Holland & Knight Defense Situation Report: September 2022 – Government Contracts, Procurement & PPP

A monthly roundup of defense policy news

Welcome to Holland & Knight’s monthly defense news
update. We are excited to bring you the latest in defense policy,
regulatory updates and other significant developments. If you see
anything in this report that you would like additional information
on, please reach out to authors or members of Holland &
Knight’s
National Security, Defense and Intelligence Team.

LEGISLATIVE UPDATES

Senate NDAA and Defense Spending Updates

As
reported last month, there is still much work to do amid
congressional uncertainty to get a final product on the annual
National Defense Authorization Act (NDAA). The House
passed its version of the Fiscal Year (FY) 2023 NDAA on July
14, 2022, by a vote of 329-101, authorizing funding at a level of
$839 billion, which is $37 billion more than President Joe
Biden’s budget request.

Then on July 18, after the Senate Armed Services Committee
(SASC) favorably
reported the Senate version of the FY 2023 NDAA passed out of
committee by a vote of 23-3 – a process that is done behind closed
doors – the Senate publicly
unveiled its version of the FY 2023 NDAA. The Senate’s NDAA
would authorize $847 billion in funding, which is $45 billion above
the president’s budget request and $8 billion more than the
House-passed NDAA.

There have been bipartisan voices urging the Senate to vote as
soon as possible on the FY 2023 NDAA. Throughout the month-long
August recess, and upon returning to session after the Labor Day
holiday, SASC Chairman Jack Reed (D-R.I.) has consistently called
for the Senate to take action, though admitting that there are
other priorities on the Senate floor, such as passing a continuing
resolution to keep the government operating. He is also trying to
avoid a repeat of last year’s NDAA, when schedule delays and
partisan gridlock prevented the Senate from passing its own NDAA.
On the other side of the aisle, Sen. Tommy Tuberville (R-Ala.) led
23 of his colleagues in
sending a letter to Senate Majority Leader Chuck Schumer
(D-N.Y.) urging that the Senate vote on the FY 2023 NDAA before the
end of September.

While Reed and ranking member Sen. James Inhofe (R-Okla.) plan
to open the amendment process for the NDAA soon to let senators
file their proposed changes to the measure, Schumer announced on
Sept. 20, 2022, that the Senate will meet in October and consider
the NDAA.

Typically, the NDAA spends about two weeks on the Senate floor
while members debate and vote on amendments. Despite Schumer’s
announcement, it is still possible that the Senate will not pass
its own version of the NDAA and that similar to last year, the
House and Senate will conference based on the House-passed bill and
the SASC mark.

Other Armed Services Legislation

Here is a few noteworthy pieces of legislation that have been
introduced in the past month:

• On Sept. 9, 2022, Sens. John Cornyn (R-Texas) and Gary Peters
  (D-Mich.)
  introduced the Army Facilitating Untapped Technology,
  Utilities, Resources, and Equipment for Servicemembers Act (Army
  FUTURES Act), which would clarify roles and responsibilities for
  Army modernization efforts and help support the Austin, Texas-based
  Army Futures Command’s new and innovative strategies to keep
  U.S. Armed Forces competitive in the evolving global security
  landscape.




• Sens. Cornyn and Jeanne Shaheen (D-N.H.) on Sept. 12, 2022, introduced the
  Securing American Acquisitions, Readiness, and Military Stockpiles
  Act, which would give the U.S. Department of Defense (DOD) enhanced
  procurement authorities to quickly refill American defense
  stockpiles after the president provides aid to an ally or partner
  attacked by a foreign adversary, including replenishing
  America’s stockpiles after lethal aid was sent to Ukraine for
  defense against Russia.




• Sens. Angus King (I-Maine) and Cornyn
  introduced the American Defense Programs, Logistics, and
  Acquisitions for our Nation’s Security (American Defense PLANS)
  Act on Sept. 15, 2022. This bill would help America’s national
  defenses keep up with rapidly changing technologies by studying the
  DOD’s acquisition and modernization efforts and creating
  recommendations for how DOD programs can continue to modernize with
  evolving defense challenges.

Lastly, the Senate Foreign Relations Committee on Sept. 14,
2022,
advanced the Taiwan Policy Act of 2022 by a vote of 17-5,
sending it to the full Senate floor for a vote. While this
legislation is not within the direct jurisdiction of the House
Armed Services Committee (HASC) or SASC, the bill reinforces the
U.S. policy toward Taiwan in order to maintain deterrence to China
and provides $6.5 billion in military aid and expeditious arms
sales, while prioritizing the transfer of excess U.S. defense
articles to Taiwan.

