In January, President Obama signed the National Defense Authorization Act for Fiscal Year 2013 (“NDAA”), which includes numerous new procurement policies directed at contractors and how they bid on and perform government contracts. This alert highlights key provisions that will affect most contractors.

Past Performance & Responsibility

• NDAA § 853 mandates that the Federal Acquisition Regulation (“FAR”) reduce the number of days for contractors to submit rebuttal comments to their past performance evaluations (such as those provided in the Contractor Performance Assessment Reporting System). The current rule provides contractors with 30 days to submit rebuttal comments; the new rule will provide contractors with only 14 days. Congress had previously mandated such a rule for defense agencies only. The 2013 NDAA extends the 14-day rule to all agencies covered by the FAR. This change, coupled with a recent proposed rule to eliminate a contractor’s ability to seek review of an adverse past performance rating at a level above a contracting officer, together erode a contractor’s rights to respond to adverse past performance evaluations.
• NDAA § 852 requires that the Federal Awardee Performance and Integrity Information System (“FAPIIS”) include information regarding a corporation’s parent, subsidiary, or successor entities to give acquisition officials a “comprehensive understanding of the performance and integrity of the corporation” performing federal contracts and grants.”

Bid Protests

• NDAA § 830 makes permanent the Government Accountability Office’s (“GAO”) authority to hear protests of defense multiple-award contract task or delivery orders valued at more than $10 million. Prior to this amendment, this authority was set to expire on September 30, 2016. Notably, this amendment did not make permanent GAO’s authority to hear protests of similar civilian task or delivery orders, which will sunset on September 30, 2016 (unless Congress similarly amends the law for civilian agencies).
• NDAA § 867 requires GAO to provide a summary of the “most prevalent grounds for sustaining protests” as part of its annual report to Congress.

Costs

• NDAA § 832 provides the Defense Contract Audit Agency (“DCAA”) with broader authority to request a contractor’s internal audit reports, but requires that DCAA document why such access is “necessary” and provides some safeguards to contractors by limiting DCAA’s access to contractor’s internal audit reports only for the purpose of “evaluating and testing the efficacy of contractor internal controls and the reliability of associated contractor business systems.” DCAA cannot rely solely on internal audits in approving or disapproving a contractor’s internal controls. This new law appears to partially reverse longstanding case law that rejected government attempts to access a contractor’s internal audit reports. See, e.g., United States v. Newport News Shipbuilding & Dry Dock Co., 837 F.2d 162, 164 (4th Cir. 1988).
• NDAA § 811 prohibits the Department of Defense (“DOD”) from entering cost-type contracts for major defense acquisition programs on or after October 1, 2014, unless the Under Secretary of Defense for Acquisition, Technology, and Logistics certifies in writing to Congress that a cost-type contract is necessary. This provision continues the recent legislative distaste for cost-type contracts in favor of fixed price-type contracts.

Subcontracting Limitations

• NDAA § 802 directs DOD and the U.S. Agency for International Development to consider directly contracting with a subcontractor, where the prime contractor states pursuant to 48 C.F.R. § 52.215-22 (Limitations on Pass-Through Charges—Identification of Subcontract Effort) that it will be subcontracting more than 70 percent of the “total cost of work” under the prime contract, task order, or delivery order. Alternatively, a contracting officer may conclude (and must document) that it is in the “best interest” of the government to allow a contractor to subcontract more than 70 percent of work.
• NDAA § 1651 reiterates that a small business concern may not subcontract more than 50 percent of the amount paid under the contract. However, the statute creates an exception that excludes from the 50 percent limitation any subcontracts with any “similarly situated entities” that have the same small business concern status as the prime contractor. For example, if the business concern is an 8(a) entity, it could subcontract work to other 8(a) entities without that subcontract work counting toward the 50 percent subcontracting limitation. Other “similarly situated entities” include small business concerns, women-owned small business concerns, women-owned small disadvantaged business concerns, service-disabled veteran-owned small business concerns, and HUBZone small business concerns.

Cybersecurity

• NDAA § 941 requires DOD to establish procedures directing cleared defense contractors to report when their networks or information systems are successfully penetrated. DOD will have the ability to access a contractor’s equipment or information necessary to conduct forensic analysis to determine whether any DOD information was “successfully exfiltrated” from the contractor’s networks and information systems, but DOD is also required to “provide for the reasonable protection of trade secrets, commercial or financial information, and information that can be used to identify a specific person.”

Counterfeit Electronic Parts

• NDAA § 833 amends a more austere provision regarding counterfeit electronic parts enacted in the 2012 NDAA (Pub. L. No. 112-81, § 818, 125 Stat. 1298, 1493 (codified at 10 U.S.C. § 2302 note). The new provision allows a contractor to recover the costs of counterfeit electronic parts and suspect counterfeit electronic parts and the cost of rework and corrective action if (1) the contractor has a DOD-reviewed and approved system to detect and avoid counterfeit parts, (2) the counterfeit parts were provided to the contractor as government property, and (3) the contractor timely notifies the government.