United States: FY 2019 National Defense Authorization Act Becomes Law

President Trump has signed the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (NDAA) into law (Pub. L. No: 115-232). One of the few remaining "must-pass" annual pieces of legislation, the NDAA cleared the U.S. House of Representatives on July 27, 2018 after the conference report reconciled differences between the versions of the NDAA passed by the House and U.S. Senate.  On August 1, 2018, the Senate approved the NDAA.  President Trump signed the NDAA into law on August 13, 2018.  The NDAA authorizes a $717 billion national defense budget affecting numerous aspects of the U.S. military, including certain reforms to the Government's acquisition policy. 

Government contractors that perform work for the U.S. Department of Defense (DOD) should be mindful of relevant NDAA provisions related to the Government's acquisition policy and approach.  Among the NDAA's various provisions relevant to government contractors, the following highlights stand out:

  • Micro-Purchase Threshold. The micro-purchase threshold in 10 U.S.C. § 2338 is amended to $10,000 for DOD.
  • Past Performance of Subcontractors and Joint Venture Partners. The Secretary of Defense will develop policies for DOD to ensure the best information regarding past performance of construction and architect-engineer subcontractors and joint venture partners is available when awarding DOD contracts.  The policies will include proposed DFARS revisions providing for required performance evaluations for first-tier subcontractors on construction and architect-engineer subcontracts above the $700,000 threshold in FAR 42.1502(e) or 20 percent of the prime contract value, whichever is higher.  Individual partners of joint ventures performing construction and architect-engineer contracts may also be subject to mandatory performance evaluations.  A process to request exceptions from the annual evaluation requirement may also be promulgated. 
  • Approved Purchasing Systems. The NDAA specifies that the term "approved purchasing system" has the same definition as FAR 44.101, which defines the phrase as "a contractor's purchasing system that has been reviewed and approved in accordance with this part."  Additionally, the NDAA states that, if a contract requires a contractor to obtain a contracting officer's written consent prior to entering into a subcontract but the contractor has an approved purchasing system, the contracting officer "may not withhold such consent without the written approval of the program manager."
  • Commercial Items Definition.  The NDAA divides the definition of commercial item at Title 41 into two separate components: commercial product and commercial services.  These definitions essentially mirror the familiar definition of commercial item at FAR 2.101, but reflect the components of that definition relevant to products and services. The new definitions for commercial products and commercial services will become effective on January 1, 2020.  A detailed implementation plan related to the commercial item provisions is due to the congressional defense committees on April 1, 2019.
  • Technical Data Rights During Challenges. The NDAA revises 10 U.S.C. § 2321 to state that the Secretary of Defense, and certain delegates, may authorize use of technical data when a contractor files an appeal under the relevant disputes provision in response to a contracting officer's decision on an asserted restriction to technical data rights.  The Secretary of Defense must determine in writing that compelling mission readiness requirements will not permit awaiting the final decision by the agency Board of Contract Appeals or the U.S. Claims Court.  Related to this provision, the Conference Report noted that specially negotiated licenses are a new concept in related to technical data rights and different interpretations of these rights have developed.  To help resolve these issues, the Conference Report directs the Under Secretary of Defense for Acquisition and Sustainment to develop guidelines, training, and policy for the application of specially negotiated licenses. 
  • Other Transaction Authority. The NDAA also required collection of data on the use of "other transactions" by the service acquisition executives of the various military departments and the Under Secretary of Defense for Acquisition and Sustainment.  This data will be used to update policy and guidance related to the use of other transactions.  Based on this data collection, the Secretary of Defense will submit annual reports summarizing the data and discussing the successes and challenges of other transaction authority.

Notably, certain provisions of earlier NDAA drafts did not make it into the final version.  For example, the House bill contained a provision that would create a precise definition for "subcontract" in Title 41 of the U.S. Code and incorporate this revised version in Title 10 of the U.S. Code.  The Senate amendment to the NDAA did not contain a comparable provision.  Consequently, the House receded and the NDAA does not include a provision defining the term "subcontract." 

Government contractors should continue to monitor these, and other, NDAA provisions that may impact their businesses as the statutory mandates of the NDAA work their way into applicable regulations.

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