Regulatory: Keep Pending Legislative Acquisition Initiatives on Your Radar

Congress currently has under consideration a plethora of new requirements that will further complicate the federal acquisition system and increase compliance burdens. The House has approved, and the Senate Armed Services Committee has reported, versions of the FY 2011 National Defense Authorization Act. Although this legislation focuses on the activities of Department of Defense (DoD), the procurement provisions frequently apply government-wide. Several are worth watching.

The Senate Bill includes a provision (Sec. 815) aimed at reducing supply chain risk in acquisition of national security systems. This provision would permit DoD to restrict sources of supply and also permit exclusion of suppliers who are viewed as unacceptable. While this provision may affect numerous industries, it is likely to have a particular impact on acquisition of information technology.

Section 832 of the Senate Bill would greatly expand the government's rights in technical data. The purpose of this provision is to implement Administration cost reduction initiatives by assuring that DoD can obtain unlimited rights in contractor technical data that is "developed exclusively with federal funds" or "without significant contribution by a contractor or subcontractor." This provision also requires new regulations that would prevent the government from paying for the same technical data more than once. While these provisions may appear superficially reasonable, they pose significant risks for contractors who provide technical data to the government: that was initially developed with private funds and that has been the subject of further development; or that was developed with mixed contractor and government funding. Privately developed data is frequently provided to the government under license terms that limit its use to particular purposes or agencies. The proposal does not address what will happen to such data.

Both bills include provisions aimed at review and improvement of contractor business systems. Issues regarding the effectiveness and independence of the Defense Contract Audit Agency (DCAA) over the past two years have coalesced to a degree with concerns regarding whether contractors' systems are complaint with regulatory requirements. These proposals include requirements for mandatory reviews of contractor systems, improved structure and policy oversight at DCAA, and a requirement for contractor "improvement" programs that can involve disapproval of contractor systems or mandatory withholding of a percentage of payments. These proposals appear to be a reaction to the controversial DCAA proposed amendment to the Defense Federal Acquisition Supplement ("DFARS") in January 2010 that has generated substantial private sector objection. While oversight in this area is necessary, the DCAA practices have been sufficiently irrational, disruptive and delayed that Congressional action is likely necessary. What remains to be seen is whether Congress' intervention will result in meaningful improvements.

The proposed legislation contains many other provisions that range from improving competition, to in-sourcing, and disclosure of contractor delinquent tax debts.

All of these provisions are a reminder that federal contracting carries substantial burdens and risks. Companies that participate in this highly regulated area must be very attuned to compliance and the impact of more changes to the acquisition laws.

Marcia Madsen

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