If it does get passed, the Defense authorization bill has quite a few surprises

Conference work on the National Defense Authorization Act for 2024 proceeds, even as nothing else in Congress seems to be working. As always, the NDAA has provi...

Conference work on the National Defense Authorization Act for 2024 proceeds, even as nothing else in Congress seems to be working. As always, the NDAA has provisions affecting Defense contractors. The Federal Drive with Tom Temin spoke with someone who says that sometimes, good intentions aren’t matched by good legislation. Tom’s guest was the President and CEO of the Professional Services Council, David Berteau.

Interview Transcript: 

David Berteau Well, Tom, thank you for having me. And you’re right. One of the interesting things about a government shutdown, of course, is you can actually get into one without doing anything. You can’t get out of it without doing something, but you can get into it just by Congress not acting to pass anything. And we came very close to that back on Sept. 30, obviously, just at the last possible minute, the last possible hour, really the 11th hour of the evening there before the president signed the continuing resolution. So what are the prospects? I mean, it’s still a month away before the expiration date of the current CR., but the House is now two weeks without a speaker. No work can be done without that. And even if you have a speaker, it’s not at all clear what legislation is going to pass that’ll keep us open. So obviously from a government contractors point of view, we’re taking very seriously the need to prepare for the possibility of another government shutdown. And we learned a little bit from the run up back at the end of September.

Tom Temin All right. Well, we’ll have to see what happens there. I mean, right now, let’s see if there’s a speaker. They were voting today, and perhaps there will be a speaker, then maybe something can happen. But the NDAA conference people are working are talking anyhow. But you found a couple of things deep in there that you feel may not actually get the goal that you agree with that Congress is after. And one of those is the notice of mergers and acquisitions that normally go to the Justice Department or the Federal Trade Commission, also going to the Defense Department. What’s that all about?

David Berteau Well, first of all, you’re right. Every year we’re wrestling with the question of what will the national defense authorization look like? It’s almost the only constant, other than appropriations. Congress has passed the NDAA every year now for 60 years. So it’s something that becomes a vehicle for a lot of other legislation, since it is a reliable bill that will be signed by the President. PSC always has some concerns, but this year has a new twist. There are provisions that the intent is something with which we agree and it makes sense. In this case, the section from the Senate, Section 832, would require companies to include [Department of Defense (DoD)] in the notices that they filed with Justice and FTC about pending mergers or acquisitions. And what could be bad about that? Let DoD know as well, especially if they’re going to be affected by it, they’re going to need to act on it. But it turns out that inside the provision, as often happens, there’s some additional language there. And it actually opens up what’s covered by these merger acquisition reporting requirements to be something way more than mergers and acquisitions. It could be teaming agreements, it could be strategic alliances. It could be a whole host of things that go well beyond the traditional mergers and acquisitions. None of that, as far as I can tell, was pushed for by the federal government. But if enacted, this would be hard to implement, and it’s not clear to me what the advantage of that would be. First of all, it would flood the notification process with numerous I mean, teaming agreements are formed for almost every contract you bid on. And how do you put a value on the team agreement? Because those reporting requirements have a threshold that’s got to be X amount of dollars depending on the size of the company, etc., and the size.

Tom Temin Well, it’s hard to tell what they’re really worried about, I guess, with this provision. But I think maybe the fundamental fear is just the shrinking defense industrial base. And so anything that looks like it could maybe affect that they want to know about.

David Berteau That could be. Although teaming agreements are the strongest way to increase that competition and keep it going, because if one company by itself is not able to compete with somebody else, a teaming agreement is the way you get that competition. And now we do have problems across the federal government of multiple different conflicting rules governing competing teaming agreements for different contracts, especially government wide acquisition contracts. But none of this makes any sense. And so we believe that, in fact, the provisions should be changed to eliminate these new definitions in these new categories of reporting requirements.

Tom Temin We’re speaking with David Berteau, president and CEO of the Professional Services Council. The other provision in here has to do with progress payments tied to performance, but what it is they consider performance seems a little off.

