National Defense Authorization Act for Fiscal Year 2025 – Procurement Summary

Photo: Architect of the Capitol

By Prof. Christopher Yukins – George Washington University Law School’s Government Procurement Law Program — January 2025

For over 60 years, Congress has passed an annual version of the National Defense Authorization Act (NDAA). The act typically includes extensive reforms to the U.S. federal procurement system. See Congressional Research Service, Defense Primer: The NDAA Process (Jan. 2025). This article reviews key procurement-related provisions from H.R. 5009, the NDAA for Fiscal Year 2025, officially the Servicemember Quality of Life Improvement Act and National Defense Authorization Act for Fiscal Year 2025 Act, Public Law No. 118-159 (per the final agreed legislative text announced and published by the House and Senate Armed Services Committees). This summary was prepared as a resource for the Procurement Reform seminar taught by the author and David Drabkin in George Washington University’s Government Procurement Law Program.

History of the NDAA for FY 2025

The NDAA for FY 2025 was reported out of the House Armed Services Committee (mark-up) and passed the House of Representatives in July 2024, as H.R. 8070, the Servicemember Quality of Life Improvement and National Defense Authorization Act for Fiscal Year 2025. See House Armed Services Committee summary. The legislation was reported out of the Senate Armed Services Committee as S. 4638. See S. Rep. 118-188 (July 8, 2024); Senate Armed Services Committee, Executive Summary (July 2024). The legislation was introduced in the Senate as H.R. 5009 on September 24, 2024 from a repurposed House bill. The final compromise legislative text was accompanied by a Joint Explanatory Statement which took the place of a conference report. The legislation passed the House of Representatives on December 11, 2024 , and passed the Senate on December 18, 2024 (see history). The Act was signed into law by President Joe Biden on December 23, 2024.

Selected NDAA Provisions

Acquisition Planning – Middle Tier: Prototyping and Fielding

Section 804 of the NDAA for FY 2025 reshapes a “middle tier” of systems acquisitions (to be completed within two to five years) established by Section 804 of the NDAA for FY 2016, Public Law 114-92, 10 U.S.C. 3201 note.  The new “middle tier” pathway will allow for “rapid prototyping “ of innovative technologies into prototypes and eventually operational capability within five years. The “rapid fielding” pathway will allow proven technologies to be moved to production, preferably within six months. Program managers in this “middle tier” will be entitled to seek waivers (including waivers from Congress for statutory measures) of rules that impede development. Section 805 will create similar rapid pathways for software acquisition. In his recent report on improving innovation in the U.S. defense base, Restoring Freedom’ s Forge: American Innovation Unleashed, Senator Roger Wicker (R-MS) (now chairman of the Senate Armed Services Committee) argued that the “novel Software Acquisition and Middle-Tier of Acquisition pathways should become the preferred pathways for all new programs,” in order to encourage flexible development of new technologies.

Acquisition Planning – Pilot: Procuring Innovative Technologies

Section 861 of the NDAA for FY 2025 codified a pilot program first established by Section 834 of the NDAA for FY 2022, to accelerate the procurement and fielding of innovative technologies. (See DoD Biannual Report (2023); Congressional Research Service, The Defense Innovation Ecosystem (Jan. 2025); DoD news release on 2024 round of projects under the Accelerate the Procurement and Fielding of Innovative Technologies (APFIT) (Section 834) initiative; Mitre background paper.) The Defense Department is to publish guidance for the pilot program, and is to issue at least two solicitations, open to companies with limited prior Defense Department work, for awards of up to $50 million apiece for innovative technologies which can be rapidly procured and fielded.

Procurement for Innovation: Global

The NDAA for FY2025 included a number of provisions aimed at advancing technology through defense procurement, summarized by the Congressional Research Service; the Defense Acquisition University prepared a summary of past NDAA provisions intended to spur software development. See below for training called for by Section 832 of the NDAA for senior officials — both in “procurement innovation” and in “procurement for innovation.” For an update on efforts in Europe to advance innovation through procurement, see the Draghi and Letta reports supporting initiatives in the European Union, and the recent article on NATO’s DIANA initiative in dual-use technologies.

