Processes for incentivizing contractor expansion of sources of supply

(a) In general For critical readiness parts and systems, the Secretary of Defense shall enhance military readiness by incentivizing the design activity to expand sources of supply for critical readiness parts and systems, through expedited qualification processes, advanced manufacturing techniques, and risk-informed certification. (b) Contractual requirements for supplier diversification (1) Requirement The Secretary of Defense shall ensure that all new or modified contracts with a prime contractor shall include contracting incentives to expand sources of supply with each design activity at any tier of the supply chain for systems with critical readiness parts and systems. (2) Mandatory AMSC reclassification For any identified critical readiness part or system, the design activity shall, not later than 60 days after notification by the Department of Defense, conduct a review and propose reclassification of the Acquisition Method Suffix Code (AMSC) to reduce sole-source dependency for any part or system with a lead time greater than, unless the Secretary of Defense grants a waiver based on national security or operational necessity. (3) Implementation The design activity shall submit supplier diversification plans not later than 90 days after contract award, detailing proposed supplier qualifications and projected benefits. (4) Enforcement Noncompliance shall result in corrective action requests, reduced contractor performance ratings, or contract termination. (c) Expedited qualification (1) In general The Secretary of Defense shall expedite qualification procedures for critical readiness parts and systems in collaboration with the design activity at any tier of the contract supply chain. (2) Delegation The Secretary of Defense may delegate authority to designated engineering representatives (DERs) of the Federal Aviation Administration or equivalent third-party certified engineers for specific tasks for parts approved through the Federal Aviation Administration’s Parts Manufacturer Approval (PMA) processes. (d) Enhanced use of simulation for certification (1) In general The Secretary of Defense shall mandate the use of simulation-based verification for certifying critical readiness parts and systems, reducing reliance on physical testing for non-safety critical items, or non-mission critical items, as those terms are defined in section 865 of the Servicemember Quality of Life Improvement and National Defense Authorization Act for Fiscal Year 2025 (Public Law 118–159; 10 U.S.C. 4811 note). (2) Submission of simulation-based evidence Design activities or DERs shall submit to the Department upon request simulation-based evidence, such as structural/strength analysis reports and fault trees. (3) Acceptance of simulation-based evidence Engineering Support Activities (ESAs) shall accept simulation data as primary evidence for non-safety critical items, or non-mission critical items, with conditional approvals issued within 14 days for critical readiness parts and systems. (4) Simulation validation framework Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall establish a Department-wide simulation validation framework incorporating third-party lab testing. (e) Data rights enforcement and reverse engineering If a design activity is unwilling or unable to initiate expedited qualification or source alternative suppliers for critical readiness parts and systems within 30 days of notification, the Secretary of Defense shall— (1) review and enforce government access to technical data deliverables to enable alternative sourcing under subchapter I of chapter 275 of title 10, United States Code; or (2) initiate reverse engineering to qualify new suppliers using the pilot program established under section 882 of the Servicemember Quality of Life Improvement and National Defense Authorization Act for Fiscal Year 2025 (Public Law 118–159; 10 U.S.C. 3771 note). (f) Report Not later than December 31, 2027, the Secretary of Defense shall submit to the congressional defense committees report detailing— (1) the number of critical readiness parts and systems addressed through AMSC reclassification, supplier diversification, and reverse engineering; (2) the implementation status of expedited templates, simulation use, and fast-track processes; (3) compliance by design activities, including enforcement actions and data rights disputes; and (4) the impact on critical readiness parts and system resolution times and readiness metrics. (g) Definitions In this section: (1) The term critical readiness parts and systems has the meaning given the term in section 4324 of title 10, United States Code. (2) The term design activity has the meaning given the term in Revision C to Military Standard 31000 (MIL–STD–31000C), entitled Technical Data Packages, or successor document.