President Obama has signed the National Defense Authorization Act for fiscal 2013 (HR 4310) into law, putting into effect several significant provisions affecting small contractors.

The measures aim to reduce the contractor workforce, consider small business goals in federal executives’ job reviews and remove the cap on awards to women-owned small firms, and more.

Contractor workforce:

The $633 billion package included a pay raise for the military, but also a 5% cut over five years to the contractor and civilian workforces.

However, the Defense Department will have more leeway in making the cuts, in comparion to the previous Senate version, according to the Professional Services Council contracting group.

“Rather than mandating civilian and contractor workforce reductions as a set ratio, as Senate Sec. 341 required, the new provision gives the DOD needed flexibility,” the council said in a statement.

Small business goals:

The new law had gains, as well as setbacks, for measures promoted by Rep. Sam Graves, R-MO, who chairs the House Small Business Committee.

The defense bill included the committee’s language to require that small business goal attainment be considered in federal executives’ job evaluations. Progress toward meeting the goals must bea factor in senior agency employee reviews and discussions about bonuses and promotions.

The new language “enforces existing small business contracting goals” Graves said in a statement.

However, the final bill dropped the committee’s measure to raise the government’s small business contracting goal to 25%, from the current 23%.

Women-owned firms:

On a related front, the defense package also eliminated the existing caps on small business set-aside contract awards to woman-owned firms. Sens. Olympia Snowe, R-ME, and Mary Landrieu, D-LA, added the amendment.

The caps on awards wee $6.5 million for manufacturing and construction and $4 million for everything else. The Senate amendment removed those caps, an action endorsed by several women’s business groups.

“The unfortunate fact is that women-owned small businesses will still face a disadvantage when compared to HUBZone, 8(a), and service-disabled veteran-owned businesses,” Snowe and Landrieu said in a statement. “Our amendment will help put women-owned firms on a level playing field with these other socio-economic groups to ensure their maximum participation in the federal contracting process.”

“Our amendment will help put women-owned firms on a level playing field...”

The new law also restored simplified acquisition authority for federal procurements of $150,000 to $4 million, through 2015 (see story on page 1).

Contractor pay, audits:

The Professional Services Council praised the House and Senate for cancelling a proposed cap on contractor pay. The proposed requirement would have capped contractor executive pay at $230,700, down from the current cap of $763,029.

Another provision the council wanted removed dealt with providing the Defense Contract Audit Agency with expansive access to contractor internal audit reports and working papers.

“Rather than grant the DCAA unlimited access to contractor internal audit reports and working papers, as Senate Sec. 843 provided, Sec. 832 ensures that DCAA cannot use internal audits and supporting materials for purposes other than assessing risk andevaluating the efficacy of contractor internal controls and the reliability of associated contractor business systems,” the council said.

Cybersecurity:

The defense law also sets up new reporting and access requirements for contractors working with DOD networks.

Within 90 days, DOD must establish procedures to require cleared defense contractors to report to DOD when covered networks are successfully penetrated.

“The procedures must include mechanisms allowing DOD to access the contractor’s system to perform forensic analysis. The access is limited to equipment or information necessary to determine whether and to what extent information created by or for DOD was ‘successfully exfiltrated,’” Wilmer Cutler Pickering law firm said in a statement.

Cost-plus contracts:

The final version of the bill also included language that would make it harder for DOD to use cost-plus contracts during the production phase of major defense acquisition programs, according to Fierce Government. The under secretary of defense for acquisition, technology, and logistics would have to certify in writing that cost-plus is necessary, and to limit cost-plus pricing “to only those line items or portions of the contract where such pricing is needed.”

Other notable provisions in the national defense authorization law, according to Graves, included:

Anti-fraud provisions: There is language intended to reduce contracting fraud by penalizing violations of the limitations on subcontracting, and by making it easier to suspend and debar companies intentionally defrauding the government.

Small Business Administration Size Standards: Under the new law, the SBA must develop develop size standards that accurately define what is a small business for each of the over 1,100 industries where small firms operate.

Under the new law, the SBA must develop size standards that define what is a small business for each of the over 1,100 industries where small firms operate.

According to Graves, that means evaluating more industries separately, rather than grouping them with other industries.

Limitations on subcontracting: The new law changes the limitations on subcontracting from cost to price, which Graves said would “make it easier for small businesses to comply with procurement rules, while also allowing them to team together to pursue larger contracts.”

“Safe Harbor”: The law provides “safe harbor for small businesses if they acted on a written advisory opinion from a Small Business Development Center or Procurement Technical Assistance Center and violated a rule by mistake.

Insourcing transparency: The law requires the White House to publish procedures, methodologies and guidance documents referring to insourcing.

Reduced “bundling”: More oversight and reports are required about what contracts get bundled. A review will look at whether the contract bundlings are justified.

More information:
House-Senate conference bill http://goo.gl/qe8DP House-Senate conference statement http://goo.gl/FPiMu