What Contractors Need to Know about the Proposed FY 2018 NDAA

by Morrison & Foerster LLP - Government Contracts Insights
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On November 9, 2017, Congress released its conference report on the FY 2018 National Defense Authorization Act.  The NDAA coming out of the conference committee contains numerous provisions that would affect government contractors.  Below we address five of the most significant issues for government contractors in the proposed NDAA – Bid Protests, Debriefings, the Space Corps, Other Transaction Authority, and Software and Technical Data.

Bid Protest Reforms

The FY 2018 NDAA proposed by the conference committee contains potentially significant (and some would say unnecessary) bid protest reforms, though there are a number of caveats that may reduce or eliminate the reforms’ significance.  According to the NDAA, the Secretary of Defense is required to carry out a three-year pilot program to “determine the effectiveness of requiring contractors to reimburse the Department of Defense for costs incurred in processing covered protests.”  The three-year pilot program is not set to begin, however, until two years after the date of enactment of the 2018 NDAA.  This will, of course, give Congress and the DOD time to review and analyze the RAND report on the effect of protests on DOD procurements (which was required in the FY 2017 NDAA), as well as any recommendations from the Section 809 panel.  Thus, it is entirely possible that, in one of the subsequent NDAAs prior to the start of the pilot program, Congress may rescind the requirement for this pilot program or propose different reforms based on those studies.

With respect to the pilot program itself, the “devil in the details” will likely be seen as the DOD develops rules and regulations to carry out the pilot program.  The FY 2018 NDAA provisions may hamstring the DOD a bit, however.  For example, “covered protests” for which costs should be reimbursed are defined as “a bid protest that was denied in an opinion issued by the Government Accountability Office.”  Thus, protests that are withdrawn by the protester prior to a decision, even as a result of outcome prediction, should not be considered “covered protests.”  Likewise, protests that are filed at the Court of Federal Claims will not be covered by the pilot program.  Arguably, even protest grounds that are dismissed rather than denied by the GAO may not form a “covered protest.”  Contractors would be advised to keep a close eye on statements from the DOD over the next two years to learn about how the DOD intends to implement the pilot program.  We will, of course, be following along here on the blog as well.

Debriefings

Somewhat related to bid protests, though an area that may see reform in the nearer term, are the proposed enhancements to debriefings for certain classes of contracts.  The conference committee version would give DOD six months to draft new provisions relating to required debriefings on DOD contracts.  Specifically, agencies would have to provide redacted versions of written source selection award determinations to offerors, but only for procurements in excess of $100 million (or, if small business or nontraditional contractors are involved and they submit a request, contracts worth between $10 million and $100 million).  For contracts or task orders worth more than $10 million, agencies must provide oral or written debriefings – not both, as the Senate had proposed.  The Senate had also proposed requiring agencies to provide counsel or representatives with a version of the agency record, and shortening GAO timelines for decision, but neither of these changes made it out of conference.

Finally, the conference committee version would require agencies to allow for follow-up questions after debriefings and would keep the debriefing period open until answers were delivered.  A contractor would have two days in which to send additional follow-up questions after the initial debrief, which the agency would have five days to answer.  The five-day period in which to protest and receive a stay would also not begin until answers were delivered to the disappointed contractor who asked them.

Space

The House version contemplated setting up an entirely new Space Corps to manage defense-related space activities, but the conference committee version does not go that far.  Instead, Sec. 1601 would change the institutional structure within the Air Force by, most notably, establishing a Commander of the Air Force Space Command who would be responsible for overseeing the Air Force’s space activities and certain other related activities for the broader Department of Defense.  The commander, who would have the rank of general while holding the role, would serve for six years; he or she would also serve as the service acquisition executive for defense space acquisitions.  The new provisions eliminate certain Air Force positions and offices, including Principal Department of Defense Space Advisor (previously known as the Department of Defense Executive Agent for Space); Deputy Chief of Staff of the Air Force for Space Operations; and the Defense Space Council.

Moreover, the revised NDAA leaves open the possibility of a new, dedicated Space Corps, in the future: the new NDAA version would also direct DOD to contract for independent researchers to come up with a plan for establishing a separate military department – outside of the Air Force – dedicated to space operations.

Additionally, the conferees’ joint explanatory statement includes the following passage in relation to this provision:

The conferees note that space has been designated as a warfighting domain.  Recognizing the joint nature of this new domain, the conferees believe that United States Strategic Command should develop a concept of operations (CONOPs) on how to conduct warfighting in space.  That CONOPs should be used to guide the Services’ space capabilities development and acquisition program.  The conferees expect such CONOPs to be provided to them not later than 180 days after the date of the enactment of this Act.

