those policies and procedures not directed by law are changed by the provisions of this part. Effective with the • issue of this part, the ASPR is redesignated as the DAR and all policies and procedures continue in force.

(c) Defense Acquisition Regulatory Council. The Defense Acquisition Regulatory Council (DARC) is established to support the Council Director in the management of the DARS and in the development and implementation of required policy and procedures. The DARC includes all functions formerly performed by the Armed Services Procurement Regulation Committee.

(1) Council membership. The DARC membership shall include a Policy and a Legal representative frome ach of the Military Departments and from the Defense Logistics Agency (DLA). Each Military Department Policy member shall be appointed by the Assistant Secretary having responsibility for the acquisition function in the Department. The Legal representative shall be appointed by the Department General Counsel. The DLA members shall be appointed by the Director, DLA. Each appointment to the Council shall be made for a minimum term of 2 years and a maximum of 4 years as a principal full-time assignment approved by the Deputy Under Secretary of Defense (Acquisition Policy). Members appointed to the DARC shall have extenE sive acquisition experience in order to #deal with the matters to come before the Council. Policy members shall be authorized to develop and state the final positions of their respective organizations on all matters before the Council. Each member shall have a TOP SECRET security clearance.

(2) Council Director. The Director (Contracts and System Acquisition), OUSD/R&E, shall appoint the Council Director. Such appointment shall be subject to the approval of the Deputy Under Secretary of Defense (Acquisition Policy).

(3) Council Executive Secretary. The Executive Secretary, DARC, shall be appointed by and serve under the direction of the Council Director.

(d) Operation of the DARC. The Council shall operate under the direction of the Council Director to develop and

implement acquisition policy and procedures.

(1) Council activities shall be conducted according to rules and procedures established by the Council Director within the policy guidance issued by the Director (Contracts and Systems Acquisition), OUSD/R&E.

(2) The DARC shall consider all matters determined by the Council Director to be within the scope of the Council's responsibilities.

(3) Substantive changes to DARS policy and procedures may be proposed by submitting appropriate recommendations to include specific regulatory language to the Director (Contracts and System Acquisition), through the following officials. Proposed routine administrative changes may be submitted directly to the Council Director.

(i) DOD organizations. The Military Departments, the Defense Agencies and the Office of the Joint Chiefs of Staff shall submit recommendations through a designated senior official responsible for acquisition policy matters, OSD staffs shall submit recommendations through the staff principals.

(ii) Federal agencies. Other Federal agencies, required by OFPP to conduct acquisition functions in accordance with DARS policy, shall submit proposed changes through a senior agency official designated by the agency head to represent the agency on all matters involving the DARS. The designated official shall be authorized to communicate directly with the DARC and to give final coordination for the agency.

(iii) Private sector. Private sector entities with an interest in DARS policy will submit proposed changes directly. Industry associations will designate an individual to the Council Director and establish procedures for the individual to represent the association in commenting on DARS policy actions prior to final action by the Council. The procedures will provide for the completion of industry actions with the Council on a schedule not to exceed 60 days.

(4) The Council Director is authorized to establish working groups to support the Council in dealing with issues in specialized areas. The Council Director

will request the participation of representatives with the required expertise from OSD staff elements, Military Departments and Defense Agencies. Working groups will be assigned specific tasks by the Council Director to be completed on a schedule established with the task assignment.

(5) The Council Director is authorized to designate a Military Department of DLA to be the lead agency in developing a specific policy or procedure for the DARS. The Council Director shall make the assignment through the Policy member of the designated lead agency. The lead agency shall develop the proposed language for the DARS, complete the coordination requested by the Council Director, document nonconcurrences together with the position of the lead agency, and submit the completed action to the Council Director through the lead agency's Policy member. The procedure for accomplishing the task shall be determined by the lead agency. DOD activities shall provide support as requested by the lead agency.

(6) The Council Director shall establish schedules for the completion of each case before the Council based on the needs and urgency of the individual cases. Schedules shall require completion of the Council's action in a period not to exceed 120 days independent of industry coordination, except in specific cases where the Council Director determines an extended schedule is required. In such cases, the schedule will be approved by the Deputy Under Secretary of Defense (Acquisition Policy) or his designated representative.

(7) On matters of major policy or issues where a consensus of the Policy members has not been achieved after a reasonable period of debate, the Council Director shall present the Departmental and Agency positions to the Deputy Under Secretary (Acquisition Policy), or his designated representative for resolution after consultation with the appropriate senior officials of the Military Departments and DLA. The decision of the Deputy Under Secretary of Defense (Acquisition Policy), or his designated representative shall be implemented without further co

ordination.

(8) The Council Director shall require summary minutes of Council meetings to be maintained as a permanent record by the Executive Secretary. Minutes will clearly document the positions of the participating organizations on matters before the Council. The positions stated by other organizations shall be documented when in disagreement with the final decision.

(9) The Council Director shall report periodically to the Deputy Under Secretary of Defense (Acquisition Policy) on specific activities of the Council.

