is David Newman.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 675--Never Contract With the Enemy Act

    S. 675 would require the Department of Defense (DoD) to 
identify entities that use resources received from the federal 
government to provide aid to a person or group that is actively 
opposing U.S. or allied armed forces in overseas contingency 
operations. The bill also would require DoD to identify 
entities that do not take sufficient care to ensure that 
government resources are not being used to support the enemy.
    The bill would require that contracts, grants, or 
cooperative agreements that are used or performed outside the 
United States and have a value of $50,000 or more include a 
clause giving federal agencies the right to examine the 
business records of the other party if the agency has reason to 
believe the recipient is supporting the enemy.
    S. 675 would require DoD to develop a program under which 
information on those entities found to be aiding the enemy may 
be provided to other federal agencies. The bill would authorize 
all federal agencies to cancel contractual agreements with such 
entities and to bar them from receiving additional contracts, 
grants, or cooperative agreements with the federal government. 
The bill also would require annual reports on the use of the 
authority during the 2016-2018 period.
    DoD currently conducts a similar program and notifies 
military commands engaged in overseas contingency operations of 
entities that have been identified as supporters of the enemy. 
Certain military commands are authorized under current law to 
cancel contracts with those identified. The department reports 
such cancelled contracts in the Federal Awardee Performance and 
Integrity Information System. DoD indicates that it would post 
the list of all entities identified as supporters of the enemy 
to that system where the information would be available to 
other federal agencies.
    CBO estimates that providing access to the list of enemy 
supporters and authorizing other federal agencies to cancel 
contracts and disbar contractors would have discretionary costs 
of less than $500,000 over the 2015-2019 period; any spending 
would be subject to the availability of appropriated funds. 
Pay-as-you-go procedures do not apply to this legislation 
because it would not affect direct spending or revenues.
    S. 675 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is David Newman. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                  VI. Evaluation of Regulatory Impact

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this bill.
    The Committee agrees with the Congressional Budget Office 
that the bill contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments, 
or private entities. The enactment of this legislation would 
not have significant regulatory impact within the meaning of 
the rule.

     VII. Changes in Existing Statute Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 675 as reported are shown as follows (existing law proposed 
to be omitted is enclosed in brackets, new matter is printed in 
italic, and existing law in which no change is proposed is 
shown in roman):\15\
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    \15\Subsection 1(l) of the bill provides that these changes are 
effective 270 days after the date of enactment of the Act.
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        NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2012


                          (Public Law 112-81)


DIVISION A--DEPARTMENT OF DEFENSE AUTHORIZATIONS

           *       *       *       *       *       *       *



  TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED 
MATTERS

           *       *       *       *       *       *       *


Subtitle D--Provisions Relating to Contracts in Support of Contingency 
Operations in Iraq and Afghanistan

           *       *       *       *       *       *       *


[SEC. 841. PROHIBITION ON CONTRACTING WITH THE ENEMY IN THE UNITED 
                    STATES CENTRAL COMMAND THEATER OF OPERATIONS.