Bid Protests – GAO and DoD to Develop Standards

The National Defense Authorization Act for FY 2025 returned to the controversial topic of bid protests. Protests are widely viewed as an essential part of the procurement system but are sometimes criticized as frivolous or disruptive, and prior defense authorization acts have often included provisions on bid protests. See, e.g., Jay Carey, Kayleigh Scalzo & Victoria Skiera, NDAA Increases Threshold for Task Order Protests and Directs Another Study on Whether Losing Protesters Should Pay  (Dec. 24, 2024). Section 885 of the NDAA for FY 2025 is a striking example of that trend, for it calls for the Defense Department and the Government Accountability Office (GAO) – normally an independent watchdog agency – to work together to develop standards which may sharply reduce GAO’s bid protest review of Defense Department procurements. Bid protest reform proposals appeared in the House version of the original NDAA bill (H.R. 8070, section 872) as a much more modest pilot program to impose fees on losing protesters, and no bid protest provisions appeared in the Senate Armed Services Committee’s report which accompanied the NDAA. Section 885 of the final legislation calls for the Defense Department and GAO (which hears by far the largest share of federal bid protests (see GAO FY24 annual bid protest report; Court of Federal Claims FY23 annual report)) to submit to the House and Senate armed services committees, and to the House oversight committee and the Senate homeland security committee, a proposal that includes:

1. Proposed enhanced pleading standards which GAO would have to apply to bid protests involving DoD procurements. The language of Section 885 is worth quoting, because it is likely to spark intense discussion in the procurement law community. The “process for enhanced pleading standards,” says the NDAA, “is a process under which the Comptroller General shall apply enhanced pleading standards, as developed by the Comptroller General in coordination with the Secretary of Defense, to an interested party with respect to a covered protest submitted by such interested party for which such interested party is seeking access to administrative records of the Department of Defense, prior to making a determination with respect to such access.” Some issues:

• Some may argue that Section 885 means that GAO will need to assess the merits of the protest before issuing a protective order allowing access to the administrative record. Under current practice, GAO generally issues a protective order rapidly and as a matter of course in the first days of a protest, so long as the private parties under the bid protest (typically outside counsel) can attest credibly that they will protect the confidentiality of the protected information in the administrative record. It is worth noting, however, that Section 885 does not explicitly call out “protective orders,” and another reading of the statute’s unclear language is that pleadings will be subject to a standard of review as a first step, and then in a second step GAO will, per the Competition in Contracting Act (see below), separately address requests for access to the administrative record.
• If Section 885 were read to require a new regime, under which GAO would have to assess the merits of a bid protest as submitted before issuing a protective order, in practice this could mean converting GAO protests into something even weaker than agency-level protests. In agency-level protests, as under the Section 885 proposed approach, the protester may never gain access to the administrative record and so often must simply guess at went wrong. In an agency-level protest, however, the deciding official does have access to the administrative record when she makes her decision on the protest. See FAR 33.103. Under Section 885, in contrast, GAO’s process would be left much weaker if GAO did not have access to the administrative record – or, would have to review the administrative record in camera, which would raise serious due process concerns – before allowing interested parties access to the administrative record under the Competition in Contracting Act.
• Failing to gain access to the administrative record can effectively kill a protest. A protester’s access to the administrative record is an essential part of an “effective” bid protest system (which the United States has committed to provide under trade agreements, see, e.g., WTO Agreement on Government Procurement, Art. XX.2, and under Article 9(1)(d) of the UN Convention Against Corruption), as Congress recognized when it codified GAO protective orders under 31 U.S.C. § 3553(f) (“Within such deadlines as the Comptroller General prescribes, upon request each Federal agency shall provide to an interested party any document relevant to a protested procurement action . . . including the [agency] report . . . that  would not give that party a competitive advantage and that the party is otherwise authorized by law to receive. . . . The Comptroller General may issue protective orders which establish terms, conditions, and restrictions for the provision of any document to a party”). Access to the administrative record under a protective order is a linchpin to the U.S. government’s protest system, as access to all interested parties under a protective order allows a careful review of the failures in the procurement process. See, e.g., GAO, Guide to GAO Protective Orders (2019); Acquisition Innovation Research Center, DoD Bid Protests.
• If access to the administrative record is impaired under Section 885 — which is unclear — pressure could grow to make those records readily available to interested parties under open records laws (e.g., the Freedom of Information Act) (as occurs in many state bid protests, see, e.g., Kayleigh Scalzo, Jason A. Carey & Andrew Guy, Expect The Unexpected: How To Navigate State And Local Bid Protests, at 4, 20-5 Briefing Papers 1 (Thomson Reuters, Apr. 2020)), or even to make administrative records immediately, publicly available under open government laws that are being gradually implemented by the federal government. Those alternative means of access to the administrative record, however, are far more cumbersome than the current protective order system, and may result in the disclosure of more sensitive information.
• And until those alternative means of access were sorted out, GAO’s bid protest review of Defense Department procurements could fall off dramatically, as protesters would have strong incentives to bring DoD-based protests in the U.S. Court of Federal Claims instead, under the robust access and protections afforded by the Court of Federal Claims rules. A shift of large numbers of Defense Department protests every year to the Court of Federal Claims could cause major dislocations at the Court, and could prove more disruptive and expensive for the Defense Department and its bidders.