David Berteau Well in the federal government, and especially this is true in the Defense Department, progress payments are an important element of contract financing because it takes so long to complete some of these contracts and deliver the results. An aircraft carrier or an airplane that takes years to construct that the companies can’t finance the whole thing, especially since the cost of financing is not allowable cost. So the government pays payments based upon the progress that you’ve made towards the final delivery. This is actually a resurrection of something that was proposed about five years ago, which was to tie progress payments to something more than just progress towards producing and delivering the results. And so it makes sense to tie progress payments to those performance. But if you read the provision, it would actually have criteria that’s not about performance, not about delivering systems on time or on budget. It’s about input measures like business systems or subcontracting goals. The important elements of contract compliance. But we’ve got plenty of mechanisms to mandate and track contract compliance. Why not have progress payments tied towards actual progress?

Tom Temin Yeah, wouldn’t that be a great concept? The next thing you know, it’ll be how many electric cars do your employees bring to the government sites? And that’ll be the measure of whether you get money or not, perhaps. I’m kidding, but it sounds kind of like the types of measures they’re looking at and not really budget performance of the system you’re delivering.

David Berteau And we still have a problem with inflation in the government contracting business. The president’s got a pay raise coming through, it’s in the bills that Congress is passing and the president can do it for federal civilians unless Congress objects it. A pay raise is 5.2% for fiscal year 2024, which we’re in right now. There’s no equivalent increase in recognition of the worker costs that contractors are incurring, which are actually up 18% now since the start of COVID. So we were happy to see a provision in the NDAA that still allows the government to recognize these costs and where funds are available to arrange to compensate companies for those increased costs. We haven’t seen that exercise very much, but at least the provision is still in the bill.

Tom Temin All right, but the NDAA has to pass and the question is, are they making any progress? No one really knows at this point if they’re making progress on the sticking point, which has nothing to do with any of this. But whether the Defense Department pays for transportation, for abortion services, for service members. That seems to be what has the two chambers of Congress apart. So who’s going to blink?

David Berteau Every year, of course, there are provisions of varying degrees of difficulty in these conferences, and there’s hundreds of provisions between the House and the Senate version. There are things that can be worked out at the staff level. There are issues that need to rise to the level of the staff directors, and then there are issues that need to go all the way to the chairs and ranking members. I suspect that some of these social issues will in fact be those that have to go, maybe even all the way to the leadership of the House and Senate. And of course, without leadership on the House, that’s going to be difficult to resolve. So we have great hope that we can get a National Defense Authorization Act and get it done. By the way, those negotiations will continue, whether there’s a shutdown or not, the Congress will probably keep going on that. But we’re going to watch this closely from here on out.

Tom Temin But if there is a conference report and they agree on a bill, the House will have to have a speaker, they’ll write to be able to vote on it.

David Berteau Well, this is back to will we get a speaker? Will we have a shutdown? I mean, the House is going to be voting, we’re going to see how that comes out. I learned a long time ago, Tom, not to build my plans around my ability to predict the outcome of votes. And so we’re going to be there as well. But until then, the preparation for a possible shutdown back to that. We know that there’s guidance has been prepared for contracting officers, but that’s not been shared with contractors. And so we don’t actually know what to expect in a shutdown. Contracts keep going unless there’s a reason to stop. But sometimes the government provides a reason to stop even if you don’t need one.

Tom Temin Well, I say what can’t stop it all is just supplies of 155 millimeter Howitzer shells. Somehow those have to keep coming.

David Berteau Well, this is adds an interesting twist, because the funding for Ukraine was left out of the C.R.,  So that’s going to dissipate rather quickly. And we’re not quite sure what options the administration has. Obviously, the situation in Israel calls for action as well. But without a functioning House of Representatives, it’s very difficult. You can’t even get a resolution of disapproval out of the House, even though I’m sure it would pass with quite a wide margin of votes. We’re hoping that Congress will get its act together and get back to regular order. But from where we are, we’re going to have to wait and see.

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