    [(a) Prohibition.--
          [(1) In general.--Not later than 30 days after the 
        date of the enactment of this Act, the Secretary of 
        Defense shall revise the Department of Defense 
        Supplement to the Federal Acquisition Regulation to 
        authorize the head of a contracting activity, pursuant 
        to a request from the Commander of the United States 
        Central Command under subsection (c)(2)--
                [(A) to restrict the award of Department of 
                Defense contracts, grants, or cooperative 
                agreements that the head of the contracting 
                activity determines in writing would provide 
                funding directly or indirectly to a person or 
                entity that has been identified by the 
                Commander of the United States Central Command 
                as actively supporting an insurgency or 
                otherwise actively opposing United States or 
                coalition forces in a contingency operation in 
                the United States Central Command theater of 
                operations;
                  [(B) to terminate for default any Department 
                contract, grant, or cooperative agreement upon 
                a written determination by the head of the 
                contracting activity that the contractor, or 
                the recipient of the grant or cooperative 
                agreement, has failed to exercise due diligence 
                to ensure that none of the funds received under 
                the contract, grant, or cooperative agreement 
                are provided directly or indirectly to a person 
                or entity who is actively supporting an 
                insurgency or otherwise actively opposing 
                United States or coalition forces in a 
                contingency operation in the United States 
                Central Command theater of operations; or
                  [(C) to void in whole or in part any 
                Department contract, grant, or cooperative 
                agreement upon a written determination by the 
                head of the contracting activity that the 
                contract, grant, or cooperative agreement 
                provides funding directly or indirectly to a 
                person or entity that has been identified by 
                the Commander of the United States Central 
                Command as actively supporting an insurgency or 
                otherwise actively opposing United States or 
                coalition forces in a contingency operation in 
                the United States Central Command theater of 
                operations.
          [(2) Treatment as void.--For purposes of this 
        section:
                  [(A) A contract, grant, or cooperative 
                agreement that is void is unenforceable as 
                contrary to public policy.
                  [(B) A contract, grant, or cooperative 
                agreement that is void in part is unenforceable 
                as contrary to public policy with regard to a 
                segregable task or effort under the contract, 
                grant, or cooperative agreement.
    [(b) Contract Clause.--
          [(1) In general.--Not later than 30 days after the 
        date of the enactment of this Act, the Secretary shall 
        revise the Department of Defense Supplement to the 
        Federal Acquisition Regulation to require that--
                  [(A) the clause described in paragraph (2) 
                shall be included in each covered contract, 
                grant, and cooperative agreement of the 
                Department that is awarded on or after the date 
                of the enactment of this Act; and
                  [(B) to the maximum extent practicable, each 
                covered contract, grant, and cooperative 
                agreement of the Department that is awarded 
                before the date of the enactment of this Act 
                shall be modified to include the clause 
                described in paragraph (2).
          [(2) Clause described.--The clause described in this 
        paragraph is a clause that--
                  [(A) requires the contractor, or the 
                recipient of the grant or cooperative 
                agreement, to exercise due diligence to ensure 
                that none of the funds received under the 
                contract, grant, or cooperative agreement are 
                provided directly or indirectly to a person or 
                entity who is actively supporting an insurgency 