2. Benchmarks for Defense Department/GAO Costs and Interested Party Lost Profits: Section 885 also calls for GAO and the Defense Department to deliver “benchmarks” regarding (a) the protest costs to GAO and the Defense Department “based on the value that is the subject of the covered protest,” and (b) the “costs of the lost profit rates of the contractor awarded a contract” that was protested. It is not clear how either “benchmark” could be derived. See, e.g., Alan Chvotkin, Congress Changes Rules for DoD Task Order Protests At GAO (Jan. 8, 2025) (noting serious problems with legislation). Some issues with these “benchmarks”:

• The Joint Explanatory Statement published with the final legislation described the first benchmark, at page 207, as the “standard cost to the government of a protest based on contract size.” But the 2022 congressionally mandated DoD Bid Protests study by the Acquisition Innovation Research Center determined (based upon interviews and reviews of data with Defense Department senior officials) that the Defense Department’s data regarding the costs of handing bid protests were often incomplete. See also RAND, Assessing Bid Protests of U.S. Department of Defense Procurements (2018) (further protest cost data needed).
• And the “lost profit rates” of a contractor would be almost impossible to benchmark – profit rates vary enormously by procurement and industry, and depend on cost data that vendors could be very reluctant to provide (even for an individual procurement). The NDAA for FY2025 says that the lost profits should be calculated based on “the profit that the contractor awarded the contract would have earned if the contractor [had] performed under such contract during the period performance under such contract by such contractor was suspended under section 3553(d) of title 31, United States Code” – but that theoretical profit could be very difficult to determine, for (among other issues) the suspension of work during a protest means that the contractor’s direct (and many indirect) costs (elements of the profit calculation) are presumptively suspended during a protest, and so deriving “lost profits” could prove very speculative.
• Nor, finally, is it clear that costs should be imposed on losing protesters as a matter of course; as the OECD-sponsored Methodology for Assessing Procurement Systems (MAPS), Pillar 4, at 59, has noted, an effective bid protest system “does not charge fees that inhibit access by concerned parties.” (Notably, GAO itself has used the MAPS tool to assess a bid protest system. See GAO, World Bank Procurement: Risk Monitoring Can be Enhanced as U.S. Businesses Face Challenges Competing, at 19 (2024).)

Finally, Section 885 also raises the dollar threshold for protests of Defense Department task orders, from $25 million to $35 million.

Claims and Appeals: Unilateral Definitization of Contracts

Section 803 of the NDAA for FY2025 would treat a contracting officer’s unilateral definitization of a Defense Department contract as a final decision, which the contractor could immediately appeal to the Armed Services Board of Contract Appeals or the U.S. Court of Federal Claims. This appears to overrule the decision of the U.S. Court of Appeals for the Federal Circuit in Lockheed Martin Aeronautics Co. v. Sec’y of Air Force, 66 F.4th 1329, 1335 (Fed. Cir. 2023), which held that contracting officers’ definitizations of the contracts at issue were not government claims and that, as a result, they could not be immediately appealed by the contractor. See Tracye Winfrey Howard, Megan L. Brown, J. Ryan Frazee & W. Benjamin Phillips, III, NDAA Provisions Impacting Government Contractors and Their Supply Chains (Dec. 2024) (discussing overruling of Lockheed Martin Aeronautics decision); James A. Tucker, Challenging Unilateral Definitizations of Undefinitized Contract Actions: What Is a Claim? (2023) (discussing decision).