(e) Supplementing Instructions. Additional policies and procedures essential to the operation of the DARS shall be issued by the Under Secretary of Defense for Research and Engineering.

(a) Applies to the Office of the Secretary of Defense (OSD); the Military Departments; Chairman, Joint Chiefs of Staff and the Joint Staff; the Defense Agencies; and the DoD Field Activities (hereafter referred to collectively as the "DoD Components").

(b) Encompasses the acquisition of equipment and facilities to improve the following:

(1) Productivity, quality, and processes of DoD Components including major facilities, equipment, or process

modernization.

(2) Performance of individual jobs, tasks, procedures, operations, and processes.

(c) Encompasses PIF investments at appropriated and industrially funded activities, if they are not participating in the Defense Business Operations Fund. For industrially funded activities, projects may be submitted for PIF on an exception basis; primarily, this includes facilities, multi-function projects, prototypes, demonstrations, and cross-service initiatives. Investments at Government-owned, contractor-operated (GOCO) facilities are limited to those for which the Department of Defense has responsibility to provide equipment or facilities and from which productivity benefits can be recovered within existing contractual provisions.

§ 162.3 Definition.

(a) Capital Investment. The acquisition, installation, transportation, and other costs needed to place equipment or facilities in operation meeting DoD capitalization requirements.

(b) Economic Life. The time period over which the benefits to be gained from a project may reasonably be expected to accrue to the Department of Defense.

(c) Internal Rate of Return (IRR). The discount rate that equates the present value of the future cash inflows, e.g. savings and cost avoidances, with the present value costs of an investment.

(d) Life-Cycle Savings. The estimated cumulative budgetary savings expected over the life of the project.

(e) Net Present Value of Investment. The difference between the present value benefit and the present value cost at a given discount rate.

(f) Off-the-Shelf. Equipment that is readily available through Government or commercial sources or that can be fabricated through combination or modification of existing equipment.

(g) Pay-Back Period. The number of years required for the cumulative savings to have the same value as the investment cost.

(h) PECI Benefits. Benefits resulting from PECIs are classified as savings or as cost avoidance:

(1) Savings. Benefits that can be precisely measured, quantified, and placed under management control at time of realization. Savings can be reflected as specific reductions in the approved program or budget, after they have been achieved. Examples include costs for manpower authorizations and or funded work-year reductions, reduced or eliminated operating costs (utilities, travel, and repair), and reduced or eliminated parts and contracts.

(2) Cost-Avoidance. Benefits from actions that obviate the requirements for an increase in future levels of manpower or costs that would be necessary, if present management practices were continued. The effect of cost-avoidance savings is the achievement of a higher level of readiness or increased value (quantity, quality or timeliness) of output at level staffing cost or the absorption of a growing work load at the same level of staffing or cost.

(i) Post-Investment Assessment (PIA). A PIA is conducted by DoD Components to establish accountability and provide information to improve future investment strategies.

(j) Productivity. The efficiency with which resources are used to provide a government service or product at specified levels of quality and timeliness.

(k) Productivity Enhancement (or Productivity Improvement). A decrease in the unit cost of products and services delivered with equal or better levels of quality and timeliness.

(1) Productivity Enhancing Capital Investment (PECI). Equipment or facility funding that shall improve Government service, products, quality, or timeliness. PECI projects are funded using PIF, PEIF, and CSI programs. These programs are defined as follows:

(1) Productivity Investment Fund (PIF). PIF projects cost over $100,000 and

must amortize within 4 years from the date they become operational. In FY 1994 the threshold changes to $150,000.

(2) Productivity Enhancing Incentive Fund (PEIF). PEIF projects cost under $100,000 and are expected to amortize within 2 years of the date they become operational. In FY 1994 the limit changes to $150,000.

(3) Component-Sponsored Investment (CSI). CSI projects are fast pay-back or high interest investments that may have different DoD Component selection criteria than those specified for PIF or PEIF projects.

(m) Quality. The extent to which a product or service meets customer requirements and customer expectations.

$162.4 Policy.

It is DoD Policy that:

(a) The PECI program shall be an integral part of DoD Component investment planning and of the Defense Planning, Programming, and Budgeting System (PPBS) DoD Instruction 7045.7.4 PECI planning shall include the productivity investment fund (PIF), the productivity enhancing incentive fund (PEIF), and component-sponsored investments (CSIS). The PECI program is a major DoD strategy to achieve productivity goals under E.O. 12637.5

(b) PECI projects shall be selected to improve quality and productivity, or to reduce unit cost of outputs in defense operations. PECI projects shall be evaluated and approved for funding based on recognized principles of economic analysis. Each PECI project shall be subject to all restrictions established by public law, DoD policy, and other regulatory constraints.

(c) DoD personnel at all levels shall be encouraged to seek out and identify opportunities for quality and productivity improvement. Those efforts shall be supported by using the PECI as a means of financing the improvements. The PECI Program shall provide incentives for participation, supported by the financial management system and policies.

