Key Developments in the FY 2021 National Defense Authorization Act

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By: Cynthia J. RobertsonDavid B. Robbins, and Noah B. Bleicher

Jenner & Block’s Government Contracts Practice is pleased to highlight key components of the William M. (Mac) Thornberry National Defense Authorization Act (NDAA) for Fiscal Year 2021 (FY 21). This annual legislation—filled with thousands of provisions—provides a roadmap of acquisition policies that will drive future regulatory changes for government contractors of all types, sizes, and customer bases. 

Perennial topics, including cybersecurity, foreign influence, domestic sourcing, data rights, Other Transaction Authority (OTA), commercial item contracting, ethics, and small business participation continue to dominate. Joining these subjects are newer topics, including expediting US Space Force acquisition.

We highlight some of the key developments and offer guidance on what contractors should anticipate in the coming months and years. We will be closely tracking the reports to Congress and anticipated regulatory changes. Should you have questions on these or any other NDAA developments, we welcome your outreach.

Cybersecurity / IT Development

Perhaps more than any other subject area, the NDAA contains a vast number of cybersecurity provisions. The legislation adopts numerous recommendations from the reauthorized Cyberspace Solarium Commission, which described the FY 21 NDAA as “the most comprehensive and forward-looking piece of national cybersecurity legislation in the nation’s history.” Key recommendations include developing cyber leadership roles reporting to the White House and better coordination of cybersecurity between federal, state, the private sector, and international stakeholders. Below we highlight other cyber provisions of interest.

Sec. 835: Balancing Security and Innovation in Software Development and Acquisition

  • Addresses concern regarding software developed or produced by adversary nations.
  • Directs DoD to create a “software pathway” to allow software to be delivered in a timely and secure manner.

Sec. 837: Safeguarding Defense-Sensitive United States Intellectual Property, Technology, and Other Data and Information

  • Requires DoD to establish, enforce, and track actions to protect defense-sensitive US intellectual property, including hardware and software, from acquisition by China.
  • Requires DoD to generate a list of critical national security technology and provide for mechanisms to restrict employees or former employees of the defense industrial base from working directly for companies owned or directed by China.

Section 1712: Modification of Requirements Relating to the Strategic Cybersecurity Program and the Evaluation of Cyber Vulnerability of Major Weapons Systems of the Department of Defense (DoD)

  • Requires DoD to develop a plan for each major weapon system to undergo an annual cyber-vulnerabilities assessment and to share lessons learned and best practices from the annual assessment of cyber resiliency of nuclear command and control system.

Section 1716: Subpoena Authority

  • Authorizes DHS’s Cybersecurity and Infrastructure Security Agency (CISA) to issue administrative subpoenas upon detection of security vulnerabilities and to notify public and private system owners.

Section 1722: Assessing Risk to National Security of Quantum Computing

  • Requires DoD to complete an assessment of the current and potential threats and risks posed by quantum computing technologies to critical national security systems, including an assessment of NIST standards.

Section 9005: Government Accountability Office (GAO) Study of Cybersecurity Insurance 

  • Requires GAO to study methods to improve the market for cybersecurity insurance.

Foreign Influence

Sec. 819: Modifications to Mitigating Risks Related to Foreign Ownership, Control, or Influence (FOCI) of Department of Defense Contractors and Subcontractors

  • Adjusts the analytical framework to mitigate FOCI by adding an additional proactive, government-driven assessment.
  • Requires reports and examinations on a “periodic basis” of covered contractors or subcontractors to assess compliance with FOCI reporting and mitigation obligations.

Domestic Sourcing of Strategic and Critical Materials

Sec. 848: Supply of Strategic and Critical Materials for the Department of Defense

  • Requires, to maximum extent practicable, acquisition of strategic and critical materials from US sources, then from sources within the national technology and industrial base, then other sources.

Sec. 849: Analyses of Certain Activities for Action to Address Sourcing and Industrial Capacity

  • Requires DoD to assess national security industry sectors, including microelectronics and pharmaceutical ingredients, to determine how to increase domestic industrial capacity.
  • Contractors can expect DoD to explore ways to entice critical technology industries to move production to the United States, with recommendations likely in future NDAAs.

