FY 2019 NDAA Signed Into Law with Annual Procurement Reforms, Including Far-Reaching Changes for Commercial Item Contracting

Government Contracts Update

Date: August 14, 2018

Key Notes:

  • The FY 2019 NDAA has been signed by the president.
  • The NDAA procurement reforms include extensive amendments to laws governing commercial items, as well as a reorganization of the military acquisition laws.
  • Changes to commercial item laws will bring future simplifications to the requirements applicable to commercial products and services.

The John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year 2019 was signed into law by President Trump on August 13, 2018. The FY 2019 NDAA authorizes $717 billion in appropriations for national defense activities of the Department of Defense (DoD) and other agencies, including $639.1 billion for base budget activities and $69 billion for overseas contingency operations. This is the first NDAA to be enacted prior to the start of the fiscal year since FY 1997. The Congressional Research Service has published an overview of major procurements and select policy highlights.

Each year, the NDAA includes reforms to procurement policies, priorities and laws. The FY 2019 NDAA contains far-reaching reforms to procurement laws in Title VIII, which covers acquisition policy and management. We summarize here certain provisions of the NDAA’s Title VIII relating to laws that govern commercial item procurement (subtitle D) and reorganization of the U.S. Code (subtitle A) from the enrolled bill passed by Congress. We note, in addition to the NDAA’s final provisions, the relevant explanations from the July 25, 2018 Joint Explanatory Statement of the conference committee that resolved the differences between the House and Senate versions (H.R. 5515, passed on May 24, 2018, and S. 2987, passed on June 18, 2018, respectively).

Many of the extensive procurement law reforms in the FY 2019 NDAA are consistent with various recommendations advanced in the reports of the Section 809 Advisory Panel on Streamlining and Codifying Acquisition Regulations (the “Section 809 Panel,” established by the 2016 NDAA). Among other reforms consistent with the Section 809 Panel reports, as discussed further below, the FY 2019 NDAA embraces long-term regulatory simplification efforts by separating the definition of “commercial item” into separate terms for “commercial products” and “commercial services.”

Provisions Relating to Commercial Items (Title VIII, Subtitle D)
Revision of definition of commercial item for purposes of federal acquisition statutes (NDAA § 836)

This section of the NDAA will fundamentally alter the definition of “commercial item” by replacing that term with the new terms “commercial products” and “commercial services” throughout the U.S. Code. The enrolled bill refers to this as the “separation of” the commercial item definition into definitions of “commercial product” and “commercial service,” and contains extensive revisions to statutes in Title 41 and Title 10.

As set forth in the Joint Explanatory Statement, the House bill contained a provision that would clarify the definition of commercial items as commercial products or commercial services. The Senate amendment contained a similar provision that would “direct the Assistant Secretary of Defense for Acquisition to conduct a review of commercial item procurement reform, including recommendations by the independent panel created by Section 809 of the [FY 2016 NDAA] and provisions from recent [NDAAs], and an analysis of the treatment of commercial services contracts as compared to commercial products.”

The Senate receded with an amendment that would set January 1, 2020 as the effective date for the new definitions, with a detailed implementation plan due to the congressional defense committees on April 1, 2019. According to the enrolled bill, the implementation plan will cover the items in the Senate version, including a review of recommendations by the Section 809 Panel pertaining to commercial items. Thus, further commercial item reforms will likely result from the implementation plan, prior to the effective date of January 1, 2020 for the new definitions.

Limitation on applicability to DoD commercial contracts of certain provisions of law (NDAA § 837)

As set forth in the Joint Explanatory Statement, the House bill contained a provision “that would update section 2375, section 2533a, and section 2533b of title 10, United States Code, with the clarified definition of commercial products and commercial services. This section would also establish a new section 2375a to limit applicability of certain Executive Orders and regulations.” The Senate version contained no similar provision, and the Senate receded with an amendment that would update sections of the U.S. Code with the clarified definition of commercial products and commercial services (but did not adopt § 2375a).

