Takeaways from the fiscal year 2025 National Defense Authorization Act

The DOD will identify items for which technical data is not available and create procedures to produce such items through reverse engineering or reengineering in certain circumstances (e.g. if the manufacturer cannot meet the delivery schedule required to maintain readiness). The DOD will provide an annual report to Congress on the use of reverse engineering or reengineering and identify items for which rights in technical data do not allow for the manufacturing of the item. This enhances the DOD’s ability to enforce readiness and push accountability if contractors are unable to meet production requirements. Contractors should note the rights in technical data in their past, present and future awards.

The Government Accountability Office (GAO) and the DOD will propose a process for the unsuccessful party of a contract protest to pay costs associated with the protest. The unsuccessful party pays the government for its costs and pays lost profit to the contractor who received the award. The GAO and DOD will establish benchmarks for each type of payment. Presumably, this provides an opportunity to disincentivize frivolous protests and the associated costs to the government. Also, the threshold for protesting a defense task order was raised from $25 million to $35 million, reducing the pool for potential protests. Protests on task orders below this threshold are not authorized and will not be reviewed by the GAO as per 4 CFR 21.5 (l). No deadline was provided for Defense Federal Acquisition Regulation Supplement (DFARS) updates.

New text clarifies how modifications to commercial products and services affect their commerciality. If a DOD contracting officer (CO) previously determined that the products or services were commercial items, they will continue to count as commercial products or services, even if they are subject to minor modifications. COs and contractors offering commercial items may benefit from relying on prior commercial item determinations. Separately under section 834, the DOD will also incentivize acquiring commercial solutions in personnel performance evaluations.

The contract value threshold for requiring the use of an earned value management system (EVMS) on cost or incentive contracts has increased from $20 million to $50 million, and the threshold to require a defense contractor to use a DOD-approved EVMS on a contract has increased from $50 million to $100 million. This change should promote efficiencies for the government and contractors alike.

The DOD has 90 days from enacting the law to establish an advisory panel on streamlining the department’s requirements process and developing options for reform. The panel will consist of up to 10 members with experience in DOD or innovative requirements processes and private sector product development methods. This action could build a private sector perspective into future defense procurement planning, which may be helpful in the DOD’s efforts to expand the defense industrial base.

This act updated the Program Fraud Civil Remedies Act of 1986, raising the threshold from $150,000 to $1 million in false claims for administrative agencies to pursue alleged fraud. A potential benefit of the higher threshold is that agencies can pursue and settle more cases of alleged false claims directly with the contractor as an administrative matter rather than a criminal case. However, contractors should recognize that administrative agencies can exercise greater oversight and enforce penalties for administrative false claims and obtain higher amounts. Contractors should review compliance programs to ensure robust controls are in place for accurate and allowable billing.

The nontraditional defense contractors (NDCs), as subcontractors, can submit prices paid for goods and services as their certified cost and pricing data if the subcontract does not exceed $5 million, and the CO determines that the prices are fair and reasonable. This process, theoretically, reduces the burden on prime contractors and NDC subcontractors, which encourages such partnerships and reduces barriers to entry for NDCs.

Through Sept. 30, 2029, COs can use alternative capability-based analysis to determine whether an NDC’s proposed price or fee for a commercial service is fair and reasonable. The additional flexibility for COs is designed to increase NDC participation in defense procurement; the DOD will submit a report to Congress in February 2028 to analyze whether the effort is succeeding.

The DOD has one year from the date the bill was signed into law to develop a plan to ensure that small businesses are aware of their rights and available assistance in resolving acquisition-related conflicts with the DOD. The theory seems to be that if contracting issues are resolved timely by supporting small businesses through the process, the DOD will retain and attract more small business contractors.

Among a number of pilot programs and related updates in the NDAA, two stand out for their focus on educational institutions. The law authorizes a pilot to allow military research or educational institutions to participate in the Small Business Technology Transfer (STTR) program (section 871). It also directs a pilot to streamline access for small businesses and institutions of higher learning to share classified commercial infrastructure to increase opportunities for these entities to compete for classified contracts (section 874). The DOD has a deadline of 180 days from the date the bill was signed into law to establish these pilot programs. This development may signal the DOD’s efforts to expand the pool of defense contractors more broadly, in addition to small businesses and NDCs. Efforts to target educational institution participation will be something to note in future pilots.

The law tasks the DOD with developing and implementing policies to incentivize defense contractors to assess and monitor the entire supply chain of goods and services they provide to the DOD for vulnerabilities and noncompliance risks. The DOD will submit a status briefing on these policies to the House and Senate Armed Services committees by Sept. 30, 2025, with an ultimate deadline to implement policies by April 1, 2026. Contractors should pay attention to these updates for clues as to whether new requirements for contractor supply chains are on the horizon.

The DOD will identify risks and increase the resiliency of the supply chain for small unmanned aerial systems (sUAS). The DOD will create a taxonomy for each component of drone aircraft made by Da Jiang Innovations and assess the risk of each component. The DOD will also analyze the availability of sUAS components from domestic sources and sources other than China. While this does not directly affect contractor supply chains, contractors may consider tracking developments of increased DOD scrutiny on sUAS components and associated risk levels. There are no changes proposed to the existing restrictions on contractors delivering prohibited unmanned aerial aircraft systems.

The law prohibits the DOD from contracting with entities (including parents and subsidiaries) that contract with lobbyists for Chinese military companies (section 851) and prohibits DOD contracts with entities that knowingly provide semiconductor products and services, including equipment for manufacturing semiconductors to Huawei (including subsidiaries, owners, affiliates and successors) as part of section 853. As the DOD implements these new restrictions, defense contractors should assess if any subsequent regulations flow these restrictions down to them and have plans to vet subcontractors and suppliers accordingly.