Domestic sourcing requirements are not new, but the Government is always developing new tools for increasing the sourcing of goods from the U.S. and allied countries.  Both sides of the political aisle have marched to a drumbeat of increased domestic sourcing for the past several years.  Most recently, the Biden Administration implemented Executive Order 14005 to “maximize” the U.S. Government’s purchase of goods and services produced in the United States and Executive Order 14104 to increase domestic manufacturing and commercialization in certain research and development supported by federal funding.  The ongoing bi-partisan support for bolstering domestic sourcing is illustrated no better than through this year’s NDAA, which focuses on expanding the domestic supply chain for materials and supplies critical to the U.S. military, encouraging the purchase of domestic end items, and providing more opportunities for the Department of Defense (“DoD”) to engage with and purchase from domestic businesses.

A number of provisions in both chambers’ versions of the FY 2024 NDAA seek to expand DoD purchases of goods and services produced in the United States: 

  • Navy Shipbuilding:  Senate Section 866 would adjust the domestic content requirements under the Buy American Act of articles, materials, or supplies procured for use in Navy shipbuilding.  Beginning in January 2026, an article, material, or supply is “manufactured substantially” in the United States if at least 65% of the cost of a shipbuilding component is attributed to materials mined, produced, or manufactured in the United States.  That percentage would increase on a graduated scale until January 1, 2033, at which time 100% of the cost of such components must be attributable to U.S. sources.  Even shipbuilding contracts related to research, development, testing, and evaluation activities would be required to meet these thresholds.  This graduated scale would not apply to iron and steel articles, materials, or supplies, which are deemed “manufactured in the United States” only if all manufacturing processes—from initial melting through the application of coating—occur in the United States.
  • Major Defense Acquisition Programs:  House Section 869 takes this same concept to the next level, proposing to define “manufactured substantially . . . in the United States” for purposes of articles, materials, or supplies procured in connection with any major defense acquisition program (“MDAP”) under the Buy American Act.  This requirement would apply only to contracts entered into after the 2024 NDAA is enacted.  Under this section, a manufactured article, material, or supply procured in connection with an MDAP is manufactured substantially in the United States if more than 60% of the cost of any MDAP component is attributed to materials mined, produced, or manufactured in the United States.  That percentage would increase on a graduated scale until January 1, 2029, at which time at least 75% of each component article, material, or supply cost must be attributable to U.S. sources.  Section 869’s requirements would not apply to a country that is a member of the National Technology Industrial Base (“NTIB,” i.e., the United States, Canada, the United Kingdom, Australia, and New Zealand).  Because the MDAP and shipbuilding requirements propose to fall under the Buy American Act, we anticipate that these provisions will be subject to further guidance under Buy American Act regulations.
  • Components for Auxiliary Ships:  House Section 844 would include propulsion system components (including reduction gears and propellers) and other components (including alternators, diesel engines, and steam turbines) used to generate electricity to power the systems of auxiliary ships to the list of items that DoD may procure only from a member of the NTIB.
  • Tactical Vehicles:  House Section 182 would prohibit DoD from acquiring tactical tracked or wheeled vehicles constructed from a specialty metal, or that include a specialty metal component, unless that metal is melted or produced in the United States.  This same prohibition has long applied to aircraft, missile and space systems, ships, and ammunition, but if enacted, this provision could mean further expansion of this sourcing requirement and suppliers to DoD contractors could see additional sourcing requirements flowed down. 
  • Expanding Coverage of Berry Amendment:  Several provisions of the FY 2024 NDAA would expand coverage of the “Berry Amendment”—a longstanding domestic preference statute that requires DoD to buy certain items, like tools, food, and clothing, from American sources—signaling an ongoing openness among lawmakers to support efforts from domestic manufacturers to ensure their products are covered by domestic preference laws.  For instance, House Section 367 requires DoD to make recommendations to Congress on how to ensure that boots worn by members of the armed forces are compliant with the Berry Amendment.  Similarly, House Section 841 would require full Berry Amendment compliance (domestic production) for flags of the United States acquired by DoD.
  • Modification of Definition of Domestic Source for Title III of Defense Production Act of 1950:  Senate Section 1080 would include business concerns in Australia and the United Kingdom in the definition of “domestic source” under title III of the Defense Production Act of 1950 (“DPA”), but only in cases in which production and deliveries or services essential to the national defense cannot be fully addressed by U.S. and Canadian business concerns.  Title III permits the President to provide funding, purchase commitments, loans or loan guarantees to a contactor or subcontractor to create, maintain, protect, expand or restore domestic industrial base capabilities critical to DoD, mitigate industrial base shortfalls or risks, or reduce reliance on foreign supply chains.  The potential expansion of the pool of domestic sources eligible for such funding could lead to increased opportunities for businesses in allied nations to seek DPA Title III funding in some circumstances.  That said, recent DPA Title III awards have focused on U.S. and not Canadian businesses, so it is unclear the extent to which DoD may be inclined to spread its pool of DPA Title III funds outside the United States, even with broader authority to do so.

