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Oles Morrison

National Defense Authorization Act 2013 (NDAA): Overview of Title VIII of the Act

Three months into the fiscal year, on January 2, 2013, the President signed the National Defense Authorization Act (NDAA) for fiscal year 2013. Title VIII of NDAA contains many procurement and construction contract related provisions. This post briefly highlights some of the key provisions of the NDAA applicable to those seeking to contract with the federal government. The impact of these provisions on contractors will depend on the results of some of the “reviews” “guidelines” and “analyses” required by various agencies and their officials over the course of the next 180-270 days, although some of the provisions take immediate effect. The 44 provisions in Title VIII addressing procurement reform can be found in their entirety at Pub. L. No. 112-239.

A follow up post discussing those sections of the NDAA, outside of Title VIII, that apply only to small businesses can be found here.

  • Section 802 addresses Pass-Through Contracts. Since 2009, the FAR required an offeror intending to subcontract more than 70 percent of the total cost of work to be performed under the contract to: (i) identify the “amount of the offeror’s indirect costs and profit/fee applicable to the work to be performed by the subcontractor(s),” and (ii) provide a “description of the added value provided by the offeror as related to the work to be performed by the subcontractor(s).” If the Contracting Officer deemed the pass through excessive, the costs could be declared unallowable. However, under the new Act, Contracting Officers within DoD, the State Department and the Agency for International Development will now have the authority to contract directly with a prime contractor’s proposed subcontractor(s) when a prime contractor proposes to have its subcontractor(s) perform more than 70 percent of the work. The Agency CO’s will have to document that this approach is in the Agency’s best interest.
  • Section 804 addresses DFARs Profit Guidelines. The Act requires DoD to review its profit guidelines “in order to identify any modifications to such guidelines that are necessary to ensure an appropriate link between contractor profit and contractor performance.” This review, which must obtain the views of private sector, the Government experts and interested parties, must consider (1) “[a]ppropriate levels of profit needed to sustain competition in the defense industry,” (2) “[a]ppropriate adjustments to address contract and performance risk assumed by the contractor,” and (3) “[a]ppropriate incentives for superior performance in delivering quality products and services in a timely and cost-effective manner[.]” Based on the findings in that review, DoD is then required to “modify” the DFARs profit guidelines and make appropriate changes.
  • Section 811 addresses cost-type contracts. DoD is now required within 120 days of NDAA’s passage to modify its regulations “to prohibit [DoD] from entering into cost-type contracts for the production of major defense acquisition programs” entered into after October 2014. However, it will not apply in the case of a particular cost-type contract if the Under Secretary of Defense provides a written certification to the congressional defense committees that a cost-type contract is needed to provide a required capability in a timely and cost-effective manner. In theory, this seems more restrictive than it really is. Although Section 811 will limit the use of cost-type contracts for production of major defense acquisition programs, it only applies to production phases of a program. It does not apply to development phases, or other earlier phases which is where cost-type contracts have typically been viewed as more appropriate. See DFARS 235.006(b); See also, e.g., DoD Instruction 5000.02 (Milestone C).
  • Section 822 addresses the commercial test program. It extends the authority for the FAR Subpart 13.5 commercial items test program from January 2012 to January 1, 2015. FAR Subpart 13.5 authorizes the use of simplified procedures for the acquisition of supplies and services in amounts greater than the simplified acquisition threshold (i.e., $150,000) but generally not exceeding $6.5 million, including options. The Comptroller General is directed to report, by October 1, 2013, on the use of this authority. The Comptroller General’s report is required to address: “(1) the extent of use of the authority; (2) the cited rationales for use of the authority; (3) the acquisition outcomes that have resulted; and (4) any waste, fraud, or abuse that have resulted from the use of the authority.”
  • Sections 827 and 828 expand the whistle-blower protections.
  • Section 827 amends the whistleblower protections presently available to employees of DoD contractors (outside the intelligence community) by: (i) covering NASA contractors and their employees, and DOD and NASA subcontractor and grantee employees; (ii) expanding the protection to cover grand jury, court, or management official or other contractor/subcontractor employee with responsibility to discover, investigate or address misconduct; and (iii) providing for attorneys’ fees and costs when the Government (and possibly the whistleblower) successfully files a law suit to enforce such protections. In theory, the hope is that by including company management officials on the list of permitted recipients of protected disclosures, it will now encourage employees to raise concerns internally. This in turn may provide contractors an opportunity to remedy a problem without external investigations being conducted.
