Government Contracting Industry Alert: Noteworthy Provisions in the 2017 National Defense Authorization Act

The National Defense Authorization Act (NDAA) is a federal law that specifies the budget and expenditures of the Department of Defense. Its role is to establish funding levels and set policies under which money will be spent for defense.

The budget for fiscal year 2017 includes some significant changes, as follows:

  • Includes $602 billion of discretionary spending for national defense. While the committee believed this was a step in the right direction, this is not enough to address the $23 billion in unfunded requirements identified by the military services.
  • Places a greater emphasis on technology by establishing a new Under Secretary of Defense for Research and Engineering, who will focus on cyber and space capabilities, unmanned systems, directed energy, undersea warfare, hypersonics, and robotics, among others.
  • Establishes a preference for firm fixed price contracts and establishes an approval process for cost-type contracts over $5 million. The committee believes that cost-type contracts create a barrier for many businesses to do business with the government since they do not maintain accounting systems that are compliant with the unique requirements of the government. It also reduces the use of LPTA (low price, technically acceptable) contracts.
  • Provides health care beneficiaries with higher quality care, better access to care, and a better experience.
  • Makes the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs permanent.
  • Increases the micropurchase limit from $3,500 to $5,000. This allows the government to purchase such items without competition as long as the purchaser considers the price reasonable.
  • For contracts that are openly competed on by at least two suppliers, the supplier will not need to submit certified cost and pricing data prior to contract award.
  • A goal to limit bid and proposal costs to the Department of Defense to 1 percent of sales.

NEW INTEREST RATE FOR FIRST SIX MONTHS OF 2017

The Treasury Secretary has increased the interest rate from 1.875 percent (applicable from July 1, 2016 to December 31, 2016) to 2.5 percent (applicable from January 1, 2017 to June 30, 2017). Such rates will apply to:

  • What a contractor has to pay the government under the interest clause at FAR 52.232-17,
  • What the government has to pay the contractor under a payment under the Contract Disputes Act or payment delays under the Prompt Payment Act, and
  • Cost of money calculations as defined by the FAR and the Cost Accounting Standards.

COMPENSATION LIMITS

The Defense Department, the General Services Administration, and NASA implemented the Bipartisan Budget Act which limits employee compensation, with limited exceptions, to $487,000 per year (smaller companies will likely be limited to even smaller amounts).

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If you have any questions or comments about this topic, please contact David E. Shaffer, Director, Audit & Accounting, at dshaffer@kmco.com or 215-441-4600.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.