2019 NDAA Analysis: Enhancing IDIQs and Other Provisions

Over the past several months, this blog has analyzed several key provisions of the Fiscal Year 2019 National Defense Authorization Act (NDAA) that impact government contractors. This post briefly summarizes a variety of other government contracts-related provisions of the FY 2019 NDAA that we have not yet discussed, including several that reflect a congressional intent to enhance the use of multiple-award, indefinite-delivery/indefinite-quantity (IDIQ) contracts and encourage commercial item contracting, several that concern subcontracting and supply-chain considerations, and assorted other issues.

Awarding IDIQ Contracts Without Considering Price to Increase Order-Level Competition.

Section 876 provides a limited exception to the general requirement in 41 U.S.C. § 3306 that agencies must include cost or price to the government as an evaluation factor in evaluating proposals. The exception applies to task-order contracts (i.e., IDIQ contracts) for services that are priced on the basis of hourly rates. Specifically, agencies need not consider price as an evaluation factor for such contracts if:

1. the agency will award a base contract to every "qualifying offeror"—meaning a responsible source whose proposal conforms to solicitation requirements, meets all technical requirements, and is otherwise eligible for award; and
2. the agency will consider cost or price to the government in competitions for individual task orders.

This provision applies to non-defense agencies. Defense agencies had previously been granted a similar exception in the FY 2017 NDAA. See 10 U.S.C. § 2305(a)(3)(C).

Congress's goal, as evidenced by the title to section 876, is "Increasing Competition at the Task Order Level." By awarding base IDIQ contracts to all compliant proposals, without discriminating between them based on price, agencies are likely to have more contract-holders available to compete for specific work at the task-order level. Use of this mechanism should reduce an important barrier to entry to many potential competitors—not holding the necessary IDIQ contract to compete for work solicited under task order solicitations—and, by increasing competition, could result in lower pricing and better technical offerings at the task order level.

Modifying the Limitation on Single-Award IDIQs.

Section 816 also has the potential to impact the degree of competition at the order level under IDIQ contracts. This section modifies 10 U.S.C. § 2304a, a law that authorizes the DoD to use task- and delivery-order contracts (e.g., IDIQs) and prescribes limitations on their use. One of those limitations is designed to ensure that task- and delivery-order contracts are generally awarded to multiple contractors, to allow agencies to conduct competitions for specific pieces of work among the various contract-holders at the order level. Specifically, paragraph (d)(3) of § 2304a prohibits agencies from awarding a task- or delivery-order contract worth more than $100 million to just a single source, unless one of four exceptions exists. (Note: this threshold has been adjusted for inflation to $112 million under FAR 16.504(c)(ii)(D)(1).)

One of those exceptions was, previously, that the agency has determined in writing that "the task or delivery orders expected under the contract are so integrally related that only a single source can reasonably perform the work." The NDAA replaces the word "reasonably" with "efficiently."

The revised statute thus permits the DoD to award task- or delivery-order contracts valued above the threshold to a single source—and preclude competition at the order level—if: "the task or delivery orders expected under the contract are so integrally related that only a single source can efficiently perform the work."

DoD incorporated this change into the DFARS on Dec. 21, 2018. See DFARS 216.504(c)(1)(i).

This change could make it more difficult for the DoD to justify making awards of high-value IDIQ contracts to only a single contractor, thereby further promoting competition at the task- and delivery-order level.

Encouraging Interagency "Assisted Acquisitions."

Section 875 loosens restrictions on interagency acquisitions. These are, in a nutshell, acquisitions conducted by one agency for the benefit of another agency (assisted acquisitions) or acquisitions by one agency directly from another agency (direct acquisitions). In the FY 2008 NDAA, Congress had mandated that the requiring agency must make a determination that an interagency acquisition "is the best procurement alternative." The requirement for such a determination was implemented through FAR 17.502-1(a) in 2010.

Section 875 eliminates the statutory requirement for a determination that the interagency acquisition is the best procurement alternative. On May 6, 2019, the FAR Council followed up by issuing a final rule that deletes FAR 17.502-1(a) from the FAR, effective June 5, 2019. This move could give the government more flexibility to use assisted acquisitions under GSA's Federal Supply Schedules program, government-wide acquisition contracts (GWACs), and other multi-agency contracts. That appears to be the purpose of section 875, which is titled "Promotion of the Use of Government-Wide and Other Interagency Contracts."

Improving Market Research into Commercial Item Availability.