Defense contractors, technology providers, life science companies and commercial-item contractors—and those who invest in these companies—should watch this legislation carefully.  Although it is uncertain which of the below provisions will remain in the final FY 2024 NDAA, it is clear that the House and Senate—supported by the White House—are signaling strong support for increasing domestic sourcing requirements.

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Photo of Stephanie Barna Stephanie Barna

Stephanie Barna draws on over three decades of U.S. military and government service to provide advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.

Prior to joining the firm, Stephanie was a senior…

Stephanie Barna draws on over three decades of U.S. military and government service to provide advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.

Prior to joining the firm, Stephanie was a senior leader on Capitol Hill and in the U.S. Department of Defense (DoD). Most recently, she was General Counsel of the Senate Armed Services Committee, where she was responsible for the annual $740 billion National Defense Authorization Act (NDAA). Additionally, she managed the Senate confirmation of three- and four-star military officers and civilians nominated by the President for appointment to senior political positions in DoD and the Department of Energy’s national security nuclear enterprise, and was the Committee’s lead for investigations.

Previously, as a senior executive in the Office of the Army General Counsel, Stephanie served as a legal advisor to three Army Secretaries. In 2014, Secretary of Defense Chuck Hagel appointed her to be the Principal Deputy Assistant Secretary of Defense for Manpower and Reserve Affairs. In that role, she was a principal advisor to the Secretary of Defense on all matters relating to civilian and military personnel, reserve integration, military community and family policy, and Total Force manpower and resources. Stephanie was later appointed by Secretary of Defense Jim Mattis to perform the duties of the Under Secretary of Defense for Personnel and Readiness, responsible for programs and funding of more than $35 billion.

Stephanie was also previously the Deputy General Counsel for Operations and Personnel in the Office of the Army General Counsel. She led a team of senior lawyers in resolving the full spectrum of issues arising from Army wartime operations and the life cycle of Army military and civilian personnel. Stephanie was also a personal advisor to the Army Secretary on his institutional reorganization and business transformation initiatives and acted for the Secretary in investigating irregularities in fielding of the Multiple Launch Rocket System and classified contracts. She also played a key role in a number of high-profile personnel investigations, including the WikiLeaks breach. Prior to her appointment as Deputy, she was Associate Deputy General Counsel (Operations and Personnel) and Acting Deputy General Counsel.

Stephanie is a retired Colonel in the U.S. Army and served in the U.S. Army Judge Advocate General’s Corps as an Assistant to the General Counsel, Office of the Army General Counsel; Deputy Staff Judge Advocate, U.S. Army Special Forces Command (Airborne); Special Assistant to the Assistant Secretary of the Army (Manpower & Reserve Affairs); and General Law Attorney, Administrative Law Division.

Stephanie was selected by the National Academy of Public Administration for inclusion in its 2022 Class of Academy Fellows, in recognition of her years of public administration service and expertise.