Sec. 851: Report on Strategic and Critical Materials

  • Directs DoD to issue a report on supply chain vulnerabilities related to the acquisition of rare earth minerals and metals.

Sec. 852: Report on Aluminum Refining, Processing, and Manufacturing

  • Rejects a proposal for required domestic sourcing of aluminum.
  • Requires DoD to report to Congress on how to increase incentives for domestic aluminum production.

Data Rights 

Sec. 804: Implementation of Modular Open Systems Approaches

  • Increases emphasis on modular open systems for weapons systems, including for cybersecurity systems, to more easily enable competition for upgrades and sustainment.
  • Continues DoD’s interest in obtaining data rights that will facilitate the replacement, enhancement, and maintainence of parts over the life cycle of products and systems.

Space Force

Sec. 807: Space System Acquisition and the Adaptive Acquisition Framework

  • Describes, in detail, expedited acquisition processes and responsibilities affecting major defense acquisition programs for the United States Space Force.
  • Sets goal of quickly and effectively acquiring end-to-end space warfighting capabilities to address requirements of national defense strategy.

Other Transaction Authority

Sec. 831: Contract Authority for Development and Demonstration of Initial or Additional Prototype Units

  • Directs DoD to assess authorities designed to streamline the process for moving prototype technologies into production under the same contract as the technology is matured.
  • Requires DoD to issue a report on this topic by March 31, 2021, potentially enabling regulatory action later this year depending upon that report’s findings.

Sec. 833: Listing of Other Transaction Authority Consortia

  • Ensures greater scrutiny of OTAs issued by consortia.
  • Requires a report to Congress by December 1, 2021 that assesses:
    • The number and dollar value of other transaction awards through consortia;
    • The benefits and challenges of using consortia;
    • A comparison of DoD’s use of consortia compared to other Federal agencies; and
    • Any other matters the Comptroller General determines to be appropriate.

Contractor Business Systems 

Sec. 806: Definition of Material Weakness for Contractor Business Systems

  • Revises and defines terminology for the evaluation of contractor business systems to better align with generally accepted auditing standards.
  • “Significant deficiencies” will be deemed “material weaknesses,” and defined as one or more deficiencies that causes a reasonable possibility of material misstatement.
  • “Reasonable possibility” will mean “probable” or “more than remote but less than likely.”

Commercial Contracting

Sec. 816: Documentation Pertaining to Commercial Item Determinations

  • Ensures better documentation of prior commercial item determinations, which may be relied upon for future contracts.
  • Allows the contracting officer to request assistance in commercial determinations, including from DoD’s Commercial Items Group within DCMA, and requires the contracting officer to document determinations.

Ethics Provisions

Sec. 883: Prohibition on Awarding of Contracts to Contractors that Require Nondisclosure Agreements Relating to Waste, Fraud, or Abuse

  • Requires representations that nondisclosure agreements relating to fraud, waste, and abuse are not used.
  • Similar to FAR 52.203-19, prohibits award of contracts to contractors that require such agreements.

Sec. 885: Disclosure of Beneficial Owners in Database for Federal Agency Contract and Grant Officers

  • Requires disclosure of beneficial ownership of contractors and grant recipients.

Small Business 

Sec. 815: Prompt Payment of Contractors 

  • Strengthens DoD’s goal to pay small business contractors within 15 days of receipt of an invoice.
  • Intends to improve small businesses' ability to continue to do business in the federal marketplace, especially during economic downturns.

Sec. 862: Transfer of Verification of Small Business Concerns Owned and Controlled by Veterans or Service-Disabled Veterans to the Small Business Administration (SBA)

  • Transfers the function of certifying Service Disabled Veteran Owned Small Businesses (SDVOSBs) and Veteran Owned Small Businesses (VOSBs) from the Department of Veterans Affairs to the SBA.
  • Phases out self-certification of SDVOSBs.
  • Seeks to harmonize within 2 years the SDVOSB and VOSB contracting programs with other small business contracting programs administered by SBA.