Commercial Products and Services – Rewarding Officials

Section 834 of the NDAA for FY 2025 said that performance evaluations of contracting officials should reward officials’ acquisition, on a “risk-informed basis,” of commercial products and services. Congress’ goal, the Joint Explanatory Statement said, was to “clarify that under the commercial item preference in section 3453 of title 10, United States Code,” performance incentives should encourage Defense Department officials “to adhere to the commercial item preference, where possible.”

Contested Logistics – Japan and South Korea

Section 842 of the NDAA for FY 2024, Public Law 118-31, called for a contested logistics demonstration and prototyping program to improve capabilities for product support so as to mitigate risks associated with operations in a contested logistics environment. That program was to be carried forward with a small group of allied nations. In the current NDAA, in Section 821, Congress called for Japan and the Republic of Korea to be added to that group of allies. For background on technology being developed to overcome contested logistics, such as the use of unmanned supply aircraft, see here.

Contract Cancellation or Termination – Employee Impact

Section 808 of the NDAA for FY2025 requires notice to Congress if the cancellation or termination of a contract will cause the reduction in employment of 100 contractor employees (50 for remote installations). Section 808 goes beyond the current notification requirements under DFARS 252.249-7002, Notification of Anticipated Contract Termination or Reduction.

Environmental Sustainability – Green Procurement Initiatives Blocked

In Section 318 of last year’s NDAA , Congress temporarily blocked the Defense Department from requiring contractors to deliver data on their greenhouse gas (GHG) emissions, data which was to be used as part of a larger plan to make GHG emissions part of vendor qualification and contract award. The ban was to be in place for one year for traditional Defense Department contractors, and to be permanent for nontraditional contractors. In Section 316 of this year’s legislation, Congress extended that ban to three years from enactment of last year’s legislation, i.e., to December 2026. The extension may prove moot, however, as in mid-January 2025 the Federal Acquisition Regulatory Council withdrew the proposed rule to require contractor disclosure of GHG emissions.

Separately, Section 319 of the NDAA for FY 2025 barred the use of any funds appropriated to the Defense Department to support the Biden administration’s proposed rule on ‘‘Federal Acquisition Regulation: Minimizing the Risk of Climate Change in Federal Acquisitions,’’ 86 Fed. Reg. 57404 (2021). The proposed rule, issued pursuant to President Biden’s Executive Order (E.O.) 14030, 86 Fed. Reg. 27967 (2021), would have required agencies to ensure that major federal procurements minimized the risk of climate change. Under the advance notice of  proposed rulemaking – which was purely notional, with no proposed text, but which received more than 35,000 comments (see regulatory docket) – agencies would have been required to consider the social cost of greenhouse gas emissions in procurement decisions and, where appropriate and feasible, give preference to bids and proposals from suppliers with a lower social costs of greenhouse gas emissions.

Section 856 of the NDAA for FY 2025 requires DoD, to the maximum extent practicable, to purchase from the Environmental Protection Agency’s “Safer Choice” program; that program partners with businesses to help consumers and commercial buyers identify products with safer chemical ingredients.

Foreign Trade – Supply Chain Security

The NDAA for FY2025 included a range of provisions intended to bolster domestic U.S. sources of supply, and to reinforce the Defense Department’s supply chain among U.S. allies (what is sometimes called “friendshoring”). For example:

