On December 22, 2023, President Biden signed the National Defense Authorization Act for Fiscal Year 2024 into law after bipartisan congressional majorities approved the bill earlier in the month. The annual bill authorizes appropriations and sets policy for the Department of Defense (“DoD”) and generally reflects the priorities of the House and Senate Armed Services Committees. Below, we review select provisions likely to be of greatest interest to government contractors. Many of these provisions will only take effect after the government promulgates implementing regulations, following notice-and-comment procedures.
- Expansion of Multiyear Contracts. A need for industrial base stability can now justify multiyear procurement contracts. Previously, multiyear contracts were only permissible if the DoD determined they would bring “significant savings” to the total price that the government would pay over the course of the contract. In expanding the availability of multiyear contracts, Congress determined that reliance on cost savings only was too restrictive and that promoting defense industrial base stability was sufficient justification for longer contracts. (Section 820)
- Extension of Inflation Relief. The DoD will have more time to write inflation adjustments into fixed-price contracts as the NDAA extends an inflation relief program first enacted in the Fiscal Year 2023 NDAA by a year, until December 31, 2024. The program allows DoD contracting officers to make price adjustments to contracts as compensation for high inflation, even for fixed-price contracts that do not otherwise provide for economic price adjustment. (Section 824)
- Waiver of Procurement Rules for Replenishment of Stockpiles. Emergency acquisition authorities can now be invoked to replace military supplies that have been provided to allies. This provision expands upon emergency acquisition authorities at 10 U.S.C. § 3601, which allow the military to waive certain procurement rules, including competition requirements, in emergency situations. The provision was designed to accelerate the pace at which the United States can refill its stockpiles of weapons and other equipment that have been sent to Ukraine. (Section 831)
- Earned Value Management System Exemption. DoD contracts and subcontracts for purchase of software will be exempt from Earned Value Management System requirements. The DoD has 180 days from the NDAA’s enactment to update the Defense Federal Acquisition Regulation Supplement (DFARS) to implement this provision. (Section 827)
- Increasing Use of Commercial Products and Services. As part of its continued efforts to simplify the process for DoD acquisition of commercial goods and services, Congress has directed the Under Secretary of Defense for Acquisition and Sustainment to prepare a report about the feasibility of several measures that would reduce administrative barriers to procuring commercial goods and services. The first measure would “establish a default determination” that products and services the military buys are commercial. Another measure would direct more acquisitions under FAR Part 12, which contains specialized procedures for commercial purchases. (Section 875)
- Supply Chain Scrutiny. The supply chains of five weapons platforms will receive greater scrutiny under a DoD pilot program. The pilot program should “identify critical suppliers” and “potential risks to and vulnerabilities of” those suppliers. The program could also be used to develop strategies to expand production of each platform’s components. New technologies, such as artificial intelligence and machine learning, could aid in the identification and analysis of supply chain vulnerabilities. (Section 856)
- DoD to Obtain Enhanced Data Rights. Congress wants the DoD to experiment with innovative intellectual property strategies to acquire more data rights in information technology products. The suggested new strategies include holding intellectual property data in an escrow account or the innovative use of royalties and licenses. Each military department must select one acquisition program for the new strategies, and an additional program will come from one of the DoD agencies or field activities. DoD components have until May 1, 2024, to designate the data rights pilot programs. (Section 808)
- New Technology Acquisition Model. The DoD will run a pilot program to buy “technology-supported” capabilities on an “anything-as-a-service” model. This acquisition model should “provide users on-demand access, quickly add newly released capabilities, and bill based on actual usage at fixed price units.” The pilot program should only include capabilities for which there is a measurable outcome that can be compared to results using more traditional acquisition methods. Contracts could be signed quickly under this pilot program: the provision directs the military to enter into a contract or agreement within 100 days of providing public notice for each capability that it seeks to buy. (Section 809)
- Affiliate Past Performance May Be Considered. Contracting officers may now consider the past performance of a small business’s affiliated companies as the past performance of the small business in proposal evaluation. The DFARS must be amended by July 1, 2024, to implement the provision. (Section 865)
- New SDVOSB Certification Requirement. Contractors and subcontractors will no longer be able to self-certify their status as service-disabled veteran-owned small businesses (SDVOSB). This provision will take effect at the beginning of the first fiscal year after the Small Business Administration (SBA) promulgates regulations implementing an SBA certification process. Contractors that have previously self-certified as SDVOSBs will have one year after the NDAA’s enactment to file for certification with the SBA. If contractors file within that one-year period, their self-certification will remain valid until the SBA rules on their certification applications. (Section 864)
- Change to Federal SDVOSB Goals. The goal for SDVOSB contracting has been increased to five percent across the whole federal government, up from three percent. The government-wide goal had stood at three percent of the total value of prime and subcontract awards for more than two decades. (Section 863)
- Expanded Role for DoD in Antitrust Reviews. The DoD could take on a greater role in antitrust enforcement for the defense industry going forward. The NDAA requires companies to notify the DoD of certain defense-related transactions, specifically mergers and acquisitions that must be reported to the Department of Justice and Federal Trade Commission under section 7A of the Clayton Act. Notably, an earlier Senate draft also would have required notice to DoD of other types of investments and joint ventures involving major defense contractors, not just mergers and acquisitions, but this provision was not included in the final bill. (Section 857)
Greenhouse Gas Reporting
- Delay and Elimination of Reporting Requirements. The DoD may not require nontraditional defense contractors to report greenhouse gas emissions at all and may not compel other contractors to submit greenhouse gas reports for at least a year, starting with the enactment of the NDAA. The provision includes exceptions, so certain contractors might be forced to disclose emissions to verify other reports or disclosures. (Section 318)
Sanctions and Other Foreign Country-Related Restrictions
- No Contracts to Russian Energy Partners. DoD cannot award contracts to companies that partner with Russian state-owned oil or gas companies or any other company that extracts oil or gas in Russia. The provision includes humanitarian aid exceptions. It will expire at the end of 2029 without congressional renewal. (Section 804)
- No Consulting Advice to Russia or China. Consulting firms cannot work for the DoD if they also work with Chinese or Russian government clients or sanctioned companies in those countries, unless they receive a waiver and implement a mitigation plan. (Section 812)
- Bid Protest Fee Shifting Provision Fails Again. The NDAA did not include a provision, which had passed the House, that would have created a “loser pays pilot program” for bid protests at the Government Accountability Office. Under the draft provision, contractors with more than $250 million in annual revenues that lost a bid protest at the GAO would have been required to reimburse the DoD for the cost of fighting the protest. A nearly identical provision passed into law in the Fiscal Year 2018 NDAA but was repealed before taking effect.
Ethan Sterenfeld, a Law Clerk, contributed to the writing of this post.