Section 863: Employment Size Standard Requirements for Small Business Concerns

  • Extends from 12 months to 24 months the time period to which an agency must refer when categorizing a manufacturer as a small business based on its average employment.

Section 868: Past Performance Ratings of Certain Small Business Concerns

  • Requires contracting officers to consider a small business concern’s past performance in a joint venture or as a first-tier subcontractor when evaluating the small business concern’s offer for a prime contract.
  • Once implemented, a prime contractor will be required to provide a small business first tier subcontractor a “record of past performance” upon request by the small business.

Section 869: Extension of Participation in 8(a) Program

  • Allows small businesses participating in the section 8(a) business development program (on or before September 9, 2020) to extend their participation in the 8(a) program for an additional year.

Bid Protests

Section 886: Repeal of Pilot Program on Payment of Costs for Denied Government Accountability Office Bid Protests

  • Repeals the pilot program established in the FY 2018 NDAA that explored the effectiveness of requiring contractors with revenues in excess of $250 million to reimburse DoD for costs incurred in defending against bid protests denied by GAO.

Contract Types / Other Matters

Sec. 888: Revision to Requirement to Use Firm Fixed-Price Contracts for Foreign Military Sales (FMS)

  • Repeals default requirement for firm fixed-price contracts for FMS sales established by FY 2017 NDAA.

Sec. 890: Identification of Certain Contracts Relating to Construction or Maintenance of a Border Wall

  • Requires disclosure of any contracts (including task orders) more than $7 million relating to construction or maintenance of the US / Mexico border wall.

Section 891: Waivers of Certain Conditions for Progress Payments Under Certain Contracts During the COVID-19 National Emergency

  • To support increased cash flow, DoD may temporarily increase the progress payment rate for undefinitized contract actions during the COVID-19 national emergency.
  • Institutes conditions to the waiver pertaining to companies’ receipt of progress payments under contracts.
  • Directs a report by September 30, 2021 on how increasing rate of progress payments from 80 percent to 95 percent has benefitted subcontractors and suppliers.

Small Businesses in the 8(a) Program Get Another Year of Eligibility to Make Up for Pandemic Disruption

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By: Matthew L. Haws and Scott E. Whitman

Congress has been focused on ensuring that small businesses in the 8(a) program receive extra time to make up for disruption from the COVID-19 pandemic. To that end, Congress included language in both the 2021 Consolidated Appropriations Act (CAA) and 2021 National Defense Authorization Act to provide one year of extended eligibility to companies who were 8(a) participants “as of” September 9, 2020. These acts required the Small Business Administration (SBA) to implement that mandate within 15 days of enactment. The CAA was signed on December 27, 2020, and SBA issued an interim final rule—with immediate effect—on January 13, 2021. This interim final rule provides important clarity on the extension of eligibility. Here are the details:

  • Any company participating in the 8(a) program between the dates of March 13, 2020 (the date of the pandemic disaster declaration) and September 9, 2020 (the “as of” date in the statutes) is eligible to extend its participation for one year from the end of its program. This eligibility exists regardless of whether the company elected to voluntarily suspend its program participation as a result of the President’s disaster declaration on March 13, 2020.

    • The two acts specified an “as of” date of September 9, 2020. The SBA added a start date, using the date of the disaster declaration: March 13, 2020. SBA stated that it sought to include any firms participating in the program as of the date of the national disaster declaration based on its “understanding that Congress extended the term of participation in the 8(a) BD [Business Development] program because it believed that the pandemic has adversely affected 8(a) concerns and their ability to participate in and receive the full benefits of the program.”

  • The period of extension will be added to the end of a company’s transitional stage in the 8(a) BD program. Thus, the company will receive the additional benefits of the transitional stage and also must meet the same 50 percent non-8(a) business activity target that applies to program year nine.

  • A firm that was participating in the 8(a) BD program as of March 13, 2020, but graduated or otherwise left the program before January 13, 2021 must notify SBA of its intent to be readmitted for an additional year. SBA must receive the request no later than March 15, 2021, and the company must certify that it continues to meet applicable 8(a) eligibility requirements.

