National Defense Authorization Act for Fiscal Year 2020
HOW WELL DO YOU KNOW YOUR SUPPLY CHAIN?
An overview of some of the major acquisition-related provisions of the National Defense Authorization Act for Fiscal Year 2020.
The National Defense Authorization Act (NDAA) for Fiscal Year 2020, signed by President Donald Trump on December 20, is a critical piece of legislation for the contracting community not only because it provides the funding authority for programs and activities of the Department of Defense (DOD), the largest procurer of goods and services within the U.S. government, but also because it is a vehicle for encouraging in some cases, and requiring in others, changes to both DOD and government wide procurement practices.
Budget/Funding
The 2020 NDAA provides $738 billion in topline funding for DOD, defense-related programs of the Department of Energy, and defense-related activities of other federal agencies, with a base budget of nearly $660 billion and an additional $71.5 billion in funding for overseas contingency operations. In total, the 2020 NDAA authorizes an increase of nearly $25 billion in national defense topline funding in comparison to the 2019 NDAA.
Acquisition Workforce Certification & Training
Section 861 modifies how the DOD acquisition workforce is managed, trained, and selected. Specifically, it requires DOD to implement a professional certification program based on standards developed by a third party–accredited program that utilizes nationally or internationally recognized standards. The purpose of the DOD certification program is to establish a professional certification requirement for all members of its acquisition workforce.
Further, Section 861 allows DOD to authorize members of the acquisition workforce to participate in professional associations, consistent with the performance plan of such members, in order to provide them with opportunities to gain leadership and management skills.
Establishment of the U.S. Space Force
Sections 951 through 961 of the 2020 NDAA establish the U.S. Space Force. The duties and functions of the Space Force, which are to be established within the next 16 months, include:
Providing freedom of operation for the United States in, from, and to space;
Providing prompt and sustained space operations;
Protecting the interests of the United States in space;
Deterring aggression in, from, and to space; and
Conducting space operations.
As mandated by Sections 951–961, the president will appoint a Chief of Space Operations, who will serve as a member of the Joint Chiefs of Staff and perform duties under the authority, direction, and control of the Secretary of the Air Force. Immediately following enactment of the 2020 NDAA, the Fourteenth Air Force was redesignated as the U.S. Space Force’s “Space Operations Command” (SPOC). Future members of the Space Force will be assigned by the Secretary of the Air Force.
The 2020 NDAA further establishes the Space Force Acquisition Council within the Office of the Secretary of the Air Force. The Space Force Acquisition Council is to oversee, direct, and manage acquisition and integration of the Air Force for space systems and programs to ensure integration across the national security space enterprise.
Cybersecurity
Congress is intently focused on enhancing cybersecurity throughout the national security innovation base (formerly, the defense industrial base) supply chain and providing government contractors with cybersecurity requirements they can implement and against which they can be consistently evaluated. Specifically, through Section 1648 of the 2020 NDAA, Congress is requiring DOD to quickly develop (by February 1, 2020, with a briefing to Congress by March 11, 2020) a consistent and comprehensive cybersecurity framework that must include the following:
Unified cybersecurity standards, regulations, metrics, ratings, third-party certifications, or requirements to be imposed on the national security innovation base for the purpose of assessing the cybersecurity of individual contractors;
Roles and responsibilities within DOD relating to, among other things, establishing and ensuring compliance with cybersecurity requirements, deconflicting existing cybersecurity requirements, and coordinating with and providing assistance to contractors for cybersecurity matters;
The responsibilities of the prime contractors, and all subcontractors in the supply chain, for implementing cybersecurity requirements;
Definitions for the terms “controlled unclassified information” (CUI) and “for official use only” (FOUO), as well as policies regarding protecting information designated as such;
Methods and programs for managing CUI, and for limiting the presence of unnecessary sensitive information on contractor networks;
A plan to provide implementation guidance, education, manuals, and (as necessary) direct technical support or assistance to contractors on matters relating to cybersecurity;
Quantitative metrics for assessing the effectiveness of the overall framework over time, with respect to the exfiltration of CUI from the national security innovation base;
A comprehensive list of current and planned DOD programs to assist the national security innovation base with DOD’s cybersecurity compliance requirements, including those programs that provide training, expertise, and funding and to maintain approved security products lists and approved providers lists; and
Processes for enhanced threat information sharing between DOD and the national security innovation base.
