FY23 NDAA: Provisions of Interest for Almost All Government Contractors

FY23 NDAA: Provisions of Interest for Almost All Government Contractors

December 23, 2022, Covington Alert

President Biden has signed the National Defense Authorization Act (NDAA) for Fiscal Year 2023. The NDAA authorizes $857.9 billion in fiscal year 2023 funding and provides authorities for the U.S. military and other critical defense priorities. Congress justified this topline increase of $45 billion above the President’s budget request as necessary to address the effects of inflation and accelerate implementation of the National Defense Strategy. Within this topline, the legislation authorizes $816.7 billion for the Department of Defense (DoD) and $30.3 billion for national security programs in the Department of Energy (DOE).

The 4400-page NDAA contains a number of provisions that will be of interest to companies across industries that do business with the U.S. Government, including defense contractors, technology providers, life science companies, and commercial-item contractors. We summarize some of the most noteworthy provisions below:

Technology Investment: The NDAA contains more than $200 million for investments related to aircraft technology, electronic warfare, and 5G technology development and almost $100 million for DARPA quantum computing and artificial intelligence programs. The legislation also directs the Secretary of Defense to provide support for bioindustrial manufacturing facilities to conduct research and development to support national security and secure fragile supply chains.

Semiconductor Prohibition: The NDAA prohibits federal agencies, five years after the date of enactment of the law, from procuring, obtaining, or renewing contracts for any (i) electronic parts, products, or services that include “covered semiconductor products or services” (which are those “designed, produced, or provided” by specific Chinese companies—Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies, Yangtze Memory Technologies Corp—or their subsidiaries, affiliates, or successor entities) or (ii) any electronic parts, products, or services that “use any electronic parts or products that include covered semiconductor products or services.” Among other things, the law also requires the Secretary of Defense to implement a quantifiable assurance capability for microelectronics security and to establish a government-industry-academia working group for information sharing and consultation on microelectronics research, development, and manufacturing.

Cybersecurity: The NDAA authorizes an increase of $10 million to support cyber consortium seedling funding and an increase of $20 million for DARPA’s enhanced non-kinetic/cyber modeling and simulation activities. The legislation also requires DoD to perform several cybersecurity assessments, including:

• Assessment of the framework for the cybersecurity of the defense industrial base to determine if alternative or additional courses of action are necessary; and
• Assessment of the cybersecurity capabilities of commercial products and commercially available off-the-shelf items to ensure they are operationally effective, suitable, and survivable prior to their use on a DoD network.

FedRAMP: The NDAA contains the FedRAMP Authorization Act, which codifies the FedRAMP program. This legislation creates a "presumption of adequacy" that cloud providers with authorization from one agency can use that authorization with other agencies. It also creates the Federal Secure Cloud Advisory Committee, comprising 15 members of the public and private sector, to provide recommendations regarding FedRAMP and the acquisition of cloud services more generally.

Supply Chain/Stockpile: The NDAA contains provisions focused on enhancing America’s supply chain and the resilience of the nation’s stockpile by:

• Authorizing $1 billion for the National Defense Stockpile to acquire strategic and critical materials required to meet the defense, industrial, and essential civilian needs of the United States;
• Requiring the National Defense Stockpile Manager to submit an annual briefing to Congress on strategic and critical materials shortfalls;
• Requiring the DoD to track the sourcing of contractor-provided rare earth elements and critical materials; and
• Requiring the Secretary of Defense to issue and implement guidance for risk management of the DoD supply chain for pharmaceuticals.

Clean Energy: The NDAA contains provisions aimed at increasing DoD’s support for clean energy. For instance, beginning in 2025, non-tactical vehicles purchased or leased by DoD must be an electric or zero emission vehicle, an advanced-biofuel-powered vehicle, or a hydrogen-powered vehicle. The bill also mandates a sustainable aviation fuel pilot program.

OTAs: The NDAA creates a pilot program to use OTAs for facility or installation prototyping and authorizes the use of OTAs to conduct studies and demonstration projects for the delivery of health and medical care. The legislation also provides the Coast Guard authorization to enter into OTAs directly (as opposed to partnering with another agency, such as DoD). This reduced contracting burden could open the door to increased opportunities for prototyping and production of electric boats, resilient infrastructure, alternative/renewable energy, and advanced batteries, as well as human systems projects involving the Coast Guard.

Recovery for Increased Compliance Costs: The NDAA clarifies that the modification of an existing contract to include a requirement resulting from an Executive Order qualifies as a change for which equitable relief may be available under 10 U.S.C. 3862 and FAR 52.243-4 (Changes).

Inflation: The NDAA seeks to address inflation concerns through a provision that could be of interest to all government contractors by providing temporary authority to modify the terms and conditions of a contract or option to allow for an economic price adjustment for firm-fixed price type contracts until December 31, 2023. However, although the NDAA provides the authority for such modifications, the issuance of adjusted price payments remains subject to a specific appropriation. Appropriations must be made for this specific purpose before contractors will see relief through this provision.

National Technology and Industrial Base (NTIB): The legislation admits New Zealand to the NTIB and requires DoD to make periodic determinations as to whether its procurements of solar components for satellites, naval vessel shafts and propulsion systems, carbon fiber, natural rubber, and other items should be restricted to suppliers in the United States or in the NTIB or other allied nations. Battery producers in the NTIB will be given priority for award of grants, contracts, or other agreements to validate novel battery chemistry configurations and transition them from prototyping to production.

The NDAA’s funding and authorities may provide great opportunities throughout the next year and beyond for companies across industries that sell to the U.S. Government. Familiarizing yourself now with these and other provisions of this important new law can allow contractors to provide crucial input as DoD and other agencies implement these priorities through rulemaking and other agency policy, helping to ensure industry is well positioned to deliver on these prospects.

If you have any questions concerning these or other provisions of the NDAA for Fiscal Year 2023, please contact the members of our Public Policy and Government Contracts practices.