FY21 National Defense Authorization Act: Ringing in 2021 with Long-Awaited Defense Funding

Following a New Year's Day 2021 congressional override of President Trump's veto, the Fiscal Year 2021 National Defense Authorization Act, H.R. 6395  (FY21 NDAA), including its numerous provisions altering the legal and regulatory framework under which government contractors operate, became law. The following discussion summarizes key areas where government contractors, including small businesses, should expect the greatest impact on their operations from compliance, business, and practical standpoints.

General Contracting Policy, Administrative, and Structural Changes

• Section 816 of the FY21 NDAA, Documentation Pertaining to Commercial Item Determinations, adds a requirement that contracting agencies document within thirty (30) days of an award whether the commercial product or service meets the requirements for commerciality and submit a memorandum justifying the determination. In addition, the statute authorizes contracting officers to request "support" from the Director of or other appropriate experts in the Defense Contract Management Agency (DCMA) and "consider the views of appropriate public and private sector entities." While this provision indicates a potentially stricter approach in ensuring the legitimacy of commerciality determinations, which may create barriers for commercial organizations against entering the government marketplace or increase contracting compliance obligations, the long-term impact, beyond the increased complexity of the process, remains to be seen.
• Section 886, Repeal of Pilot Program on Payment of Costs for Denied Government Accountability Office Bid Protests, formally repealed the FY18 NDAA's call for a pilot program requiring that unsuccessful bid protesters before the U.S. Government Accountability Office (GAO) be required to reimburse DoD for the cost of defending the losing protest.
• Section 888, Revision to Requirement to Use Firm Fixed-Price Contracts for Foreign Military Sales, repealed the FY20 NDAA's requirement (Section 830) to utilize firm fixed-price contracts for Foreign Military Sales, offering additional flexibility with respect to contract types.
• In the context of regulations governing the adequacy of contractor business systems, Section 806, Definition of Material Weakness for Contractor Business Systems, replaces the term "significant deficiencies" with "material weaknesses," defining the latter term as "a deficiency or combination of deficiencies in the internal control over information in contractor business systems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis." The legislation specifies that a "reasonable possibility" exists when the likelihood of an event occurring is either "probable" or "more than remote but less than likely."
• Concerning Other Transactions, Section 833, Listing of Other Transaction Authority Consortia, requires the U.S. Department of Defense (DoD) to publish on beta.sam.gov "a list of the consortia used by the Secretary to announce or otherwise make available opportunities to enter into a transaction" using Other Transaction Authority, thereby providing an increased awareness of and the visibility of available opportunities outside of DoD's normal procurement process.
• Section 1742, Department of Defense Cyber Hygiene and Cybersecurity Maturity Model Certification (CMMC) Framework, requires DoD to conduct an assessment of each Department component against the CMMC framework and submit a report detailing the CMMC level and implementation of the cybersecurity practices and capabilities required in each of the levels of the CMMC framework. No more than 60 percent of FY21 funding for the implementation of CMMC may be obligated or expended until the Under Secretary of Defense for Acquisition and Sustainment "delivers to the congressional defense committees a plan for implementation of the CMMC via requirements in procurement contracts, developed in coordination with the Principal Cyber Advisor and the Chief Information Officer of the Department of Defense," which is to include a timeline for pilot activities, as well as appropriate assurances that CMMC requirements are being met and contractors' efforts to meet relevant requirements are being facilitated.

Supply Chain and Defense Industrial Base Considerations

• Section 817 of the FY21 NDAA, Modification to Small Purchase Threshold Exception to Sourcing Requirements for Certain Articles, lowered the small purchase threshold for the Berry Amendment at 10 U.S.C. § 2533a(h) from $250,000 to $150,000, thereby reducing the number of procurements falling within the Berry Amendment's exception.
• Section 848, Supply of Strategic and Critical Materials for the Department of Defense, provides that DoD shall, to the maximum extent practicable, acquire strategic and critical materials required to meet the defense, industrial, and essential civilian needs of the U.S. in the following order: 1) from the United States; 2) from sources located within the national technology and industrial base; and 3) from other sources as appropriate.
• Section 849, Analyses of Certain Activities for Action to Address Sourcing and Industrial Capacity, requires DoD to conduct an assessment of sourcing alternatives for high-priority goods and services (to include personal protective equipment, vaccines, and pharmaceuticals), focused on shifting procurement to domestic or ally/friendly countries and reducing the risks associated with sourcing from international channels.

