News & Events

Effects of the FY 2013 National Defense Authorization Act on Contractors

Congress may have “avoided” the Fiscal Cliff and kicked sequestration down the road, but the veil of uncertainty around the Federal budget and deficit reduction remains.

While there lacks the clarity for contractors to comfortably / accurately plan long-term, the National Defense Authorization Act signed into law on January 2, 2013 for fiscal year 2013 (“NDAA” or the “Act”) is a place to start.   Some highlights of the Act worth noting:

  • Contractor Compensation (Section 864) We recently discussed government contractor’s compensation in our December 12th blog: Contractor Compensation in Focus.  The NDAA includes a mandate to study the currently allowable compensation limits, including the potential to reduce allowable compensation caps to either the President’s ($400,000) or Vice President’s ($230,700) salary.  Fortunately, no caps for now.
  • Access to Internal Audits (Section 832) As it stands, Congress has assumed that contractors “ought” to submit at least some internal audit reports to the DCAA; however, many contractors have chosen to take the middle ground; refusing blanket access, but cooperating with limited, reasonable requests.  Again, win for contractors as no mandated submission.
  • Pass-Through Contracts (Section 802) – Contracting officers’ authority was broadened, affording the government the ability to contract directly with a subcontractor when a prime proposes to have more than 70% of work completed by said subcontractor.  Interesting change and a potential work around for firms not holding a said contract.
  • Contractor Reporting of Cybersecurity Intrusions and Network Penetrations (Section 941) –The provision instructs the Secretary of Defense to establish “rapid reporting” procedures for cleared defense contractors to report network intrusions to DoD team officials.  Will this open a can of worms?
  • Increased Penalties for Small Businesses Violating Subcontracting Limitations (Section 1652) – Previously, a small business in violation of subcontracting limitations could be fined up to $500,000. The new policy will add “the amount expended, in excess of permitted levels, on subcontractors” and could result in millions of dollars in penalties.


National Defense Authorization Act for Fiscal Year 2013

Jenner & Block LLP January 07, 2013 Client Advisory