  • This extension does not apply to business concerns that graduated from or otherwise left the 8(a) BD program prior to March 13, 2020, or to business concerns that were admitted to the 8(a) BD program after September 9, 2020. In addition, the extension does not apply to companies in the 8(a) BD program between March 13, 2020 and September 9, 2020 that were terminated, early graduated, or voluntarily withdrew from the program in lieu of being terminated or early graduated.

This one year extension provides an important benefit to 8(a) firms. SBA notes that the additional year of eligibility will benefit approximately 4,150 8(a) firms during the course of the next ten years.

Government Data Rights: Defense Contractors May Use Custom Markings to Signal Rights against Third Parties

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By: Steven R. Englund and Grant B. Schweikert

In the final days of 2020, the US Court of Appeals for the Federal Circuit decided a case providing defense contractors a tool to enhance protection of their technical data (such as specifications and drawings) and computer software when delivering them to the government by including markings asserting rights against third parties not acting under the government’s authority.

Sophisticated government contractors regularly look for strategies to protect the “secret sauce” of their technologies from disclosure to and use by competitors. The standard “data rights” clauses included in most government contracts provide various options for doing so, but those clauses also provide that the government will receive “unlimited rights” to certain types of technical data and computer software. However, even when the government receives unlimited rights (a very broad license), the contractor generally retains ownership of the underlying intellectual property rights and potentially the ability to enforce those rights against third parties who are not acting under color of the government’s license.

The issue before the Federal Circuit in Boeing Co. v. Secretary of the Air Force stemmed from Boeing’s use on technical data delivered to the government of a restrictive legend not authorized by the Defense FAR Supplement (DFARS) to restrict third party use of technical data in which the government had unlimited rights. Boeing Co. v. Secretary of the Air Force, No. 2019-2147 (Fed. Cir. Dec. 21, 2020). The court held that use of such a legend is consistent with the standard DFARS data rights clause, so long as the legend does not restrict the rights of the government.

As background, DFARS 227.7103 and DFARS 227.7203 establish five types of government licenses for noncommercial technical data and computer software: (1) unlimited rights; (2) government purpose rights; (3) limited rights (for technical data); (4) restricted rights (for computer software); and (5) specifically negotiated license rights. The parallel clauses at DFARS 252.227-7013 and DFARS 252.227-7014 are generally incorporated into defense contracts to address the contractor’s and the government’s respective rights in noncommercial technical data and computer software. Paragraph (f) of these clauses contains specific instructions for contractors to mark qualifying technical data and computer software to provide the government less than unlimited rights. Those instructions include specific markings corresponding to each of the license types other than unlimited rights. Other provisions address removal and correction of nonconforming markings.

When Boeing was required to deliver technical data to the government with unlimited rights, it had a longstanding practice of marking that data with what it called a “Non-U.S. Government Notice” claiming the data as proprietary and advising that non-governmental entities may use and disclose the data only as authorized by Boeing or the government. Eventually, a contracting officer rejected technical data marked with that legend, finding it nonconforming because it is not one of the legends specifically authorized by DFARS 252.227-7013.

Boeing’s argument on appeal to the Armed Services Board of Contract Appeals, and later to the Federal Circuit, was based on the specific language of DFARS 252.227-7013(f), which states that the authorized legends are to be used when a contractor wishes to assert “restrictions on the Government’s rights to use, modify, reproduce, release, perform, display, or disclose technical data” (emphasis added). Specifically, Boeing argued that because its legend did not restrict the Government’s rights, but rather the rights of third parties, DFARS 252.227-7013(f) did not provide a basis for the government to object to its marking. 

While the Board upheld the contracting officer’s decision, the Federal Circuit agreed with Boeing, finding that “the plain language of Subsection 7013(f) demonstrates that it applies only in situations when a contractor seeks to assert restrictions on the government’s rights.” The court noted that this conclusion had “the added benefit” of allowing Boeing “to notify the public of its ownership” of the relevant technical data. Although the Court agreed with Boeing’s legal argument concerning the interpretation of DFARS 252.227-7013(f), it declined to opine on whether the specific text of Boeing’s legend actually did restrict the Government’s rights. That question, the Court decided, was a question of fact that must be determined by the Board on remand.

