United States: Through FY2023 Defense Authorization Bills, Congress Looks To Tighten Federal Procurement Sourcing Requirements And Accelerate Acquisitions

Congress returned this week from the Thanksgiving holiday to face a full agenda and a short runway to "keep the lights on" in the federal government.

In late September, President Biden signed a continuing resolution that funds the government through December 16, 2022. That date is quickly approaching, and a number of must-pass measures — including the annual National Defense Authorization Act ("NDAA"), which specifies budgets and policies of the Defense Department — remain unfinished business.

Tossed in the mix this year is a notable interest among lawmakers in both the House and Senate to use the authorization and appropriations processes to secure reforms to federal procurement policy. Accordingly, organizations that contract or do business with the federal government would be wise to track the often fast-paced and ever-evolving funding negotiations as the end of the calendar year (and with it, the 117th Congress) grows nearer.

Through the NDAA for Fiscal Year 2023, Congress appears primed to tighten sourcing and domestic content requirements in federal procurement, fast-track certain acquisitions, and clarify the effect of new executive orders on existing government contracts, among other procurement-related proposals. For example:

• Tightened Sourcing and Domestic Content Requirements and Banning Business with Russia
  • In July, the House of Representatives passed its version of the NDAA for FY23. Sec. 807 of the House NDAA would enhance domestic content requirements for "major defense acquisition programs" by increasing the Buy American Act cost thresholds for such programs.
  • Sec. 803 of the Senate's version of the NDAA — which awaits further consideration by the full Senate — would prohibit the Secretary of Defense from entering into, extending, or renewing "a contract to procure any major defense acquisition program" that contains items made in China or by companies owned or controlled by China.
  • Sec. 5866 of the House NDAA would prohibit federal agencies from entering into, extending, or renewing a contract "with a company that continues to conduct business operations in territory internationally recognized as the Russian Federation," unless and until Russia's military aggression in Ukraine ceases. This prohibition is subject to limited exceptions, such as contracts for humanitarian purposes.
• Accelerating Certain Defense Acquisitions and "Other Transaction" Authority
  • Sec. 804 of the Senate NDAA would revise and codify Defense Department rapid acquisition procedures for responding to "urgent operational needs," including "combat emergencies," cyber attacks, and other exigencies. It grants authority for the Secretary of Defense to waive, in certain instances, "any provision of law or regulation addressing...the solicitation, selection of sources, and award of the contracts for procurement of the capability to be acquired."
  • Sec. 817 of the House NDAA would clarify the Defense Department's authority to carry out certain prototype projects as follow-on production contracts without using competitive procedures, "even if explicit notification was not listed within the request for proposal for the transaction[.]"
• Addressing Contract Changes Compelled by Executive Order
  • Sec. 821 of the Senate NDAA would clarify that the addition into an existing contract of a clause implementing an executive order "shall be treated as a change directed by the contracting officer pursuant to, and subject to, the Changes clause of the underlying contractual instrument." This could have the effect of assisting contractors who seek equitable adjustments when new executive orders come to bear on existing contracts.

These reflect just a topline sampling of procurement reforms contemplated in the House and Senate versions of the NDAA. Of course, both chambers of Congress must pass the same legislation — not simply their own respective versions of it. And while the House passed its bill earlier this year, further action awaits in the Senate on its own version. In the meantime, House and Senate leaders have been "preconferencing" the NDAA and working out their differences prior to the start of the lame duck session.

As Congress has passed an NDAA for over 60 consecutive years, there is political pressure to sustain that tradition and enact a final bill by year end. With an incoming Republican-led House, however, there is also political pressure to temporarily delay further consideration of the NDAA into January 2023 and, thus, the beginning of the new Congress.

While it remains to be seen whether the final NDAA hews closer to the Senate or House versions of the bill, it is reasonable to expect at least some of these proposed procurement reforms will eventually find their way to the President's desk.

Accordingly, government contractors of all sizes should be cognizant of how such reforms may impact their competitiveness and compliance risks in 2023 (and thereafter). If you have questions, please reach out to these Venable authors as we continue to monitor the NDAA's progress.

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