National Defense Authorization Act for Fiscal Year 2016 - Part 2

The Fiscal Year 2016 National Defense Authorization Act has been agreed to by both the House and Senate however there were several reports yesterday that the President will veto the bill. While the $604 billion authorization is the number that the President asked for - there is disagreement on the allocation of those funds.

Yesterday we discussed Section 893 which prohibits DCAA (Defense Contract Audit Agency) from taking on any reimbursable work (i.e. contract audits for other Government agencies) until it clears up DoD's backlog of audits. Today we are highlighting Section 896 which attempts to determine the cost of regulatory compliance. This should be an interesting report.

Specifically, Section 896 requires DoD to conduct a survey of contractors with the highest level of reimbursements for cost type contracts with DoD during fiscal year 2014 to estimate industry's cost of regulatory compliance with Government-unique acquisition regulations and requirements in the categories of:

• Quality assurance,
• Accounting and financial management,
• Contracting and purchasing,
• Program management,
• Engineering,
• Logistics,
• Material management,
• Property administration, and
• Other unique requirements not imposed on contracts for commercial items.

Section 893 does not define the "highest level of reimbursements" so we are not sure how low the threshold will be set or how many contractors will be surveyed. Certainly the top ten defense contractors will be included. The provision also wants the Department to express the cost of regulatory compliance as a percentage of total contract costs. Such a percentage result could be applied more broadly for any Government contractor to assess the cost of compliance.

The report is due to Congress in six months.