According to the enrolled bill, the clarified definition applies to 10 U.S.C. § 2533a (the Berry amendment) and § 2533b (the related specialty metals law). Section 2375, “Relationship of commercial item provisions to other provisions of law,” has been amended in a different manner. Under NDAA § 837, 10 U.S.C. § 2375(b)(2) is amended by striking “January 1, 2015” and inserting “October 13, 1994.” The amended date would have the effect of “turning back the clock” on certain requirements that would otherwise apply to DoD contracts.

This statutory subsection stated that certain provisions of law or contract clauses, enacted after January 1, 2015, shall be included on the list of inapplicable provisions of law and contract clause requirements, unless the Under Secretary of Defense for Acquisition, Technology, and Logistics makes a written determination that it would not be in the DoD’s best interest to exempt contracts for the procurement of commercial items from the applicability of the relevant provision or contract clause requirement. Thus, the practical effect of this amendment may turn on what new requirements will be included on the list of inapplicable provisions and clauses, and what requirements are retained through a written determination by DoD.

Modifications to procurement through commercial e-commerce portals (NDAA § 838)

As set forth in the Joint Explanatory Statement, the House bill contained a provision that would amend § 846 of the FY 2018 NDAA to allow the Administrator of the General Services Administration to develop procedures for procurement through a commercial e-commerce portal that must satisfy the requirements for competitive procedures outlined in title 41 of the U.S. Code. This section required these procedures to be submitted to the congressional defense committees 30 days prior to implementation.

The House provision would have also amended titles 10 and 41 of the U.S. Code by increasing the micro-purchase threshold for procurement through a commercial e-commerce portal from $10,000 to $25,000. The Senate version contained no similar provision, and the Senate receded with an amendment that maintains the micro-purchase threshold at $10,000 (as reflected in § 821 of the enrolled bill).

The enrolled bill amends § 846 of the FY 2018 NDAA by adding the provision that a procurement of a product made through a commercial e-commerce portal “is deemed to satisfy requirements for full and open competition pursuant to section 2304 of title 10, United States Code, and section 3301 of title 41, United States Code, if—

(A) there are offers from two or more suppliers of such a product or similar product with substantially the same physical, functional, or performance characteristics on the online marketplace; and

(B) the Administrator establishes procedures to implement subparagraph (A) and notifies Congress at least 30 days before implementing such procedures.”

In addition, § 838 of the FY 2019 NDAA includes provisions for the protection of competitive data that will be available to the e-commerce portal providers. These provisions demonstrate congressional support for successful implementation of the e-commerce portals first authorized by last year’s NDAA.

The enrolled bill provides that it is the sense of Congress that—

“(1) the implementation of any e-commerce portal under such section 846 to procure commercial products will be done in a manner that will enhance competition, expedite procurement, and ensure reasonable pricing of commercial products;

(2) the implementation of the e-commerce portal will be completed with multiple contracts with multiple commercial e-commerce portal providers; and

(3) the Administrator of the General Services Administration should require any e-commerce portal provider to take the necessary precautions to safeguard data of all other e-commerce portal providers and any third-party suppliers.”

Thus, Congress here reiterates that there will be competition not only through the e-commerce portals, but between the providers of the e-commerce portals. The e-commerce portals, once implemented, will fundamentally alter and improve the way the government purchases commercial products.

Review of federal acquisition regulations on commercial products, commercial services and commercially available off-the-shelf items (NDAA § 839)

Section 839 presents another opportunity for expansive reform of the procurement system with the potential to dramatically reduce the requirements applicable to the separately defined commercial products and commercial services. As set forth in the Joint Explanatory Statement, the House bill contained a provision that would require a review of federal acquisition regulations on commercial products, commercial services and commercially available off-the shelf (COTS) items. The Senate amendment contained no similar provision, and the Senate receded with an amendment to require a report on the results of the review.