                or otherwise actively opposing United States or 
                coalition forces in a contingency operation; 
                and
                  [(B) notifies the contractor, or the 
                recipient of the grant or cooperative 
                agreement, of the authority of the head of the 
                contracting activity to terminate or void the 
                contract, grant, or cooperative agreement, in 
                whole or in part, as provided in subsection 
                (a).
          [(3) Covered contract, grant, or cooperative 
        agreement.--In this subsection, the term ``covered 
        contract, grant, or cooperative agreement'' means a 
        contract, grant, or cooperative agreement with an 
        estimated value in excess of $100,000 that will be 
        performed in the United States Central Command theater 
        of operations.
    [(c) Identification of Contracts With Supporters of the 
Enemy.--
          [(1) In general.--Not later than 30 days after the 
        date of the enactment of this Act, the Secretary, 
        acting through the Commander of the United States 
        Central Command, shall establish a program to use 
        available intelligence to review persons and entities 
        who receive United States funds through contracts, 
        grants, and cooperative agreements performed in the 
        United States Central Command theater of operations and 
        identify any such persons and entities who are actively 
        supporting an insurgency or otherwise actively opposing 
        United States or coalition forces in a contingency 
        operation.
          [(2) Notice to contracting activities.--If the 
        Commander of the United States Central Command, acting 
        pursuant to the program required by paragraph (1), 
        identifies a person or entity as actively supporting an 
        insurgency or otherwise actively opposing United States 
        or coalition forces in a contingency operation, the 
        Commander may notify the head of a contracting activity 
        in writing of such identification and request that the 
        head of the contracting activity exercise the authority 
        provided in subsection (a) with regard to any 
        contracts, grants, or cooperative agreements that 
        provide funding directly or indirectly to the person or 
        entity.
          [(3) Protection of classified information.--
        Classified information relied upon by the Commander of 
        the United States Central Command to make an 
        identification in accordance with this subsection may 
        not be disclosed to a contractor or a recipient of a 
        grant or cooperative agreement with respect to which an 
        action is taken pursuant to the authority provided in 
        subsection (a), or to their representatives, in the 
        absence of a protective order issued by a court of 
        competent jurisdiction established under Article III of 
        the Constitution of the United States that specifically 
        addresses the conditions upon which such classified 
        information may be so disclosed.
    [(d) Nondelegation of Responsibilities.--
          [(1) Contract actions.--The authority provided by 
        subsection (a) to restrict, terminate, or void 
        contracts, grants, and cooperative agreements may not 
        be delegated below the level of the head of a 
        contracting activity.
          [(2) Identification of support of enemy.--The 
        authority to make an identification under subsection 
        (c)(1) may not be delegated below the level of the 
        Commander of the United States Central Command.
    [(e) Reports.--Not later than March 1 of each of 2013, 
2014, and 2015, the Secretary shall submit to the congressional 
defense committees a report on the use of the authority 
provided by this section in the preceding calendar year. Each 
report shall identify, for the calendar year covered by such 
report, each instance in which the Department of Defense 
exercised the authority to restrict, terminate, or void 
contracts, grants, and cooperative agreements pursuant to 
subsection (a) and explain the basis for the action taken. Any 
report under this subsection may be submitted in classified 
form.
    [(f) Other Definition.--In this section, the term 
``contingency operation'' has the meaning given that term in 
section 101(a)(13) of title 10, United States Code.
    [(g) Sunset.--The authority to restrict, terminate, or void 
contracts, grants, and cooperative agreements pursuant to 
subsection (a) shall cease to be effective on the date that is 
three years after the date of the enactment of this Act.]

        NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2014


                          (Public Law 113-66)


DIVISION A--DEPARTMENT OF DEFENSE AUTHORIZATIONS

           *       *       *       *       *       *       *



  TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED 
MATTERS

           *       *       *       *       *       *       *


Subtitle D--Provisions Relating to Contracts in Support of Contingency 
Operations in Iraq and Afghanistan

           *       *       *       *       *       *       *


[SEC. 831. PROHIBITION ON CONTRACTING WITH THE ENEMY.

    [(a) Authority To Terminate or Void Contracts, Grants, and 
Cooperative Agreements and To Restrict Future Award.--
          [(1) Identification of persons and entities.--The 
        Secretary of Defense shall establish in each covered 
        combatant command a program to identify persons or 
        entities, within the area of responsibility of such 
        covered combatant command, that--
                  [(A) provide funds received under a contract, 
                grant, or cooperative agreement of the 
                Department of Defense directly or indirectly to 
                a covered person or entity; or
                  [(B) fail to exercise due diligence to ensure 
                that none of the funds received under a 
                contract, grant, or cooperative agreement of 
                the Department of Defense are provided directly 
                or indirectly to a covered person or entity.
          [(2) Notice of persons or entities identified.--Upon 
        the identification of a person or entity as meeting 
        subparagraph (A) or (B) of paragraph (1), the commander 
        of the combatant command concerned, and any deputies of 
        the commander specified by the commander for purposes 
        of this section, shall be notified in writing of such 
        identification of such person or entity.
          [(3) Responsive actions.--Upon receipt of a notice 
        under paragraph (2), the commander of the combatant 
        command concerned may, in consultation with the Under 
        Secretary of Defense for Policy, the Under Secretary of 
        Defense for Acquisition, Technology, and Logistics, and 
        the appropriate Chief of Mission, notify the heads of 
        appropriate contracting activities, in writing, of such 
        identification and request that the heads of such 
        contracting activities exercise the authorities 
        provided pursuant to paragraph (4) and the Department 
        of Defense Supplement to the Federal Acquisition 
        Regulation, as revised, with respect to any contract, 
        grant, or cooperative agreement that provides funding 
        directly or indirectly to the person or entity covered 
        by the notice.
          [(4) Authorities. Not later than 30 days after the 
        date of the enactment of this Act, the Secretary of 
        Defense shall revise the Department of Defense 
        Supplement to the Federal Acquisition Regulation to 
        authorize the head of a contracting activity in each 
        covered combatant command, pursuant to a request from 
        the commander of a covered combatant command under 
        paragraph (3)--
                  [(A) to prohibit, limit, or otherwise place 
                restrictions on the award of any Department of 
                Defense contract, grant, or cooperative 
                agreement to a person or entity identified 
                pursuant to paragraph (1)(A);
                  [(B) to terminate for default any Department 
                contract, grant, or cooperative agreement 
                awarded to a person or entity identified 
                pursuant to paragraph (1)(B); or
                  [(C) to void in whole or in part any 
                Department contract, grant, or cooperative 
                agreement awarded to a person or entity 
                identified pursuant to paragraph (1)(A).
    [(b) Contract Clause.--
          [(1) In general.--Not later than 30 days after the 
        date of the enactment of this Act, the Department of 
        Defense Supplement to the Federal Acquisition 
        Regulation shall be revised to require that--
                  [(A) the clause described in paragraph (2) 
                shall be included in each covered contract, 
                grant, and cooperative agreement of the 
                Department of Defense that is awarded on or 
                after the date of the enactment of this Act; 
                and
                  [(B) to the maximum extent practicable, each 
                covered contract, grant, and cooperative 
                agreement of the Department of Defense that is 
                awarded before the date of the enactment of 
                this Act shall be modified to include the 
                clause described in paragraph (2).
          [(2) Clause described.--The clause described in this 
        paragraph is a clause that--
                  [(A) requires the contractor, or the 
                recipient of the grant or cooperative 
                agreement, to exercise due diligence to ensure 
                that none of the funds received under the 
                contract, grant, or cooperative agreement are 
                provided directly or indirectly to a covered 
                person or entity; and
                  [(B) notifies the contractor, or the 
                recipient of the grant or cooperative 
                agreement, of the authority of the head of the 
                contracting activity to terminate or void the 
                contract, grant, or cooperative agreement, in 
                whole or in part.
          [(3) Covered contract, grant, or cooperative 
        agreement.--In this subsection, the term ``covered 
        contract, grant, or cooperative agreement'' means a 
        contract, grant, or cooperative agreement with an 
        estimated value in excess of $50,000.
          [(4) Treatment as void.--For purposes of subsection 
        (a)(4) and the exercise under subsection (a)(3) of the 
        authorities in the Department of Defense Supplement to 
        the Federal Acquisition Regulation pursuant to this 
        subsection:
                  [(A) A contract, grant, or cooperative 
                agreement that is void is unenforceable as 
                contrary to public policy.
                  [(B) A contract, grant, or cooperative 
                agreement that is void in part is unenforceable 
                as contrary to public policy with regard to a 
                segregable task or effort under the contract, 
                grant, or cooperative agreement.
    [(c) Requirements Following Contract Actions.--Not later 
