Department of Defense Efficiency and Economy Act of 1985

Department of Defense Efficiency and Economy Act of 1985 - Title I: Allowable Contract Costs Regulations Relating To Unallowable Indirect Costs - Directs the Secretary of Defense, within 90 days after enactment of this Act, to issue proposed regulations dealing with the unallowability of contractor indirect costs. Requires the Secretary, in determining allowable costs, to consider whether the costs incurred benefit the United States or are necessary for the operation of the business. Specifies certain costs which should be considered unallowable under such new regulations. Authorizes the Secretary to make disallowances and to assess a penalty of three times the disallowed expense whenever there is clear and convincing evidence that such expense is disallowable. Considers as a false claim specifically punishable under specified Federal law an expense submitted by a contractor for reimbursement that was not actually incurred.

Requires the Secretary, within 90 days after the enactment of this Act, to report to the Armed Services Committees of the Congress on specific actions taken to address the problems related to spare parts purchasing by the Department of Defense (DOD). Requires the Secretary to issue proposed regulations and legislation as part of such report if such problems have not been remedied.

Increases penalties under specified provisions of Federal law for the making of false claims in DOD procurement.

Title II: Competitive Labor Purchase Requirements - Makes rate-of-wages provisions under the Davis-Bacon Act inapplicable to labor performed in connection with military construction projects.

Revises provisions dealing with wage-rate determinations to consider local wage rates for private industry (currently, surveys of wages paid outside the local area are used) when determining the prevailing rate for employees employed under certain DOD contracts.

Makes inapplicable to DOD contracts certain Federal provisions which require an overtime rate of pay for work performed after eight hours of work per day. Provides in such contracts that the overtime rate will instead be paid after ten hours of work per day.

Title III: Miscellaneous Cost Savings Provisions - Removes restrictions on contracting-out authority of the Secretary if he determines that such contracting-out would be cost-effective and in the best interest of the national defense.

Authorizes the Secretary to close or realign any military installation if the President submits a budget reflecting a budget deficit in a fiscal year and the Secretary notifies the Congress at least 60 days prior to taking action.