New Year’s Resolutions: Top 5 Consequential Changes in the 2018 NDAA

Adam Proujansky and Ioana Cristei

The National Defense Authorization Act (“NDAA”) for Fiscal Year 2018 was signed into law on December 12, 2017, and authorizes a topline national defense budget of $700 billion. While the 2018 NDAA makes a number of changes to Department of Defense (“DOD”) policy and programs, in this article we explain five major changes to acquisition policy and how they will impact the way companies do business with DOD.

1. IP Rights Acquisition and Licensing. A number of important changes to DOD acquisition of intellectual property (“IP”) rights will take effect in 2018.

First, section 835 requires DOD to identify the technical data to be delivered under an engineering and manufacturing development of a major weapons system contract, and negotiate a price for that data up front. Congress hopes that with this change, agencies won’t have to negotiate prices during performance, and that they won’t seek rights to more extensive data than is necessary.

DOD will need to begin complying with this requirement by December 2018. The NDAA gives no additional instruction as to a required negotiation process, so contractors could end up spending additional time and money on the front end of contract award depending on the eventual DOD guidance.

Second, section 871 requires DOD, when negotiating for the acquisition of noncommercial computer software, which is licensed to or developed for the government and not licensed to the public, to consider obtaining at a minimum all of the software and related materials necessary to: 1) reproduce, build, or recompile the software from original source code and required libraries; 2) conduct required computer software testing; and 3) deploy working computer software system binary files on relevant system hardware. Section 871 also requires that computer software be delivered in a usable format, not rely on additional software code, and contain enough documentation to support maintenance. Interestingly, DFARS 252.227-7014 already grants the government those rights, though not explicitly. The fact that these requirements are now being enumerated could mean that the government hasn’t been getting the required materials in these types of acquisitions.

Compliance will be required by the middle of next year. This new requirement may require an increase in contractor proposal costs to account for the inclusion of additional materials, and it may be helpful to begin planning for those potential additional costs.

Finally, section 875 implements a new Open Source Software (“OSS”) pilot program. Open Source Software is essentially what it sounds like, software for which the source code is available for use, study, reuse, modification, enhancement, and redistribution by the users of that software. The pilot program will, in effect, transform code that is custom developed for the government into OSS. To do so, the program will have two major requirements: 1) all custom-developed code must be broadly available across the federal government, unless it creates national security or defense risks; and 2) agencies will be required to release at least 20 percent of their custom-developed code to the public as OSS.

This program is set to begin by the middle of next year, and will run for three years. The program will only be a pilot, and may be discontinued after the initial three years, but in the meantime it may reduce ownership rights in software developed for the government, and create the need to increase prices to compensate for that loss of ownership rights.

2. Private Auditors for Incurred Cost Audits. Section 803 requires that qualified private auditors perform “a sufficient number of incurred cost audits” of DOD contracts. Currently, the Defense Contracting Audit Agency (“DCAA”) is required to perform all incurred cost audits for contractors holding flexibly priced contracts to determine whether past costs charged to the government were reasonable and permissible under the contract. This audit must be completed before a contractor can submit its final invoice and receive payment, but in many cases DCAA takes years to complete a single audit. Furthermore, DCAA will not begin an audit until additional documents are received from the contractor if a submission is not deemed “qualified,” meaning that the submitted documents are considered sufficient to conduct an audit, but the determination as to whether a submission is qualified can take years. The combination of these factors has created a significant backlog in audits.

Private auditors are expected to cut down on this backlog. In addition, DCAA must now notify contractors whether their submissions are qualified within 60 days of receiving a submission, and all audits must be completed, or deemed complete, within one year of receipt of a qualified submission, even if the audit isn’t complete.

The program likely won’t get off the ground until late 2019, and even then not much about the incurred cost audit process is likely to change. Private auditors will be required to sign nondisclosure agreements to protect proprietary or nonpublic data, and any breach by a private auditor will entitle the prime or subcontractor to civil actions for damages and other appropriate remedies. Contractors will continue to interact with DCAA, as that agency will handle the logistics of sending audit documents to private auditors.

3. GAO Post-Award Debrief Rights. The most important change to bid protests under the NDAA are the expanded contractor post-award debriefing rights under section 818. Currently, a debriefing is required for procurements under FAR Part 15 and for task and delivery orders exceeding $5.5 million under FAR 16.505(b)(6), subject to certain time limits. Very little information is available to protesters under these “required debriefings,” however. The 2018 NDAA will expand the information available to contractors in a required debriefing. For contracts over $100 million, the agency will be required to produce a redacted copy of its written source selection determination. For awards over $10 million, both unsuccessful and winning offerors will be given a written or oral debriefing. For contracts between $10 and $100 million, where the contractor is a small or nontraditional business, the contractor will have the option of requesting a copy of the written source selection determination.

The debriefing period will also be extended by allowing disappointed offerors to submit related questions within two business days of receiving the debriefing. The agency will then have five days to respond to those questions, at which point the clock will start for the five-day Competition in Contracting Act (“CICA”) stay.

By June 2018, the Secretary of Defense will revise the DFARS to require that all required post-award debriefings include the aforementioned requirements.

4. New Commercial E-Commerce Portals. The NDAA introduces in section 846 commercial e-commerce portals, to be established and administered by the General Services Administration (“GSA”), as a way for DOD agencies, and eventually the entire government, to procure commercial “off-the-shelf” items. The goal is that these portals will essentially be online marketplaces with an assortment of product and supplier reviews, abilities to invoice payment, customer service, and will contain many similarities to portals that are currently widely used in the private sector. Sound familiar? If your immediate thought was “Amazon,” you are not alone.

Although implementation won’t happen until mid-2020, this change is worth noting due to the significant effects it will have on the way the entire federal government purchases commercial items. First, the government may require changes in standard commercial terms and conditions in the context of government requirements. Second, one contractor will provide each portal, and that same contractor may also sell its own products on that portal. This may result in high fees or extra requirements for other contractors that merely wish to use the portal to sell products.

5. Limits on LPTA. In keeping with the DOD trend of moving away from using Lowest Price Technically Acceptable (“LPTA”) as a purchasing method, the 2018 NDAA adds two additional requirements in section 822 that must be met before LPTA can be used as a basis for award. The first is when DOD would realize minimal or no additional innovation or future technological advantage by using a different methodology, and the second is when DOD purchases goods that are “predominantly expendable in nature, nontechnical, or have a short life expectancy or short shelf life.” Furthermore, section 832 provides that DOD will not be allowed to make award decisions using LPTA when entering into a prime contract for the engineering and manufacturing development of a major defense acquisition program. Under the Act, such a program would be one totaling $300 million or more in research and development, or one in which the contract itself totals $1.8 billion in total expenditures.

This change won’t begin to apply until fiscal year 2019, but when it does take effect, it may be useful as an additional ground on which to challenge DOD solicitations.