• Section 162 called upon the Navy to assess supply chain vulnerabilities (even at the component level) for small Unmanned Aerial Systems (sUASs – drones weighing less than 55 pounds), with a special focus on the risk posed by commercial systems from China. The Navy is to develop a strategy for a “secure and resilient domestic and allied supply chain of critical components for sUASs,” which is to be reported to Congress.
• Section 839 called for a new Defense Federal Acquisition Regulation Supplement (DFARS) requirement that software contractors report to the Department of Defense if they must disclose cybersecurity vulnerabilities to the Chinese government.
• Section 841 curbed the information subject to public disclosure, and streamlined the process, if the Defense Department decides to exclude a contractor based upon perceived security risk, per 10 U.S.C. § 3252. This process roughly corresponds to a similar exclusion process used by the non-DoD intelligence community under 50 U.S.C. § 3334e. See, e.g., U.S. Department of the Navy, Supplier Performance Risk System.
• Section 843 clarified that the Berry Amendment (10 U.S.C. § 4862)– a statutory bar against, among other things, purchasing food from abroad for the Defense Department) — does not apply to purchases by or “for” vessels in foreign waters.
• Section 845 clarified that the specialty metals bar, 10 U.S.C. § 4863, does not apply to purchases covered by reciprocal defense procurement agreements with foreign allies (“qualifying” countries).
• Section 848 called for publication of a universal list of Defense Department domestic nonavailability determinations, which are used to justify potentially otherwise forbidden foreign purchases.
• Section 849 requires the Defense Department to undertake measures to incentivize contractors to “illuminate” their supply chains so that they can be analyzed for risk. The Joint Explanatory Statement said that the Defense Department is to encourage its contractors “to implement and use policies, procedures, and tools that allow assessment and monitoring of supply chains for vulnerabilities, security, and noncompliance risks.”
• Section 851 generally bars Defense Department contracts with a firm (or its parent or affiliate) if that firm (without making reasonable inquiry) hires a lobbyist which in turn works for a covered Chinese military company.  See Crowell & Moring, New Law Appears to Restrict Defense Contractors from Retaining Consultants Who Lobby for Chinese Military Companies (Jan. 6, 2025) (in-depth analysis noting ambiguity in statutory language). In conjunction with this provision, the Joint Explanatory Statement from Congress directed GAO to submit a report, within a year, on the “national security risks posed by consulting firms who simultaneously contract with the Department of Defense and the Chinese government or its proxies or affiliates.” The GAO report is to discuss how the Defense Department assesses this risk, and how the Department identifies and addresses organizational conflicts of interest in its consultant contractors.
• Section 853 bars the Defense Department from contracting for semiconductor products or services with any company which knowingly provides semiconductor products or services to Huawei, the Chinese telecommunications firm.
• Section 855 bars contractors that knowingly join in a boycott of Israel.

Fraud: Administrative False Claims Act of 2023

Section 5203 of the NDAA for FY 2025 is the Administrative False Claims Act of 2023 (AFCA), which reforms and replaces the Program Fraud Civil Remedies Act of 1986 (PFCRA), Public Law No. 99-509, Title VI, Subtitle B. The AFCA was originally introduced by Senator Chuck Grassley (R-IA) as S. 659 in 2023, and then (according to the Joint Explanatory Statement) was incorporated into the NDAA as a Senate amendment. See Mark Sweet, Kara Sacilotto & Elizabeth Drill, New Administrative False Claims Act Gives Federal Agencies More Power to Pursue and Settle Fraud Claims in 2025 (Dec. 20, 2024) (discussing contractor compliance challenges under the AFCA). The new AFCA addressed many of the issues that hampered the PFCRA, including making it possible for agencies to recover their enforcement costs and increasing the ceiling on claims to $1 million. See, e.g., Michael J. Davidson, Combating Small-Dollar Fraud Through Reinvigorated Program Fraud Civil Remedies Act, 37 Pub. Cont. L.J. 213 (2008); see also Michael J. Davidson, A call to action : re-arming the government in the war against defense procurement fraud (2008) (from doctoral thesis) (GW Law library); Jonathan C. Martin, Reviving the Program Civil Remedies Act: Encouraging Widespread Utilization Through Financial Incentives and a Centralized Administrative Tribunal, 46 Pub. Cont. L. J. 913 (2017). The AFCA generally aligns with the False Claims Act, though with some significant differences including the AFCA’s lack of a “relator” mechanism which would allow a whistleblower to share in the government’s recovery. Some have argued that the AFCA also may be subject to constitutional challenge as an administrative process which allows government penalties without a jury proceeding, per the Supreme Court’s decision in Securities & Exchange Commission v. Jarkesy (No. 22-859) (June 27, 2024). See Peter B. Hutt II, Sarah Harringon, Chanda Brown, Stephanie Barna & Robert Huffman, Congress Attempts to Revitalize the Program Fraud Civil Remedies Act (Jan. 14, 2025); see also Congressional Research Service, SEC v. Jarkesy: Constitutionality of Administrative Enforcement Actions (Sept. 16, 2024).

Inflation Adjustment Under Public Law 85-804

Section 824 of the NDAA for FY 2025 extended by one year the Defense Department’s special authority, under Public Law 85-804, 50 U.S.C. § 1431, to adjust contracts for increased costs caused by inflation.