Section 882 mandates a review by DoD of its guidance to contracting officers on performing market research under FAR part 10. Part of Congress's broader effort to increase government's acquisition of commercial items, this section appears to reflect congressional concern that DoD is not adequately conducting market research to determine whether commercial products or services exist to meet agencies' requirements. Notably, section 882 specifically calls for DoD to consider the use of market research from third-party, commercial sources.

Congress's interest in market research into commercial items comes on the heels of a high-profile protest in which the Court of Federal Claims held that the Army violated law by failing to meaningfully consider commercial products before opting for a developmental solution. See Palantir USG, Inc. v. United States, 129 Fed. Cl. 218 (2016), aff'd 904 F.3d 980 (Fed. Cir. 2018).

Requiring Approval to Withhold Consent to Subcontract.

Section 824 makes it more difficult for DoD contracting officers to withhold consent to subcontract when a prime contractor has an approved purchasing system. Typically, the contracting officer's consent to a subcontract is not needed at all when the prime contractor has an approved purchasing system. After all, the decision whether to approve a contractor's purchasing system, in a Contractor Purchasing System Review, involves the same considerations as a contracting officer's consent evaluation for a particular subcontract. See FAR 44.303. But even where the contractor has an approved purchasing system, the contracting officer may specify particular subcontracts or categories of subcontracts that require consent due to their type, complexity, or value, or because "the subcontract needs special surveillance." See FAR 44.201-1(a); FAR 52.244-2.

Congress, it seems, perceives that contracting officers have been overusing this exception. In the NDAA, Congress mandates that DoD contracting officers must obtain the written approval of the program manager before withholding consent. This change has already been implemented through an April 1, 2019 amendment to DFARS 244.201-1.

Restricting the Acquisition of Certain Magnets and Tungsten from North Korea, China, Russia, or Iran.

Section 871 generally prohibits the acquisition of certain "sensitive materials" with military applications—samarium-cobalt magnets, neodymium-iron-boron magnets, tungsten metal powder and tungsten heavy alloy or any component containing it—that have been melted or produced in North Korea, China, Russia, or Iran. It also prohibits the acquisition of any end item that contains such materials manufactured in North Korea, China, Russia, or Iran.

DoD issued an interim rule implementing this section on April 30, 2019, including a new DFARS clause 252.225-7052 (which prohibits the contractor from delivering such materials from those countries to the DoD). According to the DoD, capabilities to process these rare earth metals are currently limited mostly to Chinese sources; this NDAA section is meant to foster a competitive U.S. industry for rare earth magnets and tungsten.

Limiting Foreign Access to Technology.

Section 885 requires DoD to develop a process and procedures for limiting foreign access to technology through contracts, grants, cooperative agreements, or other transactions. The NDAA mandates that DoD produce a report on such process and procedures. The ultimate result of this section could be contract clauses that prohibit access to certain technologies and establish penalties for contractors that allow access. Notably, the report is to include DoD's recommendations for penalties for violations of access—and calls out the possibility that one such penalty will be "intellectual property forfeiture."

Procedures for Large-Value Multiyear Acquisitions.

Section 817 amends 10 U.S.C. § 2306b, which deals with multiyear contracts for the acquisition of property. Section 2306b prohibits DoD from entering a multiyear contract of $500 million or more without specific statutory authorization from Congress and specifies requirements for making such a request, including that it be supported by a cost analysis. The NDAA changes § 2306b to permit DoD to make such a request to Congress on the basis of a preliminary, rather than completed, cost analysis.

Past Performance Information on Subcontractors and Joint Venture Members under Construction and Architect-Engineer Contracts.

Section 823 concerns past performance evaluations, under construction and architect-engineer contracts, of subcontractors and individual partners of joint ventures. It directs the DoD to develop policies to "ensure the best information regarding past performance" of subcontractors and joint venture partners is available to DoD when awarding contracts. These policies shall:

1. require performance evaluations for first-tier subcontractors and individual partners of joint ventures, if they exceed certain thresholds, under construction and architect-engineer contracts; and
2. establish processes to request exceptions from FAR 42.1502(a)'s requirement for annual performance evaluations in circumstances where an annual evaluation "would not provide the best representation of the performance of the contractor" because not enough work has been completed to evaluate the contractor's performance or there is a relevant issue in dispute.

DoD is in the process of drafting a DFARS rule to implement this section; a report on its progress is due May 29, 2019.

Study of Personnel Exchange with Defense Industry.

Section 883 establishes an "integrated review team" to study "the exchange of defense industry personnel on term assignments within the Department of Defense." The goal of the study is to make recommendations on reducing "barriers to industry-government exchange to encourage the flow of acquisition best practices."

The Defense Business Board informed Congress in January that it expects to deliver its report by the end of May 2019.