On December 23, 2023, President Biden signed into law the National Defense Authorization Act of Fiscal Year 2024 (NDAA). The House of Representatives had previously passed the NDAA on December 14, 2023, a few days after the Senate. It includes several provisions that will impact government contractors but also excludes several provisions of interest that were included in a previous version but not included in the final version of the law. Here is what government contractors need to know.

Domestic Preference and Prohibitions on Contracting with Foreign Entities

Continuing the trend of prohibiting contracting with foreign adversaries in recent years, several NDAA provisions focus on the preference for domestic goods and prohibitions on contracting with certain foreign entities. For instance, Section 835 increases the domestic content requirements for major defense acquisition programs.

In addition, Section 804 expands Congress's prohibitions on contracting with the Russian Federation by prohibiting the Department of Defense (DoD) from entering into a contract with any fossil fuel company that operates in the Russian Federation or is more than 50 percent owned by an authority of the government of the Russian Federation. Section 805 prohibits DoD from entering into, renewing, or extending a contract with Chinese military companies or companies subject to the Chinese military's control. Section 812 prohibits DoD from contracting for consulting services with any entity that does business with the Chinese or Russian governments as well as state sponsors of terrorism and certain other sanctioned entities unless the entity is certifies non-involvement or that its internal controls for mitigating conflicts of interests. Section 825 prohibits DoD from obtaining logistics platforms from the People's Republic of China or its state-affiliated entities. 

The NDAA also enacts the American Security Drone Acts of 2023, which prohibits government agencies from procuring unmanned aircraft systems manufactured or assembled by covered foreign entities. A list of covered foreign entities will be developed and maintained by the Federal Acquisition Security Council (FASC) and published on SAM.gov.

Prohibition on Greenhouse Gas Emission Disclosures

Section 318 prohibits DoD from requiring non-traditional defense contractors to disclose greenhouse gas inventories or emissions as a condition of award. This provision also prohibits DoD from requiring traditional defense contractors to disclose greenhouse gas inventory or emissions as a condition to award until December 22, 2024. This provision comes after the Federal Acquisition Regulatory Council (FAR Council) issued a proposed rule in November 2022 that would require certain contractors make disclosures about their greenhouse gas emissions and climate-related financial risk.

Commerciality Determination

Section 801 of the NDAA provides that upon a request from a contractor or subcontractor offering the product or service at issue, DoD must share its determination memorandum regarding whether the particular product or service is commercial in nature. 

Cost and Pricing

Section 826 extends DoD's authority to modify contracts to make economic price adjustments to address inflation. In addition, Section 802 directs the Under Secretary of Defense for Acquisition and Sustainment to develop a framework for determining what constitutes a denial of uncertified cost or pricing data. Section 802 also directs the Under Secretary to publicly identify offerors that have failed to provide certain cost or pricing data after multiple requests from the agency within three years but have nevertheless received an award.

Assistance for Small Business Contractors

The NDAA also includes several provisions aimed to help small business contractors. Specifically, Section 862 reduces the time period after which a contractor must notify the contracting officer that it is past due on paying a subcontractor from 90 days to 30 days. The provision allows contracting officers to modify past performance information of the contractor based on an unjustified failure to make a timely payment to a subcontract before or after the close-out of the contract and requires contractors to cooperate with contracting officers to ensure full payment to the subcontractor. In addition, Section 863 increases the government-wide goal for participation in federal contracts by Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) from three percent to five percent and Section 865 mandates a new Defense Federal Acquisition Regulation Supplement (DFARS) clause requiring contracting officers to consider the past performance of affiliates when evaluating small businesses' offers.

Cybersecurity

The NDAA creates several programs focused on enhancing DoD's cybersecurity across a variety of domains including through the use of skilled contractors. Specifically, Section 1535 outlines a pilot program whereby the United States Cyber Command (USCYBERCOM) must seek to enter into contracts with skilled contractors to provide services relevant to critical roles within the Cyber Mission Force (CMF) for the purposes of enhancing the readiness and effectiveness of the CMF. Section 1536 authorizes the Army to conduct a pilot program to establish a Civilian Cybersecurity Reserve that will provide USCYBERCOM with manpower to effectively preempt, defeat, deter or respond to malicious cyber activity, conduct cyberspace operations, secure DoD systems against malicious cyber activity, and solve cyber workforce challenges.

