The NDAA is annual legislation that authorizes funding and programs for the Department of Defense (DoD). It has the distinction of having been passed annually over the last six decades. The NDAA sets defense policy and often delves into other policy areas. The 2023 NDAA provides $857.9 billion in FY 2023—an $80 billion increase over FY 2022. As in prior years, the NDAA is a vehicle for enacting legislation related to DoD acquisition. Among other things, it provides funding for the DoD’s use of artificial intelligence (AI) and emerging technology as well as new restrictions on the procurement of goods and services using Chinese semiconductor technologies.
In this article, we provide a summary of three key provisions from the 2023 NDAA affecting government contractors and a link to the complete content of the legislation.
1. Promoting Small Businesses
SBA Scorecard: Section 871 expands the reporting requirements for the Small Business Administration’s (SBA) annual Small Business Procurement Scorecard (Scorecard). The Scorecard will be expanded to include data from federal agencies on sole-source and set-aside awards made to the 8(a), Women Owned Small Business (WOSB), Historically Underutilized Business Zone (HUBZone) and Service-Disabled Veteran-Owned Small Business (SDVOSB) programs.
Contract Bundling: Section 873 creates a new mandate for federal agencies to share data with the SBA on contract bundling, including identifying each bundled contract and providing information on the effects of small businesses displaced as prime contractors.
DoD Mentor Protégé Program: Section 822 modifies the DoD Mentor Protégé Program (MPP) in several ways, including changing the threshold for mentor eligibility to $25 million in defense contracts in the fiscal year prior to a MPP agreement, increasing program participation from two to three years, and creating a pilot program to incentivize protégé participation for engineering and software development.
SBIR/STTR Programs: Section 872 pushes DoD to further implement a due diligence program to assess the security risks of presumptive awardees in the SBIR and Small Business Technology Transfer (STTR) programs, including in terms of cybersecurity practices and financial ties and obligations to foreign entities.
2. Inflation Relief
Recognizing the impact of high inflation on contractors, the NDAA authorizes prime contractors to seek an adjustment to their contract price if the cost of performing the contract exceeds the contract price due “solely” to inflation. (Section 822). Such relief is also available to subcontractors, who may submit requests for contract adjustments through the prime or directly to a contracting officer. The price adjustments are contingent upon continued performance and are limited to a contractor’s “actual cost of performing” the contract or subcontract.
The impact of the provision on industry is far from clear. Although the NDAA authorizes adjustments due to inflation, it does not obligate contracting officers to grant them, and the provision will require appropriated funds. The bill directs the DoD to issue guidance implementing the provision within 90 days of passage of appropriations. The DoD’s guidance should shed additional light on what qualifies as an eligible contract (i.e., whether relief is limited to firm fixed-price contracts) and what support the contractor must provide to secure relief. However, it remains to be seen how meaningful this relief will be for contractors hit hard by inflation.
3. Safeguarding Foreign Supply Chains
Chinese Semiconductors: Section 5949 prohibits executive agencies from procuring semiconductors and related electronics from certain Chinese companies. Unlike most NDAA acquisition provisions, this will apply governmentwide and result in a change to the Federal Acquisition Regulation (FAR). However, the prohibitions will not take effect for five years. Nonetheless, as shown by the long runway needed to implement compliance with the telecommunications ban in Section 889 of the FY2019 NDAA, government and industry will likely need the full five-year window to adjust. This adjustment is somewhat mitigated because this section comes on the heels of the CHIPS and Science Act of 2022, which includes billions of dollars of investment into domestic semiconductor manufacturing.
Rare Earth Elements: Section 857 requires contractors providing DoD with systems that include a “permanent magnet” with rare earth elements to disclose the place of origin and other supply chain information. The section also expands restrictions on the procurement of military and dual-use technologies by Chinese military companies.
Foreign Unmanned Aircraft Systems (UAS): Section 817 modifies a FY2020 NDAA provision on foreign-made UASs by prohibiting UAS purchases from China, Russia, Iran, and North Korea.
Other key provisions of the NDAA include:
- FedRAMP Codification
- Focus on AI and Emerging Technologies
- Cybersecurity Testing of Commercial Products and Cloud Services
- Rapid Acquisition Procedures
- Greater Oversight for Commercial Products Used in Major Weapon Systems
- Other Transaction Authority Clarification
- Whistleblower Protections for Grantees, Sub-Grantees, and Personal Service Contractors
- Extension of Pilot Program to Accelerate Contracting and Pricing Processes
A link to the complete NDAA is provided below:
https://www.govinfo.gov/content/pkg/CRPT-117hrpt397/pdf/CRPT-117hrpt397.pdf
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