2023 NDAA Provides New Opportunities for Industry

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The 4400-page 2023 National Defense Authorization Act authorizes $858 billion in total defense spending and contains several provisions that will be of interest to companies across industries that do business with the U.S. government.

Here are some highlights.

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 the Defense Advanced Research Projects Agency’s quantum computing and artificial intelligence programs. The legislation also directs the secretary of defense to provide support for bio-industrial manufacturing facilities to conduct research and development to support national security and secure fragile supply chains.

Semiconductor Prohibition: Beginning five years after the date of enactment, the NDAA prohibits federal agencies from procuring, obtaining, or renewing contracts for any electronic parts, products or services that include “covered semiconductor products or services” — which are those “designed, produced, or provided” by specific Chinese companies: SMIC, CXMT, YMTC, or their subsidiaries. The law also requires the secretary 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 the Defense Department to perform several cybersecurity assessments, including: an assessment of the framework for the cybersecurity of the defense industrial base to determine if alternative or additional courses of action are necessary; and an 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 network.

Federal Risk and Authorization Management Program: The NDAA contains the FedRAMP Authorization Act, which codifies the program. This legislation creates a “presumption of adequacy” that cloud providers with authorization from one agency can use the authorization with other agencies. It also creates the Federal Secure Cloud Advisory Committee to provide recommendations regarding FedRAMP and the acquisition of cloud services.

Supply Chain/Stockpile: The NDAA authorizes $1 billion for the National Defense Stockpile to acquire strategic and critical materials required to meet the defense, industrial and essential civilian needs; directs the National Defense Stockpile manager to submit an annual briefing to Congress on strategic and critical materials shortfalls; requires the department to track the sourcing of contractor-provided rare earth elements and critical materials; and requires the secretary of defense to issue and implement guidance for risk management of the department’s supply chain for pharmaceuticals.

Clean Energy: The NDAA contains provisions aimed at increasing the department’s support for clean energy. For instance, beginning in 2025, non-tactical vehicles purchased or leased by the department 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.

Other Transaction Authorities: 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 OTAs directly — as opposed to partnering with another agency, such as the Defense Department. This reduced contracting burden could increase 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.

National Technology and Industrial Base: The legislation admits New Zealand to the NTIB and requires the Defense Department 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.

Inflation: The NDAA seeks to address inflation through a provision 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 Dec. 31, 2023. However, although the NDAA provides modification authority, the issuance of adjusted price payments remains subject to a specific appropriation. The $1.7 trillion Consolidated Appropriations Act does not appear to include the specific appropriation required. Contractors are unlikely to see relief through this provision.

Being familiar now with these and other new provisions can allow contractors to provide crucial input as the Defense Department and other agencies implement these priorities. ND

Stephanie Barna, Alex Hastings and Michele Pearce are attorneys in the Washington, D.C. office of Covington & Burling LLP.

Topics: Budget, Contracting, Cybersecurity