(d) Individuals or groups who successfully identify PECI opportunities that result in significant savings or im

4 See footnote 1 to § 162.1(a). 5 See footnote 1 to § 162.1(a).

provements in quality or productivity or who aggressively promote PECI incentives within their organizations should be recognized through the DoD Incentive Awards Program, DoD Instruction 5120.16,6 the Secretary of Defense Productivity Excellence Awards Program, performance appraisal, or other appropriate means. All these savings derived through PECI will remain with the originating DoD Component. As an incentive a portion of these savings, when possible, should remain at the submitting activity.

(e) Funds provided through FY 1993 from the centrally managed OSD PIF may not be reprogrammed for non-PIF purposes without prior approval of the Assistant Secretary of Defense (Force Management and Personnel) (ASD(FM&P)). The Heads of DoD Components shall monitor obligation rates to ensure PIF projects are executed quickly. If project funding cannot be obligated within the specified fiscal year(s) for the type of funding, the Head of the DoD Component must reprogram PIF funds to alternate approved PIF projects. The PIF projects shall be monitored to ensure timely implementation and to validate savings through the amortization period. The PECIS are subject to audit as established by DoD Instruction 7600.27 (reference (g)) policy.

§ 162.5 Responsibilities.

(a) The Assistant Secretary of Defense (Force Management and Personnel (ASD (FM&P)) shall:

(1) Develop policies and guidance for the overall DoD PECI program.

(2) Maintain oversight of the PECI program to ensure implementation of this instruction. Through FY 1993 that oversight includes total process control and coordination of PIF actions to identify, select and approve, reprogram, and disapprove projects. Starting FY 1994 and ASD (FM&P) shall retain central oversight of the PECI program which is decentralized to the Components.

(3) Evaluate program results and training requirements and provide additional guidance, as necessary.

6 See footnote 1 to § 162.1(a). 7 See footnote 1 to § 162.1(a).

(4) Develop, maintain, and publish a DoD 5010.36-H consistent with DoD 5025.1-M8

(5) Coordinate PECI efforts with the Heads of the DoD Components on matters that affect their particular areas of responsibility.

(6) Use the Defense Productivity Program Office (DPPO) to:

(i) Provide technical guidance and support for PECI efforts.

(ii) Monitor and evaluate DoD Component PECI efforts.

(iii) Ensure compliance with DoD Directive 7750.59

(b) The Inspector General of the Department of Defense (IG, DoD) shall provide policy and guidance for the audit of the PECI and incorporate the requirement for audit into audit planning and program documents.

(c) The Heads of the DoD Components shall:

(1) Develop and sustain a formal PECI program that:

(i) Emphasizes and encourages the improvement of day-to-day operations through PECI funding.

(ii) Provides motivation and opportunities for personnel, at all levels, to participate in the identification, documentation, and implementation PECI proposals.

of

(iii) Includes PIF, PEIF, and CSI efforts, as appropriate.

(iv) Reviews and approves submitted projects, broadens project applicability when reasonable, applies off-the-shelf technology, and integrates capital investment planning into the PPBS.

(2) Designate an official to be the central point of contact (POC) who shall oversee and monitor the PECI program.

(3) Establish procedures ensuring that the policies contained in § 162.4, above, are adhered to.

§ 162.6 Procedures.

The following procedures shall be followed by the DoD Components in the identification, documentation, selection, and financing of PECI projects: (a) Document each PECI project to ensure that it is:

8 See footnote 1 to § 162.1(a).

9 See footnote 1 to § 162.1(a).

(1) A desirable action in accordance with the DoD Component's long-range planning and programing objectives, quality objectives, and customer and/or user satisfaction.

(2) Needed to perform and improve valid operations, functions, or services (as established by assigned missions and taskings) that cannot be performed as effectively or economically by other means, such as the use of existing facilities, methods, processes, or procedures.

(3) Justified on the basis of a valid economic analysis done in accordance with DoD Instruction 7041.3.

(4) Validated as to reasonableness, completeness, and correct appropria

tion.

(5) Classified properly as having savings or cost avoidance benefits

(b) Include resources for PECI in programming documents and budget submissions. The level of funding shall be established under quality and productivity plans and goals established by the Component.

(c) Use guidelines for project documentation, pre-investment analysis, financing, and post-investment accountability of PECI projects, when DoD 5010.36-H is published.

(d) Classify PECI projects for financing and aggregated reporting as follows:

(1) PIF projects. PIF projects are competitively selected from candidate proposals and financed through traditional budget appropriation processes from funds set aside for this purpose. PIF projects must cost over $100,000 and must amortize within 4 years from the date that they become operational. Both equipment and facilities investments that conform to public law, or DoD policies governing their qualification, may be included. Projects may include a function at several activities or locations and be Service-wide or Agency-wide. In FY 1994 the threshold will change to $150,000.

(2) PEIF projects. PEIF projects are financed from the DoD Component accounts established in annual appropriations and are expected to amortize within 2 years of the date they become operational. Funding for PEIF projects shall be included in the DoD Component annual appropriations as a single