Armed Services Hearings and Nominations

In September, the SASC held two nominations hearings. The first
was for Lt. Gen.
Bradley Saltzman to be General and Chief of Space Operations.
If confirmed, he would be the principal military advisor to the
Secretary of the Air Force for Space Force operations and, in a
separate capacity, a member of the Joint Chiefs of Staff. The
second nomination hearing was for U.S. Air Force Gen.
Anthony Cotton, nominated to be Commander of the U.S. Strategic
Command (STRATCOM), which is responsible for strategic nuclear
deterrence, global strike and DOD Global Information Grid
operations.

On Sept. 20, 2022, the SASC also held a
hearing to receive testimony on U.S. Nuclear Strategy and
Policy. Witnesses included university researchers, the Director of
the U.S. Institute of Peace and representatives from private
industry. The following day, the SASC held a
hearing to receive testimony on the status of military
recruiting and retention efforts across the DOD. Witnesses in this
hearing included members of the U.S. Army, Navy, Air Force and
Marine Corps, as well as the Deputy Assistant Secretary of Defense
of Military Personnel Policy. In the HASC, the Subcommittee on
Military Personnel held a
hearing to receive testimony on how the recommendations of the
Independent Review Commission on Sexual Assault in the Military
have been implemented and on the establishment of the Office of
Special Trial Counsel. Witnesses included the Under Secretary of
Defense for Personnel and Readiness and the Under Secretaries of
the Army, Navy and Air Force.

EXECUTIVE AND DEPARTMENTAL UPDATES

Continued American Assistance to Ukraine

President Joe Biden sent a
request to Congress on Sept. 2, 2022, to deliver an additional
$11.7 billion for security and economic assistance to Ukraine for
the first quarter of FY 2023, as well as $2 billion to help address
the impact of the war on Ukraine’s energy supply. The request
specifically asks for DOD funding of $4.5 billion for equipment for
Ukraine and replenishment of DOD stocks, along with $2.7 billion
for continued military, intelligence and other defense support.
Along with the request, Shalanda Young, Director of the Office of
Management and Budget (OMB),
said that roughly three-quarters of the direct military and
budgetary support that Congress previously provided for Ukraine has
been disbursed or committed, with even more expected by the end of
the fiscal year.

Additionally, on
Sept. 8 and
Sept. 15, President Biden announced the administration’s
20th and 21st Presidential Drawdowns of security assistance valued
at up to $675 million and $600 million, respectively, to meet
Ukraine’s critical security and defense needs. Capabilities in
these packages included ammunition for High Mobility Artillery
Rocket Systems (HIMARS), counter-unmanned aerial systems, night
vision devices and other capabilities outfitted for Ukrainian
soldiers.

Lastly, in late August,
President Biden and the DOD
announced approximately $3 billion in additional security
assistance for Ukraine, with funds passed by Congress earlier in
the year under the Ukraine Security Assistance Initiative (USAI).
The USAI package, which also happened to be on Ukraine Independence
Day, was a long-term commitment representing multiyear investments
to the enduring strength of Ukraine’s armed forces. Unlike
Presidential Drawdowns (PDA), which the DOD has continued to
leverage to deliver equipment to Ukraine from DOD stocks at a
historic pace, USAI is an authority under which the U.S. procures
capabilities from industry. This announcement represented the
beginning of a contracting process to provide additional priority
capabilities to Ukraine in the mid- and long-term. Capabilities
that the administration will award contracts for include drones,
precision munitions, radars, artillery and more.

In total, the U.S. has committed approximately $15.8 billion in
security assistance to Ukraine since the beginning of the Biden
Administration. Since 2014, the U.S. has committed approximately
$17.9 billion in security assistance to Ukraine and more than $15.1
billion since the beginning of Russia’s invasion on Feb. 24,
2022.

Reauthorization of SBIR, STTR Programs

Congress is set to reauthorize the Small Business Innovative
Research (SBIR) and Small Business Technology Transfer (STTR)
programs this month after concerns over the abuse of the reward
process have been addressed and accepted by Sen. Rand Paul (R-Ky.),
who had expressed concerns about abuse of the SBIR process by
select companies. The SBIR and STTR programs, which were set to
expire on Sept. 30, 2022, seek to increase the participation of
small innovative companies in federally funded research and
development (R&D) and will be reauthorized for three years
under the legislation. To assuage concerns, the reauthorization
bill will include minimum performance standards to ensure that the
largest SBIR and STTR award winners are adequately transitioning
their technologies and bringing them to market. In addition, the
bill will require federal agencies to establish a due diligence
program to assess the potential risk, material misstatement or
change in ownership that threatens national security.

