2014 House NDAA Continues Procurement Tinkering

by Steve Charles, Co-founder and Executive Vice President

As it does every year, Congress passes procurement law changes in the National Defense Authorization Act (NDAA). This year is no different.

So what’s in store for 2014? It’s too early to say with certainty, because while the House has passed its version, the Senate is still cogitating. One thing we do know: The Senate, House, and White House all agree, within a billion dollars or so, on the level of Defense spending next year. Strangely, none of them take into account sequestration, which is still the law of the land under the Budget Control Act. It’s likely your customers are scratching their heads too, and that means extra sales resistance in store for 2014 until buyers know exactly what their spending authority will be. In the meantime, provide your customers with the information they need to complete perfect purchase requests so when the money drops, orders flow.

When it comes to procurement, we don’t see the sweeping changes of the last couple of NDAAs, but the 2014 bill is not absent of them, either.

Here are key highlights from the House Armed Service Committee’s bill, H.R. 1960, that would affect proposals and dealings with DOD customers:

• The bill would exclude the salaries of some contractors’ top five earners as allowable expenses on DOD cost-reimbursement contracts, but not lower the rest of them nor cap them at $400 thousand, as the White House would like to do. The bill leaves the current cap of $763,029 (inflation adjusted) in place and changes the list of possible exceptions just from scientists and engineers to “narrowly targeted” ones “in the science, technology, engineering, mathematics, medical and manufacturing fields.” Significantly, the provision now covers contractors who received more than $500 million during the previous fiscal year. (Imagine the cost accounting challenges for contractors at the edges of this proposed threshold!)
• Section 816 revamps bid evaluation by requiring that prices receive importance at least equal to technical (or other) criteria when evaluating proposals. This is a subtle but important change deep in the language of the U.S.Code Title 10 ((a)(3)(A)(ii) to be precise). The bill would require the head of the buying agency to sign off on any deviation from the increased emphasis on price, and issue a report on the allowed exceptions every year.
• Sections 811 and 812 amends Section 818 of the 2012 NDAA written to prevent counterfeit electronic parts from entering the DoD supply chain. The proposed Section 811 emphasizes “electronics” seemingly broadening the scope of counterfeit concerns beyond “electronic parts” while Section 812 would limit contractor liability when government requirements include obsolete parts no longer available from the Original Equipment Manufacturer (OEM) or its authorized distributors.

Detection and Avoidance of counterfeit electronic parts, while the law since 2012, has yet to be implemented in regulation. What would a DoD-approved system for this purpose look like? Proposed DFARS Case 2012-D055attempts to tackle this and comments are due July 15. One of the key elements requires that DoD and its contractors purchase from an OEM or an OEM authorized distributor/reseller. Check out our new Trusted Supplier program to help minimize the risks from potentially counterfeit or tainted commercial products.

There’s a long way to go before the proposed NDAA provisions become law, and then even more time until they get implemented in regulation. We encourage you to be aware of and track procurement-related statutes and implementing regulations as even small changes can warrant significant changes in go-to-market tactics.