Increasing demand for improved reliability and survivability of mission-critical systems is driving the development of health monitoring and Automated Contingency Management (ACM) systems. An ACM system is expected to adapt autonomously to fault conditions with the goal of still achieving mission objectives by allowing some degradation in system performance within permissible limits. ACM performance depends on supporting technologies like sensors and anomaly detection, diagnostic/prognostic and reasoning algorithms. This paper presents the development of a generic prototype test bench software framework for developing and validating ACM systems for advanced propulsion systems called the Propulsion ACM (PACM) Test Bench. The architecture has been implemented for a Monopropellant Propulsion System (MPS) to demonstrate the validity of the approach. A Simulink model of the MPS has been developed along with a fault injection module. It has been shown that the ACM system is capable of mitigating the failures by searching for an optimal strategy. Furthermore, the concepts of Validation and Verification (V&V) of such systems are introduced with relevant examples.