While the court’s decision concerned interpretation of the technical data provisions in DFARS 252.227-7013(f), it would seem to apply with equal force to the parallel provisions for computer software in DFARS 252.227-7014(f).

In view of the decision, it makes sense for defense contractors to consider using a restrictive legend to notify third parties of their claims to ownership when delivering technical data or computer software to the government with unlimited rights. While such a legend may not create any substantive rights against third parties, it would at least serve as a reminder to competitors that certain uses of the data may implicate enforceable intellectual property rights and have an in terrorem effect.  

Jenner & Block lawyers stand ready to assist contractors in protecting their intellectual property rights while complying with this complex regulatory regime. 

Government Contractors Obtain Relief in More than Half of GAO Bid Protests

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By: Noah B. Bleicher and Carla J. Weiss

In late December, the Government Accountability Office (GAO) published its Bid Protest Annual Report to Congress for Fiscal Year 2020. The statutorily mandated report contains an array of information about GAO’s bid protest forum over the prior fiscal year, including the most prevalent reasons GAO sustained protests along with a variety of statistical data.

Most notably, GAO reports an “Effectiveness Rate” of 51% for fiscal year 2020, which is the highest rate since GAO began reporting this metric in 2001. The Effectiveness Rate reflects the percentage of protest matters in which the protester obtained some form of relief, either due to voluntary agency corrective action or a GAO decision sustaining the protest. In other words, in more than half of the cases GAO resolved in fiscal year 2020, the bid protest forum was an effective avenue for the protester.

The Annual Report further highlights that last year 2,149 protests, cost claims, and requests for reconsideration were filed; 545 cases were resolved on the merits; and GAO sustained 15% of the merits cases. While GAO only held a hearing in nine cases—likely due to the coronavirus pandemic—GAO used alternative dispute resolution (ADR) in 124 protest matters, a 210% increase over the prior fiscal year. For more on ADR at GAO, please review our recent article on the topic published by Law360.

GAO reports that the most prevalent reasons for sustaining bid protests during fiscal year 2020 were: (1) unreasonable technical evaluation; (2) flawed solicitation; (3) unreasonable cost or price evaluation; and (4) unreasonable past performance evaluation. This is the first time GAO cited improprieties in solicitations as a frequent basis for sustaining protests. It is also noteworthy that flawed selection decision, unequal treatment, and inadequate documentation of the record did not make the list this year despite being popular bases for sustain decisions during the past several years.

Jenner & Block’s Government Contracts lawyers have extensive bid protest experience, including prior service as a supervising bid protest hearing officer at GAO, and stand ready to support any challenges to the award of a government contract or the terms of a government solicitation.

The Government Contracts Legal Round-Up | Episode 4

In this episode, Partners Marc A. Van Allen and David B. Robbins examine the new, and controversial, “Divisive Concepts” executive order prohibiting workplace training materials “teaching that men and members of certain races, as well as our most vulnerable institutions, are inherently sexist and racist.” The hosts also discuss recent case law updates and defective pricing trends.


The Government Contracts Legal Round-Up | Episode 3

In this episode, Partner Marc A. Van Allen and Special Counsel Carla J. Weiss examine an upcoming interim rule on certain Chinese telecommunication companies that will become effective next month. They also share developments about Section 3610 reimbursements offered by the CARES Act, as well as discuss the Peraton Inc. bid protest decision and recent fraud cases.


The Government Contracts Legal Round-Up | Episode 2

In this episode, Partners David B. Robbins and Marc A. Van Allen examine a recent US Government Accountability Office (GAO) report. They cover topics with potentially far-reaching impacts for government contractors, including small business subcontracting plans and an interim rule on certain Chinese telecommunication companies. The hosts also welcome Special Counsel Noah B. Bleicher to discuss recent decisions exploring the GAO’s bid protest jurisdiction.