President Joe Biden signed into law last week the Servicemember Quality of Life Improvement and National Defense Authorization Act for Fiscal Year 2025 (NDAA). This defense policy and budget bill contains a discretionary topline of $895.2 billion to be split between the Department of Defense (DoD), Department of Energy (DOE) and other agencies for national defense related spending.
The NDAA is a critical piece of legislation that guides the creation of many federal procurement regulations, and this year is no different. Here are several noteworthy impacts for federal procurement.
Additional Hurdles to Protesting at the Government Accountability Office
Section 885, titled “Proposal for Payment of Costs for Certain Government Accountability Office Bid Protests,” has two large impacts.
The first, effective immediately, is a change made to 10 C.F.R. § 3406(f)(1)(B), which increases the threshold for bringing protests of defense task orders before the Government Accountability Office (GAO) by $10 million. Contractors seeking to protest the issuance or proposed issuance of a defense task order – other than on the basis “that the order increases the scope, period, or maximum value of the contract under which the order is issued,” which still can be brought before both GAO and the U.S. Court of Federal Claims – are now barred from protesting at GAO unless the awarded value of the task order surpasses $35 million.
Second, the act requires that, no later than 180 days after enactment, the comptroller general submit a proposal outlining three reforms to GAO’s protest process: 1) an enhanced pleading standard; 2) benchmarks on the costs of a protest to the DoD and the GAO, as well as the costs of the lost profit rates to the awardee of the contract that was protested; and 3) a process whereby an unsuccessful protestor will pay the costs, according to those benchmarks, to the government and awardee. This could create hurdles for government contractors seeking to protest before GAO in the future. Not only is there no indication of what this “enhanced pleading standard” will look like, the “loser-pays” portion of the proposal contemplated by Section 885 of the NDAA could create a chilling effect on those seeking to protest at GAO.
Further, there are no required exceptions for small businesses. Given that protest costs are generally felt more disproportionately against small businesses’ bottom lines than those of large defense contractors, Section 885’s changes could have the unintended effect of discouraging small businesses from availing themselves of GAO as a forum for protesting contract awards, notwithstanding Congress’s original intent of establishing GAO’s bid protest jurisdiction as a less formal and expensive alternative to the courts.
Further Restrictions on Contracting with Huawei
Another notable portion of the NDAA is Section 853, which prohibits the DoD from entering or renewing contracts with contractors who are providing semiconductor products or services to Huawei Technologies Co., Ltd. Effective no later than 270 days after enactment of the act, this prohibition on DoD contractors doing business with the Chinese company is yet another move by the United States to limit China’s access to semiconductor and chip-making technology.
The U.S., citing national and economic security concerns, previously limited exposure to Huawei by prohibiting agencies from directly purchasing equipment and services from the company and enacting sanctions that directly affected Huawei. Section 853 seeks to limit Huawei’s involvement in the U.S. from a different angle – namely, by pressuring contractors who supply semiconductor products or services to Huawei to either terminate those contracts or lose out on valuable DoD contracts moving forward.
Several Changes to Incorporate Greater Use of Innovative Technologies
Finally, a common theme of the NDAA is a bigger embrace of innovative technology within the DoD. This theme is explicit in Section 861, where the secretary of defense has been tasked with creating a “competitive, merit-based program to accelerate the procurement and fielding of innovative technologies.” Through these technologies, the program is tasked with reducing acquisition or life-cycle risks, addressing technical risks, improving the timeliness and thoroughness of test and evaluation outcomes, and rapidly implementing such technologies to directly support defense missions.”
Another portion of the NDAA, Section 804, calls for the creation of an acquisition system that uses innovative technologies to quickly develop prototypes to meet new and emerging needs of the DoD and then rapidly field them. These sections embody the belief that innovative technologies present tremendous potential for the DoD and realize the value in accelerating the acquisition process to quickly introduce them.
To further support innovative technologies, particularly in the commercial realm, the NDAA approves the use of new methods of evaluations of contractors for certain acquisitions. For instance, Section 864 grants the DoD permission to use “alternative capability-based analysis” when evaluating proposals for commercial products or services by nontraditional defense contractors. This will not only open the door to new defense contractors that may have been deterred based on previous evaluation metrics but will allow the DoD to contract for new technologies that these contractors are able to provide.
Conclusion
The NDAA for FY 2025 is an important statute that will continue to shape the direction of federal procurement regulations for the defense industry for years to come. While we have captured some of the major highlights of the act, more implications of its provisions likely will emerge in the months ahead. We will continue to monitor these changes as they are officially rolled out.
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