Internally to DoD, Section 1502 establishes the Strategic Cybersecurity Program to ensure its ability to conduct the most critical military missions. Section 1506 requires that the commander of each geographic combatant command develop a cyber support mechanism to support the operations of that command. These cyber support mechanisms include enhancing cyber capabilities, developing and maintaining sufficient cyber planning capacity, integrating cyber capabilities into operational support, and prioritizing cyber risks and vulnerabilities. Sections 1512 and 3113 require enhancements to cybersecurity related to nuclear capabilities. Section 1507 supports DoD's continued and increased use of cyber "red teams," which imitate threats from foreign countries.

Improving Supply Chain Security

Section 2809 of the NDAA requires DoD to incorporate cybersecurity supply chain risk management tools and solutions for covered military construction projects connected to the DoD Information Network. Several provisions also create pilot programs focused on improving supply chains. Section 856 directs the Under Secretary of Defense for Acquisition and Sustainment to establish a pilot program to analyze, map, and monitor supply chains for weapons platforms. Section 1513 creates a pilot program whereby the Cybersecurity Collaboration Center of the National Security Agency (NSA) may enter into contracts to improve the cybersecurity of the supply chain for the design, manufacturing, assembly, packaging, and testing of semiconductors.

Emerging Technology and Capabilities

Section 229 allows Secretaries of military departments to use rapid acquisition and funding to leverage emergent technological advancements and address immediate military threats upon a determination of a compelling urgent or emergency national security need. In addition, Section 809 establishes a pilot program to explore the use of "consumption-based solutions" to provide DoD quick access to newly released capabilities and bill based on actual usage at a fixed price. Separately, Section 230 of the NDAA directs the Air Force to establish a pilot program to award grants for contractors to commercialize Air Force prototypes.

Addressing the recent proliferations of artificial intelligence (AI), Section 1543 directs DoD to establish a prize competition to evaluate technology for generative AI detection and watermarking. Section 1544 directs DoD to establish and document procedures for the review of its AI strategy, issue agency-wide guidance regarding AI activity and strategies, assess the use and functionality of AI, and develop a plan to protect the integrity of AI systems. Additionally, Section 1545 directs DoD to conduct an analysis of the use of AI for military applications. This analysis will include an assessment of the research and development efforts and potential risks to privacy, security, and accuracy of AI military applications.

Provisions Removed From the NDAA

The final version of the NDAA removes several provisions that would have had additional impacts on government contractors.

Most notably removed from the final NDAA was a provision in the House bill that would have established a "loser pays" program whereby any contractors that filed bid protests at the Government Accountability Office (GAO) that were ultimately denied would be required to reimburse DoD for the expenses the government incurred as a result of the protest. This provision was removed from the NDAA in conference. In removing the provision, the committee recognized that frivolous protests have the potential to be a burden on DoD, slow acquisitions, impose additional costs on the taxpayer, and disadvantage small business contractors with less resources to fight protests. The committee also recognized that a "loser pays" program could encourage losing bidders to pursue protests at the agency level or the Court of Federal Claims (COFC) which may result in increased time and cost to the government.

Another provision removed in conference was a provision that would have allowed DoD to withhold contract payments to a contractor pending the resolution of allegations that the contractors made a payment to a federal employee to influence a contract. 

Also removed from the final version of the NDAA were several provisions related to adversary countries including the People's Republic of China. An earlier version of the NDAA included a provision prohibiting DoD from providing funding to research institutes with government agencies or defense laboratory systems in China. The final NDAA also omitted a provision that would have prohibited acquisition of computers or printers from companies owned or controlled by the Chinese government by DoD. Finally, the provision removed from the final version required U.S. persons to notify the Department of the Treasury of transactions in "critical capabilities sectors" involving adversary countries.

If you have any questions about the 2024 NDAA's impact on your company or government contractors generally, please contact one of the Miller & Chevalier attorneys listed below:

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Alex L. Sarria, asarria@milchev.com, 202-626-5822

Alexandra S. Prime, aprime@milchev.com, 202-626-5940

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

This, and related communications, are protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices, and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this presentation without prior written consent of the copyright holder.