Congress has encouraged DOD to consult with its contractors and industry groups representing the national security innovation base in the development of such a cybersecurity framework. For example, Congress recommends that DOD consider using a risk-based approach to tailor cybersecurity requirements for small- and medium-sized contractors.
As of this writing, it is currently unclear as to when DOD will implement this new framework, or how it will affect DOD’s planned implementation of its Cybersecurity Maturity Model Certification (CMMC). In its March 11, 2020, briefing to Congress, DOD is to address implementation timelines.
Commercial Items
The 2020 NDAA includes a number of provisions that continue to reinforce Congress’ commitment to the acquisition of commercial items under commercial terms. These include requirements related to assessing intellectual property strategies; documenting market research on commercial item determinations; and providing exceptions to enhanced foreign ownership, control, or influence for commercial item contractors.
The following sections of the 2020 NDAA feature noteworthy provisions related to commercial items.
Section 801
Section 801 establishes a pilot program under which DOD, through both DOD and private-sector subject matter experts, may assess contracting and acquisition mechanisms for the purpose of understanding the intellectual property benefits associated with the use of a commercial product, commercial service, or nondevelopmental item as an alternative to a product or service to be specifically developed for a selected acquisition program (e.g., evaluating the benefits of reduced risk regarding cost, schedule, and performance). Under this pilot program, DOD will also seek to better understand the development of cost-effective intellectual property strategies, as well as the value and acquisition costs of intellectual property throughout the acquisition life cycle.
Section 818
Section 818 requires the head of an agency to document the results of market research related to commercial item determinations in a manner appropriate to the size and complexity of the acquisition. (Note that the requirement to conduct market research previously existed, but not the formal requirement to document the results of such market research.)
Section 847
Section 847 mandates, with the exception of commercial item contractors (unless DOD specifically requires otherwise), that existing or prospective DOD contractors or subcontractors on a contract or subcontract with a value in excess of $5 million must disclose their beneficial ownership[5] and whether they are under foreign ownership, control, or influence.
Cost and Pricing
The 2020 NDAA places additional emphasis on ensuring contracting officers obtain fair and reasonable pricing, as well as continued focus on ensuring government contracting cost accounting requirements are consistent, where practicable, with commercial standards.
The following sections of the 2020 NDAA feature noteworthy provisions related to cost and pricing.
Section 803
Section 803 prohibits a contracting officer from determining a price to be fair and reasonable based solely on historical prices paid by the government. It also adds a new standard, which provides that if a contracting officer requests the contractor to submit other than certified cost or pricing data because the contracting officer is unable to determine whether proposed prices are fair and reasonable by other means, an offeror who fails to make a good faith effort to comply with such reasonable request will generally be ineligible for award.
(Notably, this enacted section was revised from earlier versions, including a House amendment that would have required the submission of other than certified cost or pricing data by commercial item contractors whenever DOD was the only buyer of that commercial item.)
Section 804
Section 804 requires the comptroller general, by March 31, 2021, to submit a report on DOD’s efforts to secure data from offerors relating to the price reasonableness of offers. Specifically, this report must include, among other things, the number of contracts awarded for which a request for cost or pricing data to determine price reasonableness (including data other than certified cost or pricing data) was denied by an offeror at the time of award, as well as actions taken by DOD when an offeror refused to provide cost or pricing data.
Section 810
Section 810 repealed the Defense Cost Accounting Standards Board. The creation of the Defense Cost Accounting Standards Board was viewed by most as being inconsistent with the 2017 NDAA requirement to conform the Cost Accounting Standards, where practicable, to the Generally Accepted Accounting Principles.
Notably, the earlier versions of the 2020 NDAA included provisions that mandated specific reporting requirements for contractors for independent research and development costs, as well as bid and proposal costs. These provisions were removed from the final version of the 2020 NDAA.
Competition
The 2020 NDAA includes numerous, significant provisions focused on competition and the manner in which DOD contracts with industry. These provisions include the following.
Section 800
Section 800 requires the secretary of defense to establish “pathways” to provide for the efficient and effective acquisition, development, integration, and timely delivery of secure software. These pathways are to have tailored requirements related to the following (among other things).
