Three-Pronged Approach: The NDAA Prioritizes a Pro-Domestic Procurement Policy

On January 1, 2021, the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) was passed by Congress and became law, following an attempted veto by former President Donald Trump. The NDAA’s primary purpose is to set the budget, expenditures, and policies of the United States Department of Defense (“DoD”), but the 1,480 pages do far more than that. As we have previously written, NDAA’s voluminous pages contain a requirement that a vast number of business entities disclose their beneficial owners in a newly created registry to be maintained by the Financial Crimes Enforcement Network; further protections for whistleblowers;  and substantially expanded subpoena authority for the United States government over foreign bank accounts. But the NDAA does not stop there.

In addition to these changes, the NDAA also modifies a number of defense-related procurement regulations. These modifications reflect a three-part approach: expanding requirements that favor the acquisition of domestically-produced goods; further restricting the availability of certain goods produced by foreign adversaries of the United States; and building domestic capacity to meet DoD needs.

In regard to expanding the preference for acquiring domestically produced goods, the NDAA reduces the Simplified Acquisition Threshold from $250,000 to $150,000. The Simplified Acquisition Threshold sets a dollar limit that dictates whether certain restrictions apply to acquisition by or for the DoD. Purchases that exceed the dollar limit must comply with the Berry Amendment, which requires the DoD to give preference to domestically produced, manufactured, and grown products, and prohibits the DoD from acquiring food, clothing, fabrics, certain metals, and hand or measuring tools that are not produced in the United States. Prior to the NDAA’s enactment, purchases by or for the DoD that were less than $250,000 were exempt from compliance with the Berry Amendment. Now, the ceiling has been lowered. With the Simplified Acquisition Threshold newly set at $150,000, substantially smaller purchases will be subject to the restrictions of the Berry Amendment.

Coupled with the effort to promote domestic procurement, the NDAA also imposes regulations intended to limit DoD procurement from certain foreign countries with which the United States has historically had strained relations. For example, Section 841 of the NDAA requires the implementation of regulations to restrict the purchase of printed circuit boards from China, Russia, Iran, and North Korea. Section 844 expands an existing prohibition on purchasing certain metals from China, Russia, Iran, and North Korea, and applies the ban to any covered materials “mined, refined, separated [or] melted” in those countries. And Section 848 establishes a preference for the acquisition of materials to meet the “defense, industrial, and essential civilian needs of the United States[,]” from domestic sources and/or the United Kingdom, Australia, and Canada.

As a third prong of the pro-domestic procurement policy, the NDAA focuses on building domestic capacity. Beyond establishing source selection preferences, Section 848 also includes incentives for the defense industrial base to “develop robust processing and manufacturing capabilities in the United States[,]” while also requiring that the DoD submit annual reports identifying the “strategic and critical materials” they require.

Ultimately, the stated purpose of these NDAA provisions is to eliminate reliance on “potentially vulnerable sources of supply for the processing or manufacturing of any strategic and critical materials[,]” and to ensure sufficient capacity to “fully meet the demands of the domestic defense industrial base” by January 1, 2035. While many of the provisions contained in the NDAA will not take full effect for several years, government contractors involved in defense-related industries must be aware of these pending changes while developing long-term growth strategies and evaluating relationships with foreign suppliers.