This post was written by Stephanie Giese.

The passage of the Weapon Systems Acquisition Reform Act of 2009 (“WSARA”) signed into Public Law 111-23 on May 22, 2009, and most notably the Organizational Conflict of Interest (“OCI”) provisions of the WSARA, arguably marks the start of the Congress’ tear to reform Department of Defense (“DoD”) contracting.  The reforms required by the WSARA OCI provisions alone have kicked off a restructuring of the defense industry, beginning with major weapon system developers like Northrop Grumman and Lockheed Martin selling their Systems Engineering and Technical Assistance business units – even before DoD promulgates the new OCI regulations implementing the WSARA, which are expected in the fourth quarter of 2010.

Congress’ reform theme is now being carried over to other aspects of DoD contracting in the 2011 National Defense Authorization Act (“2011 NDAA”).  Given the potential dramatic effect of past reforms mandated by the WSARA, defense contractors should understand the impacts of both the House (H.R. 5136) and Senate (S. 3454) versions of the 2011 NDAA, as well as plan to participate in the DoD rulemaking process that will ultimately implement many of the 2011 NDAA reforms.
Here are some of Congress’ latest proposed reforms for defense contractors to watch in the House and Senate versions of the 2011 NDAA:

  • Contractor’s beware—the government may obtain “unlimited rights” to certain contractor technical data developed a private expense.  Among other changes related to technical data, the Senate proposes granting the government unlimited rights in technical data developed “without significant contribution by a contractor or subcontractor”.  “Without significant contribution” is not defined in the bill, but this proposed change would certainly expand the government’s unlimited rights to certain data funded, in part, at the contractor’s expense.
  • Reform regarding government review of contractor business systems may increase compliance costs and delay payments to contractors.  For contractors subject to the Cost Accounting Standards, the Senate proposes that a “significant defect” in a contractor’s business system, which is one that undermines the reliability of the data produced by that system, is grounds for the DoD to withhold up to 10% of payments due to a contractor.  Business systems that may be reviewed by DoD include accounting systems, estimating systems, purchasing systems, earned value management systems, material management and accounting systems, and property management systems.
  • DoD evaluation of contractor proposals may be limited to “best cost” to the government rather than “best value” to the government in the future.  The House proposes modifying current law to require DoD to weight cost or price at least equal to or greater than all other evaluation criteria in a government competitive source selection.  This would severely limit the DoD’s ability to conduct a best value evaluation of contractor proposals, including for procurements where contractor innovation is required such as in research and development contracts, and would essentially require the DoD to award to the lowest priced offeror for all its procurements.
  • Due process lacking for defense contractors and subcontractors that supply cybersecurity products and services, information technology, and national security systems to the DoD.  Such DoD contractors should be aware that, in the name of reducing supply chain risk, the Senate intends to grant the head of a procuring agency, on the basis of a joint recommendation by the Director of the Defense Intelligence Agency and the Assistant Secretary of Defense for Networks and Information Integration, the authority to exclude a particular source from competing for a DoD contract on grounds that the supplier presents an unacceptable supply chain risk.  The bill does not require the DoD to allow the supplier to mitigate the risk before excluding the supplier.  For additional discussion of current cybersecurity issues facing DoD, please see the Reed Smith article, “Cloud Computing—The Key Risks and Rewards for Federal Government Contractors.”
  • The U.S. space industrial base may get a boost from additional federal government investment.  The Senate proposes requiring the Secretary of Defense, in consultation with the National Aeronautics and Space Administration (“NASA”), to take steps to preserve the industrial base for liquid rocket propulsion systems and solid rocket motors. I n addition, the House proposes directing the Secretary of Defense and the Director of National Intelligence to jointly establish a national security space architecture to guide and coordinate each agency’s long-term investment in the space industrial base.
  • Reminder that defense contractors, with the exception of weapon system developers, may soon be required to go “green” to compete for DoD contracts.  As currently drafted, the Senate bill requires DoD to report its progress to Congress in complying with Executive Order 13514 of October 5, 2009 which requires the head of a procuring agency to “advance sustainable acquisition to ensure that 95 percent of new contract actions including task and delivery orders, for products and services with the exception of acquisition of weapon systems, are energy-efficient (Energy Star or Federal Energy Management Program (FEMP) designated), water-efficient, biobased, environmentally preferable (e.g., Electronic Product Environmental Assessment Tool (EPEAT) certified), non-ozone depleting, contain recycled content, or are non-toxic or less toxic alternatives, where such products and services meet agency performance requirements.”

Industry’s Acquisition Reform Working Group provided its recommendations and concerns regarding the 2011 NDAA to the House and Senate Armed Services Committees on July 28, 2010.