The Department of Defense is seeking early input on implementation of the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 (the “FY2023 NDAA”) in the Federal Acquisition Regulation and Defense Federal Acquisition Regulation. Although this early engagement process will not replace the formal rulemaking process, it presents a significant opportunity for government contractors, technology providers, industry associations, and other interested parties to provide their perspectives on acquisition-related provisions of this year’s NDAA. Providing early input can ensure that industry’s perspective is heard. Indeed, providing input at this stage may impact the future rulemaking process by guiding areas of focus and influencing ways the rule makers ask for input during the rulemaking process.
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Defense Industry
NDAA Prohibits Government Purchase and Use of Certain Semiconductors
On December 23, 2022, President Biden signed the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 into law. The Act contains two significant prohibitions regarding the procurement and use of semiconductor products and services from specific Chinese companies and other foreign countries of concern that will come into effect in December 2027. …
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New Contractor Conflict of Interest Rules May Be Coming Soon, with a Special Focus on Consulting and Advisory Contracts
In legislation passed last week, Congress directed the FAR Council to issue new rules for contractor organizational conflicts of interest. The legislation itself did not create any new OCI standards, but provided factors for the council to consider, focusing on conflicts of interest for companies that act as consultants to the government.
It is unclear at this point what the precise nature and extent of the resulting changes to the OCI rules may be. But the new law makes it likely that there will be some fairly significant revisions. Congress set a deadline of Summer 2024 for the new regulations, so the contracting community should be on the lookout for a notice of proposed rulemaking in the coming months, and should not hesitate to submit comments for the government’s consideration.…
Congress Offers Greater Hope for Defense Contractors Battling Inflation; Actual Relief Is Still Not Clear
By Scott A. Freling, Evan R. Sherwood & Paul Rowley on
Posted in Defense Industry
As part of the FY23 National Defense Authorization Act (“NDAA”), Congress has given the Department of Defense authority to pay defense contractors for increased costs due to inflation. Section 822 of the NDAA amends Public Law 85-804 (50 U.S.C. 1431) to allow contractors to apply for adjustments, while also giving the DoD wide discretion to grant or deny requests. President Biden is expected to sign the FY23 NDAA soon, and Section 822 has the potential to be welcome news for contractors who have been battling inflation under multi-year, fixed-price contracts.
As readers of this blog know from prior posts, DoD has issued position papers over the last year that attempt to address inflation with existing legal tools, but as a practical matter, the Department has provided few options for contractors impacted by rising costs. The new NDAA provision could finally provide DoD with the legal support it needs to aid contractors struggling with inflation. However, many questions remain about how this law will work and whether it will actually meet the growing needs of the defense industrial base. In particular, Congress has not yet appropriated money to fund applications for relief, and DoD must prepare guidance for implementing the statute. Both of these things will need to happen before contractors can apply for and potentially receive inflation-based price adjustments under this amended Public Law 85-804 authority.
This post discusses the amendment and analyzes the hurdles that remain between defense contractors and inflationary relief.…
DoD Releases Updated Guidance for Firm-Fixed-Price Contractors Grappling with Inflation
With continued inflation putting pressure on the defense supply chain, the Department of Defense (“DoD”) has released guidance encouraging contracting officers to provide mutually agreeable relief to fixed-price contractors facing untenable costs.
DoD’s guidance, dated September 9, 2022 and available at the link here, follows a similar guidance earlier this summer which recommended that contracting officers consider including economic price adjustment clauses in new solicitations. We previously wrote about that guidance here.…
New DFARS Clauses Require Defense Contractors to Disclose Work Performed in China
On August 25, 2022, the Department of Defense (“DOD”) published — with immediate effect — two new Defense Federal Acquisition Regulation Supplement (“DFARS”) clauses requiring defense prime contractors and subcontractors disclose any work in China on certain DOD contracts. Under the interim rule, the DOD is prohibited from awarding or extending certain new contracts if a contractor fails to disclose its use of workers in China in performance of a covered DOD contract. Although there is no prohibition on DOD awarding a covered contract to an entity that makes a disclosure, the Department can rely on a variety of authorities to exclude certain contractors and products that represent supply chain risks, especially if the products or services involve information technology.…
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Department of Defense Debarment Enjoined Due to Procedural Missteps
By Michael Wagner, Frederic Levy & Michael Pierce on
Posted in Defense Industry, Suspension and Debarment
The Eastern District of New York has enjoined a New York contractor’s federal debarment, in a rebuke of agency debarment actions that fail to honor contractors’ procedural rights. On July 8, 2022, part supplier Precision Metals Corporation (“Precision”) was granted a Temporary Restraining Order (“TRO”) vacating and setting aside a Defense Logistics Agency (“DLA”) debarment and enjoining debarment while court proceedings are pending. The decision, which emphasizes two procedural violations, serves as a reminder that an agency’s authority to debar contractors is not unlimited, and that it must strictly adhere to the rights granted contractors before taking action. Each procedural violation, and its practical implications, is discussed below.…
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DoD Releases Guidance on Inflation and Economic Price Adjustments for Fixed-Price Contracts
In response to industry-wide questions about price adjustments for economic inflation, the Department of Defense (DoD) has released guidance about when and how contracting officers may provide financial relief to contractors working on fixed-price contracts. The guidance generally discourages contracting officers from granting adjustments under the Changes clause due solely to inflation. But it does not completely close the door to adjustments, and it offers modest options for fixed-price contracts that contain an economic price adjustment clause. Moreover, DoD encourages contracting officers to consider inserting economic price adjustment clauses in new solicitations.
This blog post summarizes DoD’s guidance, explains the mechanics of economic price adjustment clauses, and offers views about evaluating other grounds for relief.…
March 2022 Developments Under President Biden’s Cybersecurity Executive Order
This is the eleventh in a series of Covington blogs on implementation of Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”). The first blog summarized the Cyber EO’s key provisions and timelines, and the second through tenth blogs described the actions taken by various Government agencies to implement the EO from June 2021 through February 2022, respectively. This blog summarizes key actions taken to implement the Cyber EO during March 2022. As with steps taken during prior months, the actions described below reflect the implementation of the EO within the Government. However, these activities portend further actions, potentially in or before June 2022, that are likely to impact government contractors, particularly those who provide software products or services to the Government.
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Covington Primer on Foreign Military Sales and Financing
By Nooree Lee & Frederic Levy on
Posted in Defense Industry, FMS and DCS
Given the growing attention in U.S. military assistance to foreign allies and the applicable ground rules, Covington has prepared a primer to understanding the basics of foreign military sales, foreign military financing, and direct commercial sales. Covington features a multi-disciplinary team of government contracts, export controls, anticorruption, and corporate attorneys with experience in foreign military…