While this addition is not included within the statutory text, DOD is expected to respond.  The development of this CONOPs will no doubt raise interesting questions of law and is something we will be monitoring.

Other Transaction Authority

In July, the Senate Armed Services Committee used its report on the Senate version of the NDAA for FY18 to voice its strong support for DOD’s expanded use of its other transaction authority and other transaction agreements (OTAs):

[T]he committee remains frustrated by an ongoing lack of awareness and education regarding other transactions, particularly among senior leaders, contracting professionals, and lawyers. This lack of knowledge leads to an overly narrow interpretation of when OTAs may be used, narrow delegations of authority to make use of OTAs, a belief that OTAs are options of last resort for when Federal Acquisition Regulation (FAR) based alternatives have been exhausted, and restrictive, risk averse interpretations of how OTAs may be used.  These behaviors force innovative projects and programs into unnecessarily restrictive contracting methods, needlessly adding bureaucracy, cost, and time.

S. Rept. 115-125. The Committee recognized that “[m]aking use of OTAs, and their associated flexibility, may require senior leaders and Congress to tolerate more risk.” Id.

It appears Congress hopes to mitigate this risk through education and training of the acquisition workforce rather than any new oversight mechanisms, at least for the time being.  In conjunction with doubling the dollar-value thresholds for DOD’s authority to enter into OTAs for prototyping projects — and specifying that these thresholds apply to individual transactions, not overall projects — the FY18 NDAA would require the Secretary of Defense to ensure the management, technical, and contracting personnel responsible for awarding and administering OTAs maintain minimum levels of continuous experiential learning.

The FY18 NDAA also would institute a preference for OTAs in the execution of “science and technology and prototyping programs.”  Although the Senate version of the bill would have instituted this preference outright, the final version out of conference limits it to “circumstances determined appropriate by the Secretary.”

Finally, the FY 18 NDAA would amend DOD’s statutory OTA authority to reference OTA consortia for the first time.  These consortia, built around technical focus areas and composed of often hundreds of industry and academic institutions, are an integral piece of DOD’s current and future acquisition landscape.  The FY18 NDAA would specify that, in any prototype subprojects awarded through a consortium to one or more of its members, DOD may provide for the award of a follow-on production contract without further competition.  The codification of this authority, in conjunction with Congress’ encouragement, is sure to lead to continued (and perhaps accelerated) growth in DOD’s use of OTAs over traditional procurement contracts, a development the procurement community should meet with both excitement and a healthy dose of circumspection.

Software and Technical Data

After the Senate proposed to upend DOD’s decades-old framework for distinguishing rights in technical data and rights in software by wedging computer software into the statutory definition of technical data, the post-conference version of the NDAA for FY18 thankfully adopted a much more metered approach.  Under the final version of the bill, DOD would be required, in the acquisition of noncommercial computer software, to “consider, to the maximum extent practicable,” the acquisition of all software and related materials necessary to reproduce the software from source code, test the software, and deploy working binary files on system hardware.  To build from this in the future, Congress mandated three pilot programs focused on iterative development and open source software.

With regard to open source software, the conference report removes Senate language that would require DOD to manage all unclassified custom-developed computer software as open source software and publish the software in a public repository, opting instead simply to implement pre-existing Office of Management and Budget policy requiring release of at least 20 percent of new custom-developed code as open source software.  See Office of Management and Budget Memorandum M-16-21, “Federal Source Code Policy: Achieving Efficiency, Transparency, and Innovation through Reusable and Open Source Software” (Aug. 8, 2016).  We expect to see continued action around the initiative to manage DOD software as open source software, as Congress sees “establishing an appropriate repository for open source software [as] critical for maintaining security and also to fostering a community of collaborative software experts.”  Although still in its early stages, Congress noted its pleasure with the success of DOD’s recent Code.mil open source software initiative.

After substantial changes in last year’s NDAA, the NDAA for FY18 gives DOD regulators attempting to update the technical data regulations a chance to catch their breath.  The bill would implement only a requirement to negotiate price for technical data prior to selecting a contractor for the engineering and manufacturing development (EMD) or production phase of a major weapon system, and institute a preference, to the maximum extent practicable, for specially negotiated licenses for technical data to support major weapon systems and subsystems.  Congress intends these provisions to “encourage program managers to negotiate with industry to obtain the custom set of technical data necessary to support each major defense acquisition program rather than, as a default approach, seeking greater rights to more extensive technical data than is necessary.”  A laudable goal, for sure, and one we are skeptically hopeful will play out in practice.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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