On December 27, 2021, President Biden signed the FY22 National Defense Authorization Act (NDAA) into law, authorizing more than $700 billion in defense spending. The NDAA also contains several provisions that shape federal procurement policies and forecast areas that Congress believes warrant attention in the future. PilieroMazza examines three themes in this year’s NDAA that contractors should know to take advantage of contract opportunities and maintain compliance requirements.
1. Continued Support for Domestic Preferences and Supply Chain Security
Congress sent a clear signal that it supports the recent trend of strong domestic preference requirements and remains concerned about China’s influence over the federal supply chain. In one extreme, the NDAA prohibits certain procurements of Chinese goods. For example, the it amends the U.S. Code to prohibit the Secretary of Defense from purchasing personal protective equipment (PPE) from China, Russia, Iran, or North Korea, absent a waiver from the Secretary. (Sec. 802). The law broadly defines PPE to include everything from gloves to face masks, which could present sourcing problems as many of these items are manufactured primarily in China. The NDAA also prohibits using authorized funds to procure goods produced with labor from China’s Xinjiang Uyghur Autonomous Region in response to the human rights issues reported in that area. (Sec. 848).
In a similar vein, the NDAA also imposes new disclosure requirements, mandating that companies with a DOD contract exceeding $5 million must report if any work on the contract is being performed from China and, if so, provide details about the number of employees performing in China and where in China they perform the work. (Sec. 855). The NDAA also mandates several studies and assessments be conducted to focus on supply chain issues. Congress instructed DOD to develop and implement a plan to reduce the country’s reliance on services, supplies, or materials from China, North Korea, Russia, or Iran. (Sec. 853). As part of a required assessment of the e-commerce portal, Congress mandates a comparison of the competing portal’s ability to protect against counterfeit commercial products and supply chain risks. (Sec. 854). The law also tightens restrictions on the procurement of printed circuit boards from China (Sec. 851), which could have wide-reaching impacts given the prevalence of Chinese circuit boards in electronics.
Beyond these China-focused provisions, the NDAA imposes other reporting requirements on the Pentagon related to domestic preferences, including provisions demanding a briefing on the public availability of domestic preference waivers (Sec. 808) and a report on violations of certain domestic preference laws (Sec. 809).
2. Focus on Small Businesses
Although not as robust as previous years, the NDAA contains several significant provisions addressing small businesses. First, the NDAA directs SBA’s Office of Hearing and Appeals to decide all appeals related to HUBZone status challenges. (Sec. 864). Second, the NDAA orders the Pentagon to report on the effects of the Cybersecurity Maturity Model Certification (CMMC) framework on small business concerns. (Sec. 866). The report must detail estimated costs of compliance, expected changes to the number of small businesses in the defense industrial base, and efforts to mitigate negative effects. This provision is a big win for small businesses since it forces the Pentagon to consider the ripple effects to the lower-tiered small businesses as it revamps the CMMC program. In addition, the NDAA now requires companies to report in SAM within two days of receiving a final determination that the company does not qualify as a small business concern or fall within other socio-economic programs. (Sec. 862).
Perhaps more significant are the provisions that ended up on the cutting room floor. When the House of Representatives first passed its version in September (then labeled, H.R. 4350), the authorization bill included increases to the government-wide small business goals; an exemption for small businesses from category management; increases to sole-source thresholds for 8(a), SDVOSB, HUBZone, and WOSBs; and an extension of the HUBZone price preference to unrestricted task orders under unrestricted multiple award contracts. However, due to the Senate’s unique rules and practices, those provisions were not included in the compromise legislation that reached the floor. Given the House bill enjoyed broad bipartisan support, it is likely that some or all these policies will be discussed for inclusion in next year’s NDAA.
3. Procurement of Innovative Technologies and Commercial Contracting
Continuing a trend, the NDAA also includes provisions to make it more efficient for the government to procure innovative technologies. For example, the NDAA authorizes a pilot program allowing DOD to procure four emerging technologies using newly developed, unique acquisition mechanisms. The program’s purpose is to improve the transition speed of emerging technologies into acquisition programs or into operational use. (Sec. 833). A separate pilot program is authorized to establish a competitive, merit-based program to accelerate procurement and handling of innovative technologies with preferences for small business and non-traditional contractors. (Sec. 834). It also singles out small businesses for a pilot program to develop technology-enhanced capabilities for special operation forces. (Sec. 851).
Government contractors small and large should pay close attention to these NDAA provisions and understand how they will affect contractors’ ability to successfully compete in 2022 and beyond. If you have questions about the NDAA, please contact Kevin Barnett, the author of this Client Alert, or a member of PilieroMazza’s Government Contracts Group. Join us on January 13, 2022, for a webinar covering these and other important considerations for government contractors. Visit this link to register.