Photo of Chanda Brown Chanda Brown

Chanda Brown advises clients on complex national security, defense, regulatory compliance and government contract matters, including bid-protests, size protests, internal investigations and the allocation of government rights in patents. For exporters, she provides guidance to clients regarding the export and import of dual…

Chanda Brown advises clients on complex national security, defense, regulatory compliance and government contract matters, including bid-protests, size protests, internal investigations and the allocation of government rights in patents. For exporters, she provides guidance to clients regarding the export and import of dual use and military products under the Export Administration Regulations and the International Traffic in Arms Regulations. Her work has involved responding to federal agency enforcement actions, assisting with export licensing and registrations, drafting export control plans, conducting product self-classifications and voluntary self-disclosures.

In corporate transactions and public company representations, she performs due diligence in connection with large and small government contractors. In transactions involving acquisitions by non-U.S. companies, she has helped clients navigate complex transactions before the Committee on Foreign Investment in the United States (CFIUS).

Photo of Alexander Hastings Alexander Hastings

Alex Hastings advises clients across a broad range of government contracting issues, including advising clients in transactional matters involving government contractors and assisting defense contractors and pharmaceutical companies in securing and performing government contracts.

Mr. Hastings also advises clients concerning best practices in…

Alex Hastings advises clients across a broad range of government contracting issues, including advising clients in transactional matters involving government contractors and assisting defense contractors and pharmaceutical companies in securing and performing government contracts.

Mr. Hastings also advises clients concerning best practices in e-discovery. He assists in investigations and litigations that involve complex e-discovery issues and has represented clients in matters involving the U.S. Department of Justice, Securities and Exchange Commission and the United States International Trade Commission.

Mr. Hastings’ government contracts experience includes advising clients regarding new developments in regulatory requirements, including the Federal Acquisition Regulation’s (FAR) anti-human trafficking requirements and the FAR and Bayh-Dole Act’s intellectual property provisions. Mr. Hastings also provides due diligence regulatory advice to clients contemplating the acquisition of government contracting entities or assets.

Mr. Hastings’ e-discovery experience includes advising a wide-array of clients on best practices in information governance and document collection and assisting clients develop effective mobile device and document management policies.

Mr. Hastings also maintains an active pro bono practice and routinely writes on issues related to government contracts and e-discovery.

 

Photo of Michele Pearce Michele Pearce

Michele Pearce has wide-ranging experience working on national security issues throughout her two decades of military and government service. She provides advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.
Before joining Covington…

Michele Pearce has wide-ranging experience working on national security issues throughout her two decades of military and government service. She provides advisory and advocacy support and counseling to clients facing policy and political challenges in the aerospace and defense sectors.
Before joining Covington, Michele held several senior staff positions within the Department of Defense (DoD) and Congress. Most recently, she served as General Counsel (Acting) of the Department of the Army, providing legal and policy advice to the Secretary of the Army and other service leadership. In this role, Michele was responsible for legal matters related to modernizing acquisition and contracting practices to meet emerging threats, implementing AI and hypersonic systems, and reforming ethics and diversity and inclusion programs.

Prior to her role in the Army, Michele served as Deputy General Counsel (Legislation) at DoD. She was the principal legal advisor to DoD officials, including the Secretary of Defense, Deputy Secretary of Defense, and General Counsel on matters concerning legislation, investigations, and the Department’s Legislative Review Program, which considers more than 400 legislative proposals annually.

Michele also has significant Capitol Hill experience. She was a Senior Defense Advisor to Senator Susan Collins (R-ME), advising on legal and budgetary matters related to authorizations and appropriations for the Departments of Defense, Homeland Security, and Veterans Affairs. Michele also served as Staff Lead/Counsel on the House Armed Services Committee, where she managed one of the largest subcommittees in Congress with a multi-billion dollar budget focused on operations and maintenance activities across DoD. She also served as Staff Lead of the Oversight and Investigations Subcommittee and as Counsel and Professional Staff of the Military Personnel Subcommittee.

Michele also previously served as an Advisor to Andrew Effron, Chief Judge of the U.S. Court of Appeals for the Armed Forces; Military Assistant to the Secretary of the Air Force; Associate Deputy General Counsel for Personnel and Health Policy at DoD; and as an Air Force Judge Advocate General.