As it always does, the National Defense Authorization Act known as the NDAA includes a whole section devoted to federal procurement. We get highlights from attorney Zach Prince of Haynes Boone on the Federal Drive with Tom Temin.

Interview transcript:

Tom Temin And we could talk for hours about Title 8, as we could every year. But Zach, one thing we should point out that was left out in the conference bill, is that idea of inflation compensation for contractors.

Zach Prince This has been a weird one because Congress put this in two years ago in the NDAA to grant DoD authority to give contractors relief for inflationary pressures that they experienced. And unfortunately, it was always contingent on appropriations. And the NDAA is not an appropriations bill. Congress never actually funded this provision. So I’ve been getting emails from clients for years. Have you seen this provision in NDAA? Shouldn’t this mean that we have some avenue for relief? And every time I’ve had to say no, I’m sorry, Congress decided not to actually do anything with that. It does actually show up in one of the versions that the Senate is considering in the NDAA, we don’t have a final bill yet, that it extends it for another year, this inflationary authority. But my bet is it’s not going to be funded again. So it’s just sort of cruel to contractors, although it might not really matter anyway, given that inflation has largely been tamped down.

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Tom Temin All right. Well, let’s talk about what is in there. And among them are some modifications. I think that’s Title 801, the first one modifications to other transaction authority. And you knew that was going to happen at some point. But what are they actually modifying?

Zach Prince It doesn’t look like they’re changing a whole lot that’s going to tamp down on use of OTAs. There’s some provisions about tracking and reporting actual OTA awards, both directly from the government and from the consortia to small businesses and nontraditional defense contractors. So Congress wants to know who’s actually performing these things in the dollar value. But other than that, it’s really nibbling around the edges of defining prototype OTAs and production OTAs, but not really realistically tamping down on this.

Tom Temin Yes, because a few agencies can go from prototype to production under OTA, but it’s not a universal authority.

Zach Prince And it’s really quite popular with a lot of agencies and they get a lot of good work done quickly without having to go through a typical procurement process. And contractors love it too, for I think, obvious reasons. They don’t have to jump through the same hoops that they would when they’re ordinarily selling, particularly to DoD.

Tom Temin And as every year there’s a slew of reports that the department will have to produce on small business and on cost overruns. And a lot of that happens year after year. There’s a small business bill of rights mentioned in there. What do you make of that?

Zach Prince It’s a cool idea. The reality is small businesses have a hard time doing business with the government, because there are all sorts of requirements that they don’t understand and aren’t aware of. And to an extent, restricts small businesses from doing business with the government unless they’re either unaware of those risks at all or are just willing to navigate the morass. So the Small Business Bill of Rights is really vague on what it’s going to really require, but it wants to set up some sort of processes and procedures for resolving conflicts between DoD and small businesses. It’s a cool idea, we’ll see what it looks like in practice. And I think we all know how long it takes the government to actually implement directives from the NDAA. So maybe we’ll be talking about what it’s shaping up to look like in five years.

Tom Temin Yeah. I was going to say, sometimes it’s four or five years till they get around actually rulemaking pursuant to what’s in an NDAA. Nobody seems to get mad about it until the rule actually comes. But things go on as they are until the rules come. We’re speaking with procurement attorney Zach Prince. He’s a partner at Haynes Boone. And there is also language on an idea that’s come up from time to time on GAO protests to contract awards where the loser would pay costs.

Zach Prince This has been in NDAAs before and hasn’t really amounted to much here. If this becomes a final bill, it would require DoD with GAO to establish some sort of process for fee shifting from an unsuccessful protester for the awardee who’s award was challenged, and the government’s costs where some enhanced pleading standards apply. But it’s not really clear what those enhanced pleading standards should look like and what kind of protests Congress is really thinking about here. I understand the consternation of an awardee and the department when they’ve got unsuccessful protests that require huge losses of time and resources. I get it, but I do generally think that the protest mechanism keeps the system honest. And a lot of the times the things that you went on in protest, you don’t know at the outset. You’ve got an aggrieved party that believes it lost for one reason. You get in the record, you lost for another reason. I don’t think it’s a good idea to dissuade protest in general because it does reveal procurement issues fairly often, but we’ll see what happens with this one.

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Tom Temin And another one that’s interesting is Section 882. It’s pretty far down in there, with respect to reverse engineering and parts and technical diagrams and so forth. What’s in that section?

Zach Prince So this has been something that’s come up a few times of the last decade or so. There is a perception among certain folks in DoD and in Congress that the government doesn’t have enough rights to manufacture items in its supply chain that it needs, and that this allows manufacturers to extort DoD and require it to pay exorbitant prices. I don’t really think that’s true. My view of the industry is companies put in a heck of a lot of money and time to developing factories and processes and procedures. The government orders a lot of things very sporadically, which makes it very challenging to give them the same sort of discounts that you might get for large productions for a commercial customer. And then DoD gets annoyed that it’s paying too much. But in any case, this is authorizing it, really requiring DoD to study what products it needs, that it doesn’t have the rights to manufacture, and then create a process for reverse engineering those parts, which DoD can do. That’s always been the sort of quirky thing with government rights, is when they get limited or restricted rights in intellectual property, it doesn’t preclude them from just totally reverse engineering the thing. It’s just really expensive to reverse engineer a thing. And the government typically doesn’t have manufacturing facilities and the ability to stand up for fulsome processes and procedures. But this at least tells the government, it tells DoD, Congress expects you to have some way that if necessary, you can start reverse engineering important products. If, for example, the actual manufacturer won’t meet the schedule that is needed for weapon system writing as a responsiveness or a sole source item where the head of an agency determines that a reverse engineering is beneficial for DoD operations.

Tom Temin And it goes on and on. There are provisions about making sure there’s competition in artificial intelligence, about designating an open source official. I think the key to reading this thing is going through it quickly to see what there shall be or it is hereby established. That’s when you’re going to get clear language on what it is Congress wants. But so many of these provisions are modifications to existing language that unless you have a side by side set of paragraphs, it’s pretty hard to know what their intent is. I saw a few places where May’s were substituted with Shall’s and so therefore you got to do something. But your best advice for contractors wanting to find out is call their attorney or to try to spend an afternoon or an evening or a weekend poring through all this.

Zach Prince Well, once we have a final bill, folks should expect that I’ll put out a side by side the discussion of import provisions. The other big government contract firms will do the same. And this is something that it’s helpful to look to your outside counsel for some reason, just because we will spend time going through it. But you do really need to parse this carefully, understand where things are sort of notional as they shall put together a report or do some rulemaking that has vague contours. Those things often don’t come together or are predicated on funding. And this is not an appropriations bill, so that funding might never happen. So it’s complicated, but this does show you generally where Congress is on a bunch of major issues and sets the tone for the year ahead.

 

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