Rapid contracting procedures, including expedited time frames for making awards, selecting contract types, defining teaming arrangements, and defining options; and
Identifying initial contract requirements using summary-level lists of problems and shortcomings in existing software and desired features or capabilities of new or upgraded software, which are to be continuously refined.
DOD must issue initial guidance on the establishment of these pathways by next month.
Section 802
Section 802 requires DOD to use an “alpha contracting team” for at least two (and up to five) services contracting initiatives that will require the development of complex contract technical requirements. This “alpha contracting team” shall include the advice of expert third parties and focus on developing achievable technical requirements that are appropriately valued and identifying the most effective acquisition strategy to achieve those requirements.
The contracting initiatives selected for this program are to be selected by May 1, 2020.
Section 807
Section 807 requires DOD to review, and brief Congress by February 2020 on, how DOD elects the use of fixed-price contracts, including fixed-price incentive contracts, in its procurement. The purpose of this review is to ensure that such decisions support broader acquisition objectives and are made strategically and consistently.
The comptroller general is also required to submit a report on DOD’s use of fixed-price contracts by February 2021.
Section 819
Section 819, related to agreements DOD issues pursuant to other transaction authority (i.e., “other transaction agreements” (OTs)), requires DOD to annually report on its use of OTs to carry out prototype projects. This report is to include, among other things:
The purpose, description, and status of each project in which an OT is utilized;
The quantity of prototype projects to be produced pursuant to an individual OT or follow-on contract; and
The amount of payments made pursuant to the OT or follow-on contract.
Section 823
Section 823 increases the exception to the justification and approval requirement for sole-source contracts to 8(a) small businesses from contracts valued under $20 million to, now, those valued under $100 million.
Section 874
Section 874 requires the Federal Acquisition Regulation (FAR) to be revised, by June 2020,[8] to require that, upon written request from an unsuccessful offeror concerning an award of a task or delivery order under an indefinite delivery/indefinite quantity contract, valued above the simplified acquisition threshold but below $5,500,000, the offeror will be provided a brief explanation as to why the offeror was unsuccessful.
This “brief explanation” must include:
A summary of the rationale for the award, and
An evaluation of the significant weaknesses or deficient factors in the offeror’s offer.
Other Acquisition Reform Measures
In addition to the previously mentioned provisions and the reformation Congress is seeking to implement therein, there are two more fundamental acquisition initiatives directed by the 2020 NDAA that are worth highlighting.
Section 835
Section 835 requires DOD to establish and maintain extramural acquisition innovation and research activities, to include an acquisition research organization within a civilian college or university that is not owned or operated by the federal government, to, among other things:
Research past and current defense acquisition policies and practices, commercial and international best practices, and the application of new technologies and analytical capabilities to improve acquisition policies and practices;
Prototype and demonstrate new acquisition practices for potential transition to wider use within DOD; and
Review the implementation of recommendations contained in relevant DOD and private-sector studies on acquisition policies and practices.
Section 845
Section 845 mandates that DOD streamline and digitize its approach to identifying and mitigating risks to the national security innovation base across the acquisition process. Specifically, DOD is required to develop a framework that:
Characterizes and monitors supply chain risks (e.g., counterfeit parts, cybersecurity of contractors, material sources and fragility, and vendor vetting in contingency or operational environments);
Characterizes and monitors risks posed by contractors’ violations of laws or regulations (e.g., fraud, foreign influence, or workers’ health and safety);
Characterizes and assesses acquisition processes and procedures (contract administration, contract management, contractor business system reviews, development of contract requirements, market research, responsibility determinations, technical evaluations, etc.); and
Characterizes and monitors the health and activities of the national security innovation base (e.g., balance sheets, revenues, profitability, culture of performance, investment, innovation, and technological and manufacturing sophistication).
Conclusion
The 2020 NDAA includes wide-ranging and complex changes to the DOD acquisition process and related processes. Contractors doing business with DOD, as well as those seeking to do business with DOD, must stay apprised of the evolving acquisition landscape to best position themselves for successful partnerships with DOD over the coming year.
Moreover, during the first quarter of 2020, Congress will begin its work on the 2021 NDAA, which itself will include numerous consequential provisions for defense contractors.
Authors:
Joe Martinez / Partner, Dentons US LLP.
Chris Fetzer / Counsel, Dentons US LLP.
Tyler Thomas / Managing Associate, Dentons US LLP.