  • Section 828 creates a program analogous to whistleblower protections now available to DoD contractor and subcontractor employees. Under Section 828, after July 1, 2012, the protections are now extended for the employees of contractors, subcontractors and grantees of executive agencies – with the exception of DoD, NASA and the intelligence community – and affords such employees protection from reprisals as long as they “reasonably believe” they are disclosing “evidence of gross mismanagement of a Federal contract or grant, a gross waste of Federal funds, an abuse of authority relating to a Federal contract or grant, a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract (including the competition for or negotiation of a contract) or grant.”
  • As a result of Sections 827 and 828, Government contractors should be quite careful when considering employment actions concerning whistleblowers. In addition to contractor employees, these new whistleblower protections now may cover subcontractor and grantee employees. “Reprisals” against the reporting individuals are also prohibited, even when requested by a DoD official. As a practical concern, contractors and subcontractors should update their compliance programs, conduct appropriate whistleblower training, and update their internal whistleblower protection policies. Contractors should also be aware of the permissive attorney’s fees provisions for whistleblower actions.
  • Section 829 addresses the potential for modification to personal conflicts of interest rules to DoD contractor employees. Currently personal conflict of interest rules apply only to employees carrying out procurement functions that are associated with inherently governmental functions (i.e. such as drafting specifications, advising the Government about acquisitions, approving contractual requirements, or otherwise administering, assessing or awarding contracts.). Section 829 now requires DoD to examine whether these rules should apply to “[f]unctions other than acquisition functions that are closely associated with inherently governmental functions,” “[p]ersonal service contracts” and/or “[c]ontracts for staff augmentation services.” The Act now permits modification of the DFARs to accommodate this analysis, but no specific time frame is set forth for the modification.
  • Section 830 addresses Task & Delivery Order protests. This section makes permanent GAO’s exclusive authority to review protests of DoD, NASA and Coast Guard task and delivery orders in excess of $10 million, as long as the protests do not involve increases in the scope, period, or maximum value of the contract under which the order is issued. (This authority was originally set to expire in September 2016).
  • Section 832 addresses DCAA access to Contactor’s Internal Audits. DCAA is now required revise its guidance on access to internal contractor audit reports. DCAA is also required to document all requests for defense contractor internal audit reports. This “documentation” must include: (i) analysis that access to the internal reports are necessary to complete evaluation of the contractor business systems; (ii) a copy of the correspondence requesting such access; and (iii) the contractor’s response to DCAA. This final version that ended up in the Act is much more contractor-friendly than the proposed senate version, which would have required DoD contractors to provide their internal audits as a condition of approval of the contractor’s business system.
  • Section 852 addresses the expansion of FAPIIS. The Federal Awardee Performance and Integrity Systems (FAPIIS) was established in 2010 with the goal of it being the sole resource for information about the business ethics of those competing for federal contracts. It includes determinations of responsibility, debarment/suspensions, defaults etc. Section 852 now requires offerors to include information in FAPIIS about parent companies, subsidiaries or successor entities so that the integrity of the entire corporation can be considered. As written, it is seemingly unclear whether this applies to all parent and subsidiary entities at all levels, or whether it is only those direct affiliated companies that will have to be reported. If it is the former, this will be a problematic requirement for large corporations with many subsidiaries, some of which may have minor infractions that may be considered in unrelated evaluations of the offeror.
  • Section 864 addresses the allowable costs of contractor compensation. The compensation cap of $763,000 remains in place, for now. However, by May of this year the Comptroller General is required to submit a report to Congress on the impact of reducing the allowable costs of contractor compensations to either the salary of the President of the United States, or the Vice President. This also requires that the Comptroller General undertake an analysis to determine how many contractor employees have compensation above those of the President and Vice President.
  • Section 867 addresses bid protest statistics. The Comptroller General must now provide in its annual report to Congress “a summary of the most prevalent grounds for sustaining protests in the preceding year.”