Intellectual Property – Reverse Engineering

Section 882 of the NDAA for FY 2025 calls for the Defense Department to develop a process to identify items for which “technical data is not available” or “rights in such technical data [do] not allow for manufacturing of the item.” For those items, the Defense Department is to develop streamlined processes for reverse-engineering the items. The Defense Department is to report to Congress on this initiative.

Modular Open Systems Approach (MOSA) – Publication of Standards

As the Defense Logistics Agency has noted, a “Modular Open Systems Approach (MOSA) can be defined as a technical and business strategy for designing an affordable and adaptable system.” A MOSA is the Defense Department’s “preferred method for implementation of open systems,” and it is required by 10 U.S.C. 4401(b), which “states all major defense acquisition programs (MDAP) are to be designed and developed using a MOSA.” Section 819 of the NDAA for FY 2025 will require publication of “any standards for implementation of the modular open system approaches for contracts,” unless the service acquisition executive requests and receives a waiver.”

Organizational Conflicts of Interest – Restricting Waivers

Organizational conflicts of interest (OCIs) arise when a vendor, due to other work or obligations, has a conflict of interest or an unfair competitive advantage in bidding or doing work for the government. They are addressed under FAR Subpart 9.5. While OCI regulations have been in place since the Kennedy administration in the 1960s, recently officials have been more expansive in using waiver authority under the FAR, sometimes to defeat protests from other vendors raising OCI concerns. Section 881 of the NDAA for FY 2025 would restrict that OCI waiver authority: Section 9.503 of the FAR now must be revised to require that a request for a waiver include a written justification, and waiver authority will not be delegable below the level of the deputy head of the agency. The Biden administration opposed this provision in its Statement of Administration Policy (SAP), at page 5, in response to the House-passed version of the NDAA legislation.

Prior OCI Legislation

The most recent OCI-related provisions followed on other efforts by Congress to stem OCIs, especially when federal contractors’ work for adversary states (such as Russia and China) may raise conflicts of interest.

In December 2022, the Preventing Organizational Conflicts of Interest in Federal Acquisition Act became law, Public Law No. 117-324. That 2022 act called for an update to the FAR provisions governing OCIs, in response to serious concerns about consultants’ conflicts of interest in working for both government and industry. The FAR rulemaking (FAR Case 2023-006) remains pending.

In Section 812 of the prior NDAA for FY 2024, Public Law No. 118-31, Congress called for an amendment to the Defense Federal Acquisition Regulation Supplement (DFARS) to bar consultants that work for adversary or sanctioned nations, or fail to put a robust OCI mitigation plan into place. In September 2024, GAO issued a report on the possible dangers posed by consultants doing work with China. The DFARS rulemaking (DFARS Case 2024-D007) called for by the prior NDAA remains pending, after a proposed rule was published in September 2024.

Proposed OCI Rule Published After NDAA Became Law

After the NDAA for FY 2025 became law, on January 15, 2025 the FAR Council published a proposed rule, 90 Fed. Reg. 4376, to revamp the federal government’s organizational conflict of interest (OCI) regulations. The proposed rule implements the 2022 Preventing Organizational Conflicts of Interest in Federal Acquisition Act, Pub. L. 117-324, 41 U.S.C. 2303 note, which called for revised regulations regarding organizational conflicts of interest (OCIs). The proposed rule also implements 41 U.S.C. § 2304 (conflict of interest standards for consultants) and Section 841(b) of the National Defense Authorization Act for FY 2009, Public Law No. 110-417 (2008) (passed nearly 20 years ago, which called for a comprehensive review of organizational conflicts of interest rules).

The proposed rule notes that the FAR Council published a proposed rule under FAR Case 2011-001, Organizational Conflicts of Interest, on April 26, 2011, 76 Fed. Reg. 23236. No action was taken on that proposed rule, however, and it was withdrawn at the start of the Biden administration a decade later, on March 19, 2021, 86 Fed. Reg. 14863.

The proposed rule would reorder the FAR in a new approach – one suggested in the 2011 proposed rule, and by Associate Dean Jessica Tillipman and other commentators – and move the OCI provisions from FAR Subpart 9.5 (Part 9 generally addresses contractor qualification) to a new FAR Subpart 3.12 (in FAR Part 3, the “anti-corruption” part of the FAR).