Increased Focus on Disclosures, Ownership, and Control

• Section 819, Modifications to Mitigating Risks Related to Foreign Ownership, Control, or Influence of Department of Defense Contractors and Subcontractors, modified Section 847 of the FY20 NDAA regarding mitigating risks related to foreign ownership, control, or influence (FOCI) of DoD contractors and subcontractors, by mandating that the Secretary require reports and conduct examinations of covered contracts and subcontracts periodically to ensure compliance with applicable FOCI requirements. This section also requires the implementation of corresponding procedures for "appropriately responding to changes in covered contractor or subcontractor beneficial ownership status based on changes in disclosures of their beneficial ownership."
• Section 883, Prohibition on Awarding of Contracts to Contractors that Require Nondisclosure Agreements Relating to Waste, Fraud, or Abuse, provides that the Secretary may not award a contract unless the contractor represents that it does not require its employees to sign internal nondisclosure agreements that would "prohibit or otherwise restrict" employees from the lawful disclosure of fraud, waste, or abuse related to a DoD contract to an authorized DoD investigative body, and must also warrant that the contractor will inform employees of the foregoing rule governing such agreements.
• Section 885, Disclosure of Beneficial Owners in Database for Federal Agency Contract and Grant Officers, added requirements for contractors and grantees to disclose beneficial ownership information (using the definition of "beneficial ownership" from the FY20 NDAA) to be documented in the Federal Awardee Performance and Integrity Information System (FAPIIS).

Small Business Subcontracting

• Under Section 862, Transfer of Verification of Small Business Concerns Owned and Controlled by Veterans or Service-Disabled Veterans to the Small Business Administration, of the FY21 NDAA, self-certification for service-disabled veteran-owned small businesses will be eliminated, with a government-wide SDVOSB certification requirement established in its place. Control of the government-wide SDVOSB certification process will lie with the U.S. Small Business Administration (SBA) rather than the Department of Veterans Affairs (VA), which will result in the dissolution of the VA Center for Verification once all of its functions and responsibilities have been transferred to the SBA. The FY21 NDAA allows self-certified SDVOSBs, one year from the implementation of this new program, to file a certification application in order to continue to rely on their self-certification for non-VA contracts while the SBA considers their application. If an entity fails to submit an application in this one-year time frame, its self-certification lapses and becomes invalid.
• Section 863, Employment Size Standard Requirements for Small Business Concerns, amends Section 3(a)(2) of the Small Business Act (15 U.S.C. 632(a)(2)), changing the time frame for analyzing a company's size status under employee-based size standards. This is now determined by analyzing the average number of employees over the preceding 24 months rather than the preceding 12 months.
• Section 864, Maximum Award Price for Sole Source Manufacturing Contracts, raises the maximum award price for sole source contracts to women-owned small businesses (WOSBs) and Historically Underutilized Business Zone Businesses (HUBZone) to $7,000,000, bringing the figure in line with the threshold for 8(a) and SDVOSB Businesses.
• In a boost for 8(a) small businesses, Section 868, Past Performance Ratings of Certain Small Business Concerns, permits 8(a) companies that have participated in a Joint Venture (JV) to use the past performance of the JV when they have no relevant past performance of their own, irrespective of whether the other JV member was also a small business. Additionally, this Section would require prime contractors with subcontracting plans to provide a past performance record for a requesting first-tier small business subcontractor, which the contractor must consider if offered by the small business as part of its proposal.
• Finally, Section 869, Extension of Participation in 8(a) Program, extends the 8(a)-participation term from nine years to 10 years for any company that was admitted to the 8(a) Program by September 9, 2020.

In most cases, we anticipate corresponding changes to the Defense Federal Acquisition Regulation Supplement (DFARS) following a notice and comment period. We encourage readers to follow our ongoing coverage of FY21 NDAA-related developments and the other key government contracts-focused updates from the month of December.