Under the SBIR program, federal agencies that budget at least
$100 million annually for outside research must allocate a portion
– 3.2 percent since FY 2017 – to support R&D in small
businesses. The STTR program, meanwhile, requires federal agencies
and department that spend at least $1 billion on outside research
to allocate at least 0.45 percent of the funds to small businesses
and academic research institutions.

In 2019, the DOD released an
economic impact report, which found that from 1995 to 2018, the
DOD’s SBIR and STTR programs returned $22 for every $1 awarded
through the programs. The study also found that the DOD’s SBIR
and STTR awards resulted in $121 billion in new sales and products
and created 1.5 million jobs from 1995 to 2018.

State of the Space Industrial Base 2022 Report
Released

On Aug. 24, 2022, the Defense Innovation Unit (DIU), U.S. Space
Force (USSF) and Air Force Release Laboratory (AFRL) jointly
released the
2022 State of the Space Industrial Base Report, the fourth
annual installment that assesses progress in retaining U.S.
leadership in commercial, civil and national security space in an
increasingly competitive strategic era. The report represents the
collective voice of approximately 350 industry experts to provide
input and recommendations on how best to nurture and grow a healthy
space industrial base and national security innovation base. It
evaluates multiple sectors, including launch services,
communications, in-space transportation and logistics, power and
propulsion, and imaging satellites. The recommendations aim to
provide insight and feedback to the administration, National Space
Council, senior policymakers across the executive departments,
Congress and the venture capital and private investor communities,
as well as the broader commercial space ecosystem.

Space Policy Gets a Revamp

For the first time since 2016 after the creation of the Space
Force, SPACECOM and other new military space organizations, the DOD

updated its directive on space policy and formally recognized
space “as a priority domain of national military power”
and it will “protect and defend the use of space for U.S.
national security purposes, the U.S. economy, and allies and
partners of the United States.” The document, approved by
Deputy Defense Secretary Kathleen Hicks, also adopted rules for
safe operations in space and outlined the roles for military
branches, acquisition offices, and other agencies and combatant
commands.

DOD Issues New Rule on China Disclosures

Last month, the DOD
issued an interim rule that will require potential defense
contractors to disclose any work as part of the contract that will
be conducted by workers or facilities in China. Specifically, the
interim rule, posted in the Federal Register, amends the
Defense Federal Acquisition Regulation Supplement (DFARS) to
implement Section 855 of the FY 2022 NDAA that requires pre-award
disclosure from contracting entities that employ one or more
individuals who will perform work in China. Despite the ruling
saying that federal procurement data for FY 2019 through 2021 shows
no contracts above $5 million “for which the place of
manufacture, place of performance, or country of the product’s
origin is China,” the DOD describes the need for this ruling
as “urgent and compelling” as “Performance of a
contract, whether classified or unclassified, in a nation that is
not our ally may provide opportunities for that nation to gather
sensitive information.”

Final Ruling Reauthorizes DOD’s
Mentor-Protégé Program

Late last month, the DOD
issued a final rule reauthorizing the DOD’s
Mentor-Protégé Program (MPP). Under the MPP, small
businesses are partnered with larger companies in a mutually
beneficial relationship. The MPP provides incentives to mentors to
assist various types of small businesses in performing as
subcontractors or suppliers on DOD contracts, and
protégés benefit by gaining access to DOD contracts
and the business development guidance provided by their mentor.
While the rule provides a reauthorization to the program, the
House-passed FY 2023 NDAA may consider whether to make the program
permanent.

President Biden Nominates Navy Acquisition
Chief

On Sept. 2, 2022, President Joe Biden
nominated Nickolas Guertin, current Director of Operational
Test and Evaluation in the Office of the Secretary of Defense, to
be Assistant Secretary of the Navy (Research, Development, and
Acquisition). If confirmed, he will have authority over the
Navy’s $140 billion portfolio.

Guertin currently serves as senior advisor to the Secretary of
Defense on operational and live fire testing, and evaluation of DOD
weapon systems. He has a four-decade combined military and civilian
career in submarine operations, ship construction and maintenance,
and development and testing of weapons, sensors, and combat
management products – including the improvement of systems
engineering and defense acquisition. Most recently, he performed
applied research for government and academia in software-reliant
and cyber-physical systems at Carnegie Mellon University’s
Software Engineering Institute.

DIU Solicitations

The Defense
Innovation Unit (DIU), which aims to leverage new technologies
for the U.S. military, solicited three projects in September. The
first is for Project Panacea, where the DOD is seeking solutions
that provide a pan-viral countermeasure to eliminate the threat
posed by novel and highly transmissible viral pathogens. The second
is for Argo Navis, where DOD is looking for commercially proven
software solutions to 1) build end-to-end alternate or parallel
paths of critical supply chains; 2) identify and manage risk within
those supply chains; and