What Government Contractors Need to Know About Fiscal Year 2022 NDAA | Wiley Rein LLP
On December 15, 2021, Congress passed the National Defense Authorization Act (NDAA or Act) for Fiscal Year (AF) 2022, which President Biden is expected to promulgate soon. As usual, the NDAA contains many provisions that impact government contractors. Below are some of the main highlights of what was incorporated into the final version of the NDAA, as well as some important provisions that ultimately did not materialize.
Preparing the supply chain remains a priority (Articles 802, 841-848, 851). The systemic shock of COVID-19 to international supply chains is reflected in the NDAA, with several provisions designed to strengthen the supply chain for critical defense items. The US Department of Defense (DOD) will be required to collect information on supply chain risks, perform risk assessments and develop mitigation strategies. The NDAA also emphasizes the development of regional supply chains, including increasing domestic content in major defense procurement programs, and requires better forecasting to reduce supply chain fluctuations. for dual-use items which have both military and non-military applications. The law prohibits the purchase of products extracted, produced or manufactured by forced labor from the Xinjiang Uyghur Autonomous Region in the People’s Republic of China or from any entity that uses forced labor in that region. And as specifically linked to COVID-19, the bill also bans the purchase of personal protective equipment (PPE) from China, Russia, Iran and North Korea. The law also delays until January 1, 2027 the implementation of supply restrictions on printed circuit boards from these same countries, which were included in the NDAA for fiscal year 2021.
Continued focus on “Made in America” laws (Section 809, 842). The improvement of the national supply chain is also evident in NDAA’s emphasis on national preference laws. The law requires the DOD to submit a report to Congress on violations of national preference laws, including the identity of the contractor and the actions taken by the DOD in response to the violation – a clear incentive for the DOD to refer the matter back to those responsible for suspension and exclusion. The Act also adds additional products — beef products; molybdenum and molybdenum alloys; optical transmission equipment, including fiber optic and cable equipment; armor plating on tactical land vehicles; treatment of graphite; and advanced AC-DC power converters — to DOD’s list of high priority goods for analysis for procurement from US or allied suppliers.
Rationalization of the purchasing of innovative technologies (articles 803, 806, 807, 834). The NDAA introduces a few provisions that will change the way the government conducts its business, although the final impact may not be felt immediately. Numerous provisions of the NDAA aim to promote the acquisition of innovative products, as well as to make it easier for the DOD to obtain the items it needs. One provision allows for a more streamlined assessment of commercial product or service proposals that are “new” as of the date of the proposal, with a cap of $ 100 million. Pilot programs will also be put in place to develop procurement practices for emerging technologies and to accelerate the procurement and commissioning of innovative technologies. The DOD will also need to conduct reviews and provide annual reports on the best and worst performing procurement programs, and assess the barriers and incentives to improve procurement of business products and services. . And the law repeals the preference for fixed-price contracts introduced in NDAA FY2017.
Increased focus on small businesses (Sections 861 to 867). The NDAA allows more funding for the use of small business innovation research programs. The law also requires additional analysis and reporting on the effect of the Cyber Security Maturity Model (CMMC) certification offered by the DOD on small businesses. Final HUBZone status determinations are also transferred from the Small Business Administration to the Office of Hearings and Appeals, bringing additional transparency to the process. But there are also additional obligations imposed on small businesses, which must now affirmatively notify the contracting agent if there is a change in their size status as a result of a sizeable protest that affects their eligibility for a solicitation with pending offer and update their record in the Rewards Management System (SAM.gov) within two days of an unfavorable size determination.
Revisions to other transaction authorizations (Articles 821 to 836). The NDAA introduces several changes to the power of the DOD to enter into other transactional agreements (OTAs). The DOD can now award prizes for advanced technological achievements exceeding the previous cap of $ 10 million, provided the Under Secretary of Defense for Research and Engineering approves it and notification is provided to the DOD. Congress. The law also requires the DOD to ensure that the Defense Innovation Unit, the Strategic Capabilities Office and the Defense Advanced Research Projects Agency all enter into at least two OTAs for specified projects by September 2023. The DOD is also required to review and make recommendations as to whether the use of OTAs should be modified or extended for certain types of acquisitions, as well as the collection and dissemination of data regarding the use of OTAs by the Department.
Structure termination decisions (article 811). The government’s right to terminate contracts at its convenience is one of the defining features of government contracts, but the exercise of this right requires the government to pay reasonable costs associated with termination. Sometimes contracts are terminated without the associated costs being assessed. The NDAA requires the DOD, during the annual budgeting process, to conduct a more structured review of certain multi-year contracts that are likely to be terminated, identifying the expected costs associated with the termination as well as what the government is doing. expects to save.
Cybersecurity is emphasized but mandatory reporting is left aside (articles 866, 1501-1552). Cybersecurity remains a priority for Congress, as evidenced by the NDAA’s significant investments in cybersecurity, including an assessment of the Cyber Maturity Model Certification Program and its impacts on small businesses. The NDAA also requires Cyber Command to establish a voluntary process to engage with industry to develop defensive cyber capabilities, which the NDAA highlights as an ongoing area of activity in federal procurement. In particular, the NDAA establishes a pilot program for a public-private partnership to detect and disrupt malicious cyber operations. The final version of NDAA did not include certain cybersecurity provisions that were included in the House version of NDAA. For example, as we discussed in our recent newsletter article, the House version of the NDAA included a provision to establish a Cyber Incident Review Office within the Cybersecurity and Infrastructure Security Agency (CISA) of the Department of Homeland Security. Under the House bill, the CISA would have established a mandatory reporting requirement for security breaches for companies in 16 sectors considered to be “critical infrastructure”. While this provision was not included in the final version of the law, we expect Congress to continue reviewing a mandatory reporting requirement for cybersecurity breaches.
Other national security issues (Articles 855, 1243, 1251, 1509). The NDAA imposes a variety of additional measures targeting national security concerns relating to China and other American adversaries. For example, the law requires contractors doing business in China to disclose whether they employ one or more people who will perform work on non-commercial contracts over $ 5 million. Section 1243 revises an NDAA requirement for fiscal year 2000 that requires the DOD to provide a comprehensive annual report to Congress on military and security developments in China, including, among others, cyber warfare capabilities directed at DOD infrastructure and space and counter-space programs and capabilities. Another provision requires the Under Secretary of Defense for Research and Engineering to work with the director of the Office of Net Assessment to prepare a comparative assessment of US efforts. and Chinese governments to develop and deploy critical modernization technology for military applications in the areas of (i) directed energy systems; (ii) hypersonic; (iii) emerging biotechnologies; (iv) quantum science; and (v) the capabilities of cyberspace. The law also requires that the Commander of United States Cyber Command and the DOD Undersecretaries of Defense for Politics, Intelligence and Security jointly sponsor or conduct an assessment of the current and emerging cyber offensive and defensive posture of adversaries of the United States (e.g., Russia, China, North Korea, and Iran) as well as plans for the Armed Forces’ offensive cyber operations during crises or potential conflicts.