NDAA § 839 contains extensive requirements for this review, which would examine government-wide requirements under the FAR, with the purpose of reducing requirements applicable to both commercial products and commercial services.

Under subsection (a), the FAR Council must conduct a review of determinations not to exempt contracts for commercial products, commercial services and COTS items from certain laws and regulations. Under subsection (b), the FAR Council must conduct a similar review of (for purposes of the elimination of) certain contract clause requirements applicable to commercial products and commercial services. Under subsection (c), the FAR Council must conduct a similar review of certain contract clause regulations applicable to COTS subcontracts. Under subsection (d), the FAR Council must provide a report to Congress, no later than one year after the NDAA’s enactment, on the results of these reviews.

Therefore, Section 839, in combination with the other provisions of the FY 2019 NDAA and in harmony with the reports of the Section 809 Panel, will bring further reforms and future simplifications of the requirements applicable to commercial products and services. As stated in the Section 809 Panel’s Volume I Report, “for more than two decades, Congress and DoD have sought to encourage use of commercial buying by easing the statutory, regulatory, and procedural framework for buying commercial goods and services, as well as broadening the scope of goods and services that are eligible for revised commercial buying policies.” The FY 2019 NDAA continues this congressional mandate and signals far-reaching reforms that will improve the efficiency of the DoD and government-wide acquisition process by removing obstacles to the acquisition of commercial items, as called for by the Section 809 Panel.

Streamlining of Defense Acquisition Statutes and Regulations (Title VIII, Subtitle A)
Consolidation of defense acquisition statutes in new Part V of Subtitle A of the U.S. Code Title 10, Armed Forces

NDAA § 801 provides a new consolidated framework for the acquisition law provisions currently scattered throughout Title 10. The NDAA will establish a comprehensive reorganization of the military acquisition provisions in the U.S. Code, as called for by the Section 809 Panel’s June 2018 Volume 2 Report. While this reorganization may not be intended as a substantive change in law, the restructuring will improve the understanding, application and implementation of the acquisition statutes that govern the armed forces.

As set forth by the Joint Explanatory Statement, the House bill contained a provision “that would establish the initial step in the first phase of a comprehensive reorganization and optimization of acquisition-related statutes in title 10, United States Code.” The Senate version contained no similar provision, and the Senate receded. The conferees stated that “the structure for acquisition-related statutes in title 10 has become unwieldy and inadequate. This section creates a new part V at the end of subtitle A of title 10, thus logically organizing all acquisition-related statutes in one part in the Code.”

In addition, to facilitate these changes, the portions of the U.S. Code governing the Army (subtitle B of title 10), the Navy and Marine Corps (subtitle C of title 10), and the Air Force (subtitle D of title 10) will be redesignated by section and chapter.

The conferees stated that they “expect that this restructuring effort would be complete not later than February 1, 2019.” NDAA § 800 provides that the new Part V–Acquisition and the related redesignations and amendments will take effect on February 1, 2019.

In NDAA §§ 811-813, Congress also repeals a number of statutory requirements relating to DoD positions, outdated provisions of law related to defense acquisition and certain DoD reporting requirements.

In further updates, we will report on additional provisions of procurement law reform in the FY 2019 NDAA Title VIII, including § 822, “DoD contracting dispute matters,” which calls for further study of the bid protest system. The enrolled bill passed by Congress and signed by the president can be found here.

FOR MORE INFORMATION

For more information, please contact:

Joseph R. Berger
202.263.4193
Joseph.Berger@ThompsonHine.com

Tom Mason
202.263.4168
Thomas.Mason@ThompsonHine.com

Ray McCann
202.263.4152
Ray.McCann@ThompsonHine.com

Francis E. Purcell, Jr.
202.263.4118
Chip.Purcell@ThompsonHine.com

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions.

© 2018 THOMPSON HINE LLP. ALL RIGHTS RESERVED.