The Servicemember Quality of Life Improvement and National Defense Authorization Act for Fiscal Year 2025 (FY2025 NDAA), signed into law on December 23, 2024, has significant implications for defense acquisition and contracting. Each year, PilieroMazza highlights key changes that impact small and large defense contractors when considering opportunities and complying with current law.
Background
Congress introduces legislation every year to authorize funding for the Department of Defense (DOD) and sets the policy landscape for the next fiscal year for defense contracting, acquisition, and procurement. In 2024, PilieroMazza reviewed the noteworthy provisions in the FY2024 NDAA, which included a prohibition on executive agencies procuring semiconductors and related electronics from specific Chinese companies and the creation of new opportunities for small businesses.
Key Provisions for 2025
This year, several new provisions were added to the FY2025 NDAA intended to enhance the quality of life for servicemembers. Numerous other provisions made their way into the FY2025 NDAA, which covered, in part, the following highlights: preferring domestic products over Chinese or foreign products; codifying a software acquisition pathway; creating a training program for acquisition and sustainment; expanding program fraud civil remedies; reforming the bid protest process; simplifying small business contracting, and more.
- Domestic Preference
Provisions geared toward domestic preference are scattered throughout the FY2025 NDAA. Many of the key provisions are summarized below:
- One of Congress’s main goals in the FY2025 NDAA is to ensure strategic and critical materials are derived or sourced from domestic recycled or reused materials.
- Further, the FY2025 NDAA requires DOD to maintain every determination of domestic nonavailability and document all nonavailability waivers.
- However, it is clarified in the FY2025 NDAA that, if domestic materials cannot be obtained at a reasonable price, excessive costs are a valid reason for a waiver.
- The FY2025 NDAA prohibits DOD from procuring Light Detection and Ranging (LiDAR) and small unmanned aerial systems (sUAS) from entities from a covered foreign country. Covered foreign countries are the People’s Republic of China (PRC), Iran, North Korea, and Russia.
- Significantly, the FY2025 NDAA expands the reporting requirements for contractors, subcontractors, or affiliate employees subject to the PRC’s laws or control. Covered contracts include commercial products or services and information and communications technology. If contractors must disclose cybersecurity vulnerabilities to the PRC, they must also detail the disclosure requirements to the U.S. Section 839 will be effective through DOD rulemaking, which has a statutory deadline of June 21, 2025.
- The FY2025 NDAA prohibits DOD from contracting with covered entities on the 1260H List that contract with lobbyists for PRC military companies. This will become effective June 26, 2026.
- Effective September 19, 2025, the FY2025 NDAA will also prohibit DOD from creating or renewing new contracts for covered semiconductor products and services with any entity that also provides those products and services to Huawei or its affiliates or subsidiaries. This prohibition also requires offerors to certify that it is not providing those services to Huawei.
- The FY2025 NDAA expands the definition of “Chinese military company” to include entities and individuals with research partnerships with PRC entities.
- The FY2025 NDAA also expands the definition of “operating directly or indirectly with the United States” to include entities that do not have a physical office or presence in the U.S.
- Acquisition Reforms
Section 815 of the FY2025 NDAA exempts traditional nondefense contractors from being required to submit certified cost and pricing data for their subcontracts if those subcontracts do not exceed $5 million. Instead, contractors may submit the prices paid for the same goods and services under their subcontract if they are determined to be fair and reasonable and based on supported data within the last 12 months.
Section 864 of the FY2025 NDAA creates a pilot program that allows contracting officers to use an alternative capability-based analysis in determining price reasonableness for commercial products and services from nontraditional defense contractors. Under this new pilot program, contracting officers may consider the value to the government, the fitness of the offer, technical expertise, cost, input from users, and the contractor’s business model.
- Other Notable Provisions
Inflationary Relief. Section 824 provides that contractors and subcontractors impacted by inflation may file claims for relief once the DOD promulgates such a regulation. DOD may use appropriated funds for these claims for relief until December 31, 2025.
Organizational Conflicts of Interest. Section 881 provides that OCI waivers must include a written justification, and such waiver authority is only permitted by deputy agency heads and higher-ranking officials.
Small Business Contracting. Section 863 extends the Streamlining Awards for Innovative Technology Projects in the FY2022 NDAA until October 1, 2029. Section 874 creates a pilot program for an expedited process for small businesses and institutes of higher education to obtain facility clearances.
Bid Protests. As previously reported by PilieroMazza, Section 885 raises the task and delivery order bid protest jurisdictional threshold from $25 million to $35 million for DOD, and establishes a requirement for a pilot program proposal to determine a process for payment by an unsuccessful protestor to reimburse the government for litigation costs and the awardee for lost profits.
Servicemember Quality of Life Improvement. This provision provides for a 14.5% pay raise for junior enlisted servicemembers and a 4.5% pay raise for other servicemembers, increases the cost-of-living allowance to account for inflation, and provides more than $2 billion in construction projects to build family housing, barracks, childcare facilities, and schools.
Civil Remedies for Program Fraud. The FY2025 NDAA allows administrative agencies to pursue and settle fraud claims and false statements in administrative proceedings before an investigator, prosecutor, or judge. Agencies can leverage suspension, debarment, and/or recover $1 Million.
Cybersecurity. The FY2025 NDAA requires DOD to create and implement a strategy for DOD multi-cloud environments by June 21, 2025. The DOD must also create and implement a policy to protect biometric data by June 21, 2025. The DOD must further improve mobile device cybersecurity and report to Congress on the potential procurement of virtual private networks, endpoint detection, and generative AI for mobile device cybersecurity.
