Eye on Policy

Congress has always managed to pass the National Defense Authorization Act (NDAA) by the end of the calendar year. Policy watchers point to that as an example of congressional success, like a rose popping up in a weed patch, even if it does occur three months into the fiscal year to which the NDAA applies.

Politics this year look more intractable than in previous years. Senate objections to the NDAA passed by the House in late July center on the budget of $1.15 trillion authorized in the House version. That is one reason why, although the Senate Armed Services Committee’s version also supports a top line of $1.15 trillion, a final floor vote failed.

Other issues center on the purported “merging” of the U.S. and Israeli militaries (which the bills do not do) and some senators desire accountability for the Trump administration strategy towards Iran. This all plays out against a backdrop of low Senate action on the appropriations bills themselves. The House committees have voted out all twelve of their 2027 appropriations bills.

It is therefore a certain bet that the government will head for a continuing resolution at the end of September, if not a shutdown. Given the criticality of the mid-term elections, though, neither party will have much appetite for a total lapse in appropriations.

We can only speculate at this point when and how reconciliation and final passage will play out. But if the numbers hold, it behooves both government and contractors to prepare for the opportunities in a $1.15 trillion outlay.

The House went along with most of the administration’s requests. Exceptions include the sea launched cruise missile, for which the administration requested zero, but the House authorized $175 million. A $16 billion dollar request for the Columbia Class submarine program was trimmed to $15.5 billion.

Of equal importance to the dollars, the 2027 NDAAs contain a host of policy and organizational reforms. To name a few:

• In differing ways, the House and Senate both encourage still greater acquisition of commercial items and capabilities.
• The House would redo the Defense Innovation Unit so it is more aligned with acquisition executives of the armed services. The Senate would codify the Science, Technology, and Innovation Board. And, in its own words, “redesignates the Under Secretary of Defense for Personnel and Readiness to the Under Secretary of Defense for Personnel and Health Affairs and establishes the Assistant Secretary of Defense for Housing, Personnel Movement, and Travel Policy.” And it would add a new undersecretary for cyber, information and networks.
• Both, with different language, would strengthen production of certain munitions and supplies, such as rocket motors, spare parts, and rare minerals. The Senate emphasizes giving the military the right to repair equipment instead of living with provisions that require contractors for often-expensive maintenance and repair.
• Both bills would strengthen visibility into supply chains by establishing organizations in DoD dedicated to it.
• Both bills would increase research and development cooperation between the U.S. and Israel. The Senate would also direct the Defense secretary to get together with Germany’s military to co-develop missiles.
• The House would tighten up how the Pentagon uses software open systems so that they are more lifecycle oriented (section 814).

Meanwhile, policy for businesses both large and small continues in flux.

Some sectors are in an uproar over the Senate NDAA’s Section 815. It would bar the Pentagon from buying from companies unless the companies agree—in writing—not to buy their own stock back nor pay dividends to shareholders. Of course, there is a “waiver” process, but the provision is a big move, even for an administration that is anything but lassez-faire. Especially at a time when some of the larger contractors are enjoying great financial results. The Senate move follows an executive order to the same effect the White House issued last January.

The Senate NDAA would have the DoD give grants to small businesses who undertake the expense of compliance with the Cybersecurity Maturity Model Certification (CMMC) program.

One provision did not make it into the House NDAA. It would have repealed reporting of “beneficial ownership information,” or BOI. The reporting mandate for small business was suspended by the Trump administration via executive order. Disappointed supporting industry groups claim the EO has saved members billions of dollars in administrative burden.

The House would, however, potentially make it easier (section 1873) for small businesses to participate in no-bid buys for items to fill supply chain gaps. The bill would establish a pilot program under the Defense Logistics Agency, which supplies non-weapon and non-ammunition materials to the armed services.

The House version includes a number of new policies. Among them, it would:

• Establish a chief acquisition talent manager, under the undersecretary for Acquisition and Sustainment. It would also “establish and maintain a departmentwide acquisition workforce data analytics capability…to support workforce planning and effective performance management” (section 831).
• Lighten the load on portfolio acquisition officers by letting them transfer up to 10% of their authorizations to acquisition officers in individual programs (section 818).
• Update the Federal Acquisition Regulation to account for a new subcategory of consumption-based services that may include hardware and come with fixed prices (section 817).
• Order a top-to-bottom externally conducted audit of Defense audit agencies “to identify opportunities to improve the processes…for auditing, reviewing and surveilling defense contractors, including to streamline” them and see how they stack up to private industry practices (section 806). The adjacent section would have DoD “implement an agile, streamlined risk-based approach to surveillance of contractor business systems.” The idea, again, is to minimize administrative burden and cost, and to create more latitude for contractors to provide their own reports.

As always, there is a lot to read and take in. But in general, the bills support speeding up rearmament, buying from innovative and non-traditional sources, and shoring up the defense industrial base, and modernizing in the age of asymmetric and drone warfare.