than 30 days after the date of the enactment of this Act, the 
Department of Defense Supplement to the Federal Acquisition 
Regulation shall be revised as follows:
          [(1) To require that any head of contracting activity 
        taking an action pursuant to subsection (a)(3) or 
        (a)(4) to terminate, void, or restrict a contract, 
        grant, or cooperative agreement notify in writing the 
        contractor or recipient of the grant or cooperative 
        agreement, as applicable, of the action.
          [(2) To permit, in such manner as the Department of 
        Defense Supplement to the Federal Acquisition 
        Regulation as so revised shall provide, the contractor 
        or recipient of a grant or cooperative agreement 
        subject to an action taken pursuant to subsection 
        (a)(3) or (a)(4) to terminate or void the contract, 
        grant, or cooperative agreement, as the case may be, an 
        opportunity to challenge the action by requesting 
        administrative review within 30 days after receipt of 
        notice of the action.
    [(d) Annual Review.--The commanders of the covered 
combatant commands shall, on an annual basis, review the lists 
of persons and entities previously identified pursuant to 
subsection (a)(1) in order to determine whether or not such 
persons and entities continue to warrant identification 
pursuant to that subsection. If a commander determines pursuant 
to such a review that a person or entity no longer warrants 
identification pursuant to subsection (a)(1), the commander 
shall notify the heads of contracting activities of the 
Department of Defense in writing of such determination.
    [(e) Protection of Classified Information.--Classified 
information relied upon to make an identification pursuant to 
subsection (a)(1) may not be disclosed to a contractor or a 
recipient of a grant or cooperative agreement with respect to 
which an action is taken pursuant to subsection (a)(3) or 
(a)(4) or to their representatives, in the absence of a 
protective order issued by a court of competent jurisdiction 
established under Article I or Article III of the Constitution 
of the United States that specifically addresses the conditions 
upon which such classified information may be so disclosed.
    [(f) Delegation.--
          [(1) Responsibilities relating to identification and 
        review.--The commander of a covered combatant command 
        may delegate the responsibilities in subsection (a)(3) 
        to any deputies of the commander specified by the 
        commander pursuant to that subsection. The commander 
        may delegate any responsibilities under subsection (d) 
        to the deputy commander of the combatant command. Any 
        delegation of responsibilities under this paragraph 
        shall be made in writing.
          [(2) Nondelegation of responsibility for contract 
        actions.--The authority provided by subsections (a)(3) 
        and (a)(4) to terminate, void, or restrict contracts, 
        grants, and cooperative agreements may not be delegated 
        below the level of head of contracting activity.
    [(g) Inclusion of Information on Contract Actions in 
FAPIIS.--Upon the termination, voiding, or restriction of a 
contract, grant, or cooperative agreement pursuant to 
subsection (a)(3) or (a)(4), the head of contracting activity 
concerned shall provide for the inclusion in the Federal 
Awardee Performance and Integrity Information System (FAPIIS), 
or other formal system of records on contractors or entities, 
of appropriate information on the termination, voiding, or 
restriction of the contract, grant, or cooperative agreement.
          [(1) In general.--Not later than March 1 each year 
        through 2019, the Secretary of Defense shall submit to 
        the congressional defense committees a report on the 
        use of the authorities in this section in the preceding 
        calendar year, including the following:
                  [(A) For each instance in which a contract, 
                grant, or cooperative agreement was terminated 
                or voided, or entry into contracts, grants, and 
                cooperative agreements was restricted, pursuant 
                to subsection (a)(3) or (a)(4), the following:
                          [(i) An explanation of the basis for 
                        the action taken.
                          [(ii) The value of the contract, 
                        grant, or cooperative agreement 
                        terminated or voided.
                          [(iii) The value of all contracts, 
                        grants, or cooperative agreements of 
                        the Department of Defense in force with 
                        the person or entity concerned at the 
                        time the contract, grant, or 
                        cooperative agreement was terminated or 
                        voided.
                          [(iv) Information on how the goods or 
                        services covered by the terminated or 
                        voided contract, grant, or cooperative 
                        agreement were otherwise obtained by 
                        the commander of the combatant command 
                        concerned.
                  [(B) For each instance in which a contract, 
                grant, or cooperative agreement of a person or 
                entity identified pursuant to subsection (a)(1) 
                was not terminated or voided pursuant to 
                subsection (a)(3) or (a)(4), or the future 
                award of contracts, grants, and cooperative 
                agreements to such person or entity was not 
                restricted pursuant to subsection (a)(3) or 
                (a)(4), an explanation why such action was not 
                taken.
          [(2) Form.--Any report under this subsection may be 
        submitted in classified form.
    [(i) Other Definitions.--In this section:
          [(1) The term ``covered combatant command'' means 
        United States Central Command, United States European 
        Command, United States Africa Command, United States 
        Southern Command, or United States Pacific Command.
          [(2) The term ``head of contracting activity'' has 
        the meaning given that term in subpart 601 of part 1 of 
        the Federal Acquisition Regulation.
          [(3) The term ``covered person or entity'' means a 
        person or entity that is actively opposing United 
        States or coalition forces involved in a contingency 
        operation in which members of the armed forces are 
        actively engaged in hostilities.
    [(j) Sunset.--The provisions of this section shall cease to 
be effective on December 31, 2018.]