Two days before Christmas day, President Biden signed the National Defense Authorization Act (NDAA) for the 2023 fiscal year. The President has stated that “The Act provides vital benefits and enhances access to justice for military personnel and their families, and includes critical authorities to support our country’s national defense, foreign affairs, and homeland security.” Find the whole transcript of the announcement here. The NDAA authorizes funding of $857.9 billion for the US military and other important defense priorities for the next year. The increase of $45 billion from the President’s budget request is to address inflation and speed up the implementation of the National Defense Strategy. The legislation also authorizes $816.7 billion for the Department of Defense and $30.3 billion for national security programs in the Department of Energy.
The NDAA is a 4400-page document and contains many provisions that interest companies across various industries that do business with the US government, including defense contractors, technology providers, life science companies, and commercial-item contractors. Needless to say, this puts the government contracting world on watch. Here are some of the provisions you should watch out for.
Semiconductor Prohibition.
The NDAA prohibits federal agencies from obtaining contracts from certain Chinese semiconductor companies and their subsidiaries in an effort to secure fragile supply chains five years after the law is enacted. It also requires the Secretary of Defense to implement a quantifiable assurance capability for microelectronics security and to establish a working group for information sharing and consultation on microelectronics research, development, and manufacturing.
Technology Investment.
The NDAA includes over $200 million for investments in aircraft technology, electronic warfare, and 5G technology development and nearly $100 million for programs related to quantum computing and artificial intelligence. It also directs the Secretary of Defense to support facilities that conduct research and development to support national security and secure supply chains.
Cybersecurity.
The NDAA authorizes an increase of $10 million to support cyber consortium seedling funding and an increase of $20 million for the Department of Defense’s enhanced non-kinetic/cyber modeling and simulation activities. It also requires the Department of Defense to perform cybersecurity assessments to determine if alternative or additional courses of action are necessary.
FedRAMP (The Federal Risk and Authorization Management Program).
The NDAA includes the FedRAMP Authorization Act, which creates a “presumption of adequacy” cloud providers with authorization from one agency can use with other agencies. It also creates a Federal Secure Cloud Advisory Committee that comprises of 15 members from the public and private sectors to provide recommendations on FedRAMP and the acquisition of cloud services. More detail on their official site here.
Supply Chain and Stockpile.
➜ Allocates $1 billion for the National Defense Stockpile to buy materials required for defense, industry, and essential civilian needs.
➜ Requires the National Defense Stockpile Manager to present a yearly report to Congress on the shortages of materials.
➜ Requires the Department of Defense (DoD) to keep track of the materials that are sourced by contractors
➜ Mandates the Secretary of Defense to establish and follow guidelines to manage risk in the DoD’s supply chain of pharmaceuticals.
Clean Energy support by the Department of Defense (DoD).
Starting in 2025, the DoD must purchase or lease non-tactical vehicles that are electric or have zero emissions, powered by advanced biofuel, or hydrogen-powered. The bill also includes a pilot program for sustainable aviation fuel.
OTA Pilot.
NDAA establishes a pilot program that allows the use of Other Transactional Authorities (OTAs) for facility or installation prototyping and conducts studies and demonstrations for health and medical care. It also authorizes the Coast Guard to enter directly into OTAs rather than partnering with other agencies such as the DoD. This reduces the contracting burden and could increase opportunities for prototyping and production of electric boats, resilient infrastructure, alternative and renewable energy, advanced batteries, and human systems projects involving the Coast Guard.
Increased Compliance Cost Recovery.
The NDAA also addresses recovery for increased compliance costs, inflation concerns, admitting New Zealand to the National Technology and Industrial Base (NTIB), and other related matters. It also provides temporary authority to modify the terms and conditions of a contract or option to allow for an economic price adjustment for firm-fixed price type contracts until December 31, 2023; however, this is subject to appropriations being made before contractors see relief.
Inflation.
By providing temporary authority for government contractors to modify the terms and conditions of a contract or option to allow for an economic price adjustment for firm-fixed price type contracts until December 31, 2023. However, this provision is subject to appropriations being made before contractors see relief.
NTIB and New Zealand.
The NDAA also admits New Zealand to the National Technology and Industrial Base (NTIB) and requires the Department of Defense (DoD) to make periodic determinations on whether its procurement of solar components for satellites, naval vessel shafts and propulsion systems, carbon fiber, natural rubber, and other items should be restricted to suppliers in the United States or in the NTIB or other allied nations. Battery producers in the NTIB will be given priority for the award of grants, contracts, or other agreements to validate novel battery chemistry configurations and transition them from prototyping to production.
The NDAA’s funding and authorities can provide great opportunities for government contractors. It’s time to get to know these and other provisions. This is an important new law that can allow federal contractors to provide crucial input as DoD and other agencies implement these priorities through rulemaking and other agency policies, helping to ensure the industry is well-positioned to deliver on these prospects. Just to clarify, the above provisions are what we feel would affect the government contractors industry the most, but there may be others that apply to your company specifically. If you have further questions and want some more clarity, Peter Witts CPA is just a few clicks away.