Fiscal Year 2020 NDAA Provisions of Interest for Government Contractors

By: John Ford, Senior Consultant, Government Contractor Services Group

The Fiscal Year (“FY”) 2020 National Defense Authorization Act (“NDAA”) became Public law 116-92 on December 20, 2019. As usual, the NDAA contained several sections impacting government contracting. This article will discuss three of those sections.

The first is Section 803, which modifies 10 U.S.C. 2306a(d) that permits the government to obtain other than certified cost or pricing data from a contractor. As previously written, 2306a(d) allowed the government to obtain data other than certified cost or pricing data in cases where certified data were not required, but the contracting officer did not have sufficient information to determine that the price offered was fair and reasonable. If the contracting officer needed such data, the contracting officer was directed to “require that the data submitted include, at a minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement.”

Section 803 clarifies the data concerning previous prices that can be relied upon to determine that a proposed price is fair and reasonable by stating that contracting officers “shall not determine the price of a contract or subcontract to be fair and reasonable based solely on historical prices paid by the Government.” It should be noted that section 803 does not prohibit contracting officers from relying on historical prices paid by the government in making a price reasonableness determination. Instead, it requires the use of prices at which the items or similar items have been sold to customers other than the government.

In addition to clarifying the sales data that can be used in determining whether a proposed price is fair and reasonable, section 803 added new language to 2306a(d) that reads:

In the event the contracting officer is unable to determine proposed prices are fair and reasonable by any other means, an offeror who fails to make a good faith effort to comply with a reasonable request to submit data in accordance with paragraph (1) is ineligible for award unless the head of the contracting activity, or the designee of the head of contracting activity, determines that it is in the best interest of the Government to make the award to that offeror.

Obviously, the mechanics of how this provision is to be enforced need to be worked out. In any event, section 803 will require Federal Acquisition Regulation (“FAR”) 15.403-3, FAR 52.215-20 and 52.215-21 to be amended to accommodate these new requirements. In addition, the guidance in FAR 15.404-1 should also be modified to reflect that historical prices paid by the government cannot be the sole basis upon which a proposed price is considered fair and reasonable.

The next NDAA section that is of potential significance to many of our clients is section 870 which amends the Small Business Act (SB Act”) in regard to the credit a prime contractor can receive toward reaching its small business subcontracting goals. In section 1614 of the FY 2014 NDAA (P.L. 113-66), congress added the following provision to the SB Act concerning compliance with small business subcontracting plans:

For purposes of determining whether or not a prime contractor has attained the percentage goals specified in paragraph (6)–

“(i) if the subcontracting goals pertain only to a single contract with the executive agency, the prime contractor shall receive credit for small business concerns performing as first tier subcontractors or subcontractors at any tier pursuant to the subcontracting plans.

This provision has never been implemented in the FAR although the Small Business Administration (“SBA”) issued a final rule on this topic, which can be found at 13 CFR 125.3, on December 23, 2016. However, FAR Case 2018-003 has been opened to address this change.

Although the changes made by the 2014 NDAA have not been implemented in the FAR, the 2020 NDAA revised section 1614 of the 2014 NDAA so that it now reads:

In general.–For purposes of determining whether or not a prime contractor has attained the percentage goals specified in paragraph (6)–

“(i) if the subcontracting goals pertain only to a single contract with a Federal agency, the prime contractor may elect to receive credit for small business concerns performing as first tier subcontractors or subcontractors at any tier pursuant to the subcontracting plans.

As the highlighted language shows, section 1614 made the credit for the use of lower tier small business subcontractors mandatory, section 870 now makes such credit optional with the prime contractor. The SBA has opened a rule making proceeding to address this revision. As a consequence, the FAR Councils have placed FAR case 2018-003 on hold until the SBA concludes its rule making. Thus, it appears the FAR Councils are back at square one on this six years after the 2014 NDAA was passed and more than three years after the SBA issued its rules.

Finally, the third section we need to discuss is 873. This section amends the Prompt Payment Act at 31 U.S.C. §3903 to require the Secretary of the Treasury to issue regulations providing for accelerated payments to certain prime contractors. Specifically, 873 sets a target date of 15 days after receipt of a proper invoice for the government to make payments to small business prime contractors. In addition, 873 sets a target date of 15 days after receipt of a proper invoice for payment to any prime contractor that has subcontracts with small business concerns if the prime contractor agrees “to make payments to such subcontractor in accordance with such accelerated payment date, to the maximum extent practicable.” It should be noted that section 873 does not prohibit the use of “pay when paid” provisions in subcontracts. However, it is clear that it is intended to prevent prime contractors from “slow rolling” payments to small business subcontractors after the prime has been paid by the government. The FAR Councils have opened FAR Case 2020-007 to address this issue.

If you have questions concerning any of these issues or other contracting matters, do not hesitate to contact Cherry Bekaert for advice and assistance.