The National Defense Authorization Act (NDAA) for Fiscal Year 2024 (FY24), signed into law on December 22, 2023, signals significant changes across the defense acquisition and contracting landscape. These changes are poised to reshape how the Department of Defense (DOD) engages with contractors, emphasizing transparency, accountability, and fairness. PilieroMazza examines key themes and provisions in the NDAA that DOD government contractors (small and large) should know to take advantage of contract opportunities and maintain compliance requirements.

Background

The NDAA is annual legislation that authorizes funding and outlines programs for the DOD. The NDAA is passed annually for over six decades and not only dictates defense policy, but also serves as a pivotal instrument for enacting procurement policies affecting government contractors.

As in recent years, there was continued focus on (1) small business programs, (2) strengthening transparency and efficiency, and (3) adding extensive relief for service members, past or present. Moreover, the NDAA introduces provisions aimed at addressing contemporary challenges and streamlining processes within federal procurement.

Noteworthy Provisions

1. Preventing Conflicts of Interest (COI) (Section 812)

One of the critical areas addressed by the NDAA is the enhancement of conflict-of-interest policies under Section 812. Specifically targeting entities classified under NAICS code 5416, which includes Management, Scientific, and Technical Consulting Services. The NDAA mandates these organizations to certify the absence of COI before entering contracts. This certification encompasses subsidiaries and affiliates, ensuring a comprehensive approach to conflict avoidance. Entities failing to certify or maintain a COI Mitigation Plan face prohibition from contracting with the DOD, enforcing a stringent stance against potential conflicts.

2. Inflationary Relief (Section 824)

Section 824 builds upon the groundwork laid by the previous year’s legislation, extending the authority for the modification of certain defense contracts and options in response to inflationary pressures. Section 824 extends the authority to modify specific contracts and options to counteract impacts due to inflation until December 31, 2024. The foundational changes were initiated in the FY2023 NDAA, specifically through Section 822, and broadened the President’s authority to allow defense agencies to modify contracts to better support the national defense agenda. Section 822 allows DOD to provide equitable adjustments to contractors forced to deal with increased costs “due solely to economic inflation.” Moreover, the adjustments made by Section 822, and extended by Section 824, include an increase in the monetary thresholds requiring higher-level approvals for contract modifications. Previously, only contracts exceeding $150,000 necessitated secretarial-level approval, and those above $25,000 required congressional notification. Now, these thresholds were elevated to $500,000 and $150,000, respectively, reflecting an understanding of the increased financial pressures on contractors.

3. Promoting Small Businesses

a. Strengthening Subcontractor Payment Protocols (Section 862)

The amendment to the Small Business Act within the NDAA focuses on safeguarding subcontractors against delayed payments. Prime contractors are now required to report past due payments within 30 days—a significant reduction from the previous 90-day requirement. This amendment not only accelerates the notification process but also expands the oversight capabilities of contracting officers, enabling them to rectify unjustified payment delays effectively.

b. Increasing Service-Disabled Veteran-Owned Small Business (SDVOSBs) Participation (Section 863)

Section 863 amends the Small Business Act, specifically 15 U.S.C. § 644(g)(1)(A)(ii), by increasing government participation for SDVOSBs to a minimum of 5% of the total value of contract value for each fiscal year. The amendment raises participation from 3% from the previous year and will likely be in effect beginning on October 1, 2024.

c. SDVOSBs Certification (Section 864)

Transitioning from self-certification, SDVOSBs are now required to obtain certification from the Small Business Administration (SBA) as businesses owned and controlled by service-disabled veterans. Small businesses may continue their self-certification until SBA determines the status of their application. The application should be submitted within one year of enactment of the NDAA. This move, effective October 1 following the SBA’s regulation promulgation or 180 days post-enactment, aims to ensure that the intended beneficiaries accurately receive SDVOSB status, enhancing the integrity of the program.

d. Affiliate Performance Consideration for Small Businesses (Section 865)

The DOD is set to amend its Defense Federal Acquisition Regulation Supplement (DFARS) to factor in the past performance of small business affiliates during evaluations and source selections. This consideration underscores a commitment to leveraging the collective capabilities of small businesses and their networks.

4. Enhanced Support and Protections for Service Members

The NDAA introduces a 5.2% pay increase for service members and offers additional financial support mechanisms, such as increased family separation allowances to $400 and adjustments to the cost-of-living threshold. Moreover, it outlines merit-based promotion rules and prohibits the mandatory disclosure of gender or personal pronouns in DOD correspondence, promoting respect for individual identities.

5. Environmental and Acquisition Reforms

Noteworthy is the prohibition against requiring non-traditional defense contractors to disclose information on greenhouse gas emissions as a condition of award, with exceptions on a case-by-case basis. The NDAA also addresses the security and integrity of DOD employee data by prohibiting the selling, licensing, or transferring of DOD employment data. Further, the NDAA streamlines the acquisition process by allowing contracts to be longer than one year if it includes maintenance of the industrial base that cannot be fulfilled through annual contracts.

Note that the NDAA’s “authorization” process is distinct from the “appropriations” process. The NDAA does not give DOD actual budget authority; funds must be separately appropriated by Congress before they can be spent by federal agencies. That said, the NDAA typically serves as an indicator of the budget that Congress will appropriate to DOD. PilieroMazza continues to monitor Congress’ progress toward an FY2024 Budget.

Government contractors small and large should pay close attention to these NDAA provisions and understand how they will affect their ability to successfully compete in 2024 and beyond.