Many of the new contracting policies imposed by the National Defense Authorization Act for Fiscal Year 2012 [pdf] are geared towards increasing oversight of defense contractors and reducing the federal government’s outlay of cash. Here are a few of the highlights.

• Contractor past performance information. Section 806(a) of the 2012 NDAA requires the Under Secretary of Defense for Acquisition, Technology, and Logistics to “develop a strategy for ensuring that timely, accurate, and complete information on contractor performance is included in past performance databases used for making source selection decisions.” At a minimum, this “strategy” is to include new rules on “timeliness and completeness of past performance submissions” and assignment of “responsibility and management accountability” for the completion of past performance evaluations. The new rules must also “ensure that past performance submissions . . . are consistent with award fee evaluations . . . .” Importantly, the statute protects the contractor’s right to “submit comments, rebuttals, or additional information” for inclusion in the past performance database and to challenge a negative past performance evaluation “in accordance with applicable laws, regulations, or procedures.” The Federal Circuit affirmed the contractor’s right to challenge a past performance rating earlier this year in Todd Constr., L.P. v. United States, No. 2010-5156 (Aug. 29, 2011) [pdf].
• Restrictions on contractor labor and overhead charges. Section 808 of the 2012 NDAA limits the amount obligated for DOD spending on contract services in FY 2012 and FY 2013 to the amount requested for contract services in the President’s budget for FY 2010. It also requires the Secretary of Defense to issue new guidance indicating that labor rates and overhead rates in contracts over $10 million awarded in FY 2012 or 2013 “shall not exceed labor rates and overhead rates paid to the contractor for contract services in fiscal year 2010.”
• Restrictions on allowable employee compensation. Section 803 of the 2012 NDAA extends the restriction on the allowability of compensation expenses paid to a contractor’s “senior executives” to all contractor employees. The current limit is $693,951, a benchmark compensation figure set in 2010 by the Administrator for Federal Procurement Policy in accordance with 41 U.S.C. § 1127. The restriction does not prohibit paying senior executives or other contractor employees in excess of the benchmark. Rather, it makes compensation in excess of the benchmark an “unallowable cost.”  See FAR 31.205-6(p).
• Annual report on single-award task and delivery order contracts. Section 809 of the 2012 NDAA requires the Secretary of Defense to submit an annual report to Congress identifying determinations to award sole source task or delivery order contract awards over $100 million. The report is to include an explanation of the basis for the determination to invoke the exception that allows a sole source award.
• Definition of “covered contract” for application of contractor business systems rules. Section 816 of the 2012 NDAA changes the definition of “covered contract” for purposes of the contractor business systems rules put in place by the Ike Skelton National Defense Authorization Act for Fiscal Year 2011 (Public Law No. 111-383) [pdf]. Under the previous law, a “covered contract” was “a cost-reimbursement contract, incentive-type contract, time-and-materials contract, or labor-hour contract that could be affected if the data produced by a contractor business system has a significant deficiency.” The revised language defines a “covered contract” as “a contract that is subject to the cost accounting standards . . . that could be affected if the data produced by a contractor business system has a significant deficiency.” We discuss the new DFARS rules on contractor business systems rules here. We discuss the original statutory requirement here.
• Additional access to contractor records. Section 842 of the 2012 NDAA gives the Secretary of Defense authority to examine “any” contractor and first-tier subcontractor records “to the extent necessary to ensure that funds available under the contract . . . (A) are not subject to extortion or corruption; and (B) are not provided directly or indirectly to persons or entities that are actively supporting an insurgency or otherwise actively opposing United States or coalition forces in a contingency operation.” Such access would be available only upon a written determination by the contracting officer “or comparable official” that there is reason to believe such improper uses of funds have occurred. A sunset provision provides that this access-to-records authority will be effective for only three years.