While the proposed rule would shift the OCI regulations to FAR Subpart 3.12, the proposed rule would leave intact much of the existing rule’s structure. The proposed rule would, among other things, clarify the definition of “firewalls” (which are used to separate employees who might otherwise create a conflict of interest) as mitigation strategies for OCIs. In an approach much like the current regulation, the proposed rule would call for contracting officers to engage closely with contractors and other agency officials (whether on award of an original contract or a task or delivery order), in order to recognize and mitigate possible OCIs before disqualifying a contractor from award.

The proposed rule – consistent with emerging practices globally (see Infraestruturas de Portugal, SA, Case C-66/22 (Court of Justice for the European Union 2023)) – emphasizes that addressing OCIs is a risk-based exercise for contracting officials, requiring engagement with the vendor and a reasoned decision. Notably, however, the proposed rule would prohibit contracting officers from determining “any risk is acceptable when an organizational conflict of interest involves unfair competitive advantage.” This echoes the failed 2011 proposed rule, which suggested that OCIs that taint the legitimacy of a competition might never be acceptable.

For the first time, and in response to Congress’ direction in the 2022 statute, the proposed rule would include standard governmentwide clauses to be included in solicitations for prime contracts above the simplified acquisition threshold (SAT) for commercial services (but not for commercial products). See 90 Fed. Reg. at 4385 (“This subpart does not apply to . . . [c]ontracts for commercial products.”). The FAR Council welcomed comments on whether these clauses should apply to contracts below the SAT. Commentators may also criticize the proposed rule’s omission of commercial products, for acquisitions of commercial products can raise serious organizational conflicts of interest as well.

A summary of the proposed new governmentwide clauses:

• One proposed clause, “Potential Organizational Conflict of Interest—Disclosure and Representation” would require offerors to disclose “all relevant information regarding any OCI,” “professional standards . . . or any procedures it has in place . . . to prevent OCIs,” to represent “to the best of its knowledge and belief . . . that it has disclosed all relevant information regarding any OCI,” to explain any actions it intends to use to address any OCI (per a mitigation plan, if appropriate), and to update disclosures “for new information not previously disclosed or if there is a change to any relevant facts relating to a previously disclosed OCI.” The proposed rule includes a checklist of information required of offerors.
• Another new clause on “Postaward Disclosure of Organizational Conflict of Interest,” would require contractors to disclose any new or newly discovered OCIs which arose during the course of contract performance. The clause would require the contractor to make a prompt and full disclosure of any new or newly discovered OCI. The clause would warn that newly arising OCIs could result in contract termination. The cause would have to be flowed down to larger subcontracts (above the simplified acquisition threshold), unless they were for commercial products or services, or for COTS items.
• A new clause on “Mitigation of Organizational Conflicts of Interest” would be used in solicitations where an OCI could be addressed adequately by an offeror’s mitigation plan, which would be incorporated into the contract. The clause would allow for changes to the plan and would require contractors to report noncompliance. The clause would flow down to larger subcontracts (unless, again, they were for commercial products or services, or for COTS items).
• Another new clause, on “Limitation on Future Contracting,” would be used if a contracting officer decided to address a potential conflict of interest by limiting future contracting, for a fixed term. As with the clauses noted above, the clause would be similarly flowed down to larger subcontracts touched by the potential conflict of interest.
• A final new clause, on “Unequal Access to Information—Representation,” would require the offeror to identify, prior to submission of its offer, “whether it or any of its affiliates had unequal access to any information that could provide an unfair competitive advantage.” If so, the offeror would need to advise the contracting officer of any proposed mitigation actions.  By submitting an offer, the offeror would constructively represent that it had “effectively implemented any agreed-to mitigation measures and that any firewall that was used to mitigate the OCI has not been breached,” or to provide additional explanatory information.

Notably the proposed rule does not incorporate all the tighter waiver requirements called for by the NDAA (see above).

Comments on the proposed rule are due by March 17, 2025.

Other Transactions – Clarification of Follow-on Production Contracts

Under paragraph (f) of 10 U.S.C. 4022, follow-on production contracts are allowed where prototypes have been developed using other transactions authority. Section 817 of the NDAA for FY 2025 clarified that those follow-on production contracts include contracts or transactions to “produce, sustain, or otherwise implement the results of a successfully completed prototype project” for the Defense Department.

Price Reasonableness – Value-Based Assessment

A contracting officer normally must assess the reasonableness of the price offered by an offeror. That assessment can, depending on the circumstances, be done using cost or comparable price information. As the Senate Armed Services committee report for the FY 2025 NDAA noted, however, “companies that do not have approved cost accounting systems in accordance with Cost Accounting Standards often cannot adequately justify the cost of military-unique products and services under traditional cost or price analysis, particularly under sole source environments, that accurately reflect cost absorption rates, self-funded risk, and non-cost factors such as potential cost avoidance to DOD.” Section 864 of the NDAA for FY 2025 therefore allows contracting officers to take a different approach when reviewing proposals from small businesses and nontraditional government contractors, to encourage their participation in the federal market: to assess price reasonableness or fee (profit) based upon “alternative capability-based analysis,” i.e., to assess the value of the proposed commercial product or service to the government. See, e.g., Crowell & Moring, The FY 2025 National Defense Authorization Act: Key Provisions Government Contractors Should Know (Jan. 7, 2025). That value-based analysis can be based on the product or service’s fitness, unique nature, financial projections of the non-traditional contractor, anticipated cost savings to the government, and input from potential users. This is a pilot program, and the Defense Department will report to Congress on its effectiveness.

Qualification as an Evaluation Factor — Aviation Fuel

Traditionally, contract awards have involved three basic elements: price, technical and contractor qualification. The last element – qualification – has been dealt with in the federal system on a pass/fail basis, as a matter of “contractor responsibility.” Section 163 of the NDAA for FY2025, however, calls for the Defense Logistics Agency to assess whether to use contractor qualification as an evaluation factor when procuring large volumes (5 million gallons or more) of aviation fuel for delivery into heavy-lift aircraft. The evaluation of vendor qualifications would include the vendor’s capacity and operations, and the vendor’s past performance history – traditionally an evaluated factor for award which is dealt with separately from qualification/responsibility. The open question is whether this is the first step towards a future in which contractor qualification/responsibility would be addressed as an evaluated (scored) factor, with past performance integrated into that qualification/responsibility assessment. This change could make contractor qualification/responsibility – currently a discretionary and mostly opaque risk analysis by the contracting officer – a more transparent and important part of the evaluation for award, and could enhance resilience in the government’s supply chain.

Requirements – Advisory Panel

Section 884 of the NDAA for FY 2025 calls for the Defense Department to establish a three-year advisory panel to make recommendations on how to improve the Department’s process for identifying and developing requirements, to enhance the United States’ ability to respond to new threats.

Small Business – Shared Classified Spaces

Section 874 of the NDAA for FY 2025 launches a pilot program at the Department of Defense to make it easier for small businesses and institutions of higher learning to use “shared classified commercial infrastructure” – shared spaces to carry out classified work.

Small Business – Small Business Bill of Rights

Section 876 of the NDAA for FY 2025 calls for the Defense Department to promulgate and implement a “Small Business Bill of Rights,” to ensure that Defense Department acquisition personnel are responsive to small businesses and that small businesses are aware of their rights and protections under law.

Training for Acquisition Personnel, Including Contractors

Section 832 of the NDAA for FY 2025 called for an expansive training program for cross-functional personnel and DoD contractors involved in decision making at any phase of the acquisition and sustainment lifecycle, including “requirements validation, the development of an acquisition strategy, awarding contracts, and ongoing management of performance and governance.” The training is to be supported by the Defense Acquisition University. The training is to be closely coordinated with ongoing acquisitions, and is to emphasize (among other things) acquisitions of commercial products and services, and acquisition using the “middle tier acquisition pathways” for accelerated procurement (see above).

The Joint Explanatory Statement regarding Section 832 sheds light on the trajectory this training might take. The House bill (the Statement notes) called for the Defense Acquisition University to develop a “training curriculum for program executive officers, program managers, general officers, and flag officers” — senior officials, in other words — “to be periodically updated to include innovative best practices of the private sector and recently provided acquisition authorities.” The training would thus be in what is known as “innovation in procurement.” The final agreed bill included that provision, though with an “amendment that would require the Under Secretary of Defense for Acquisition and Sustainment to develop field teams to train acquisition and sustainment personnel on rapid acquisition procedures in the course of executing defense acquisition programs” — recalling Senate Armed Services Committee Chairman Roger Wicker’s support (see above) for rapid procurement of innovative technologies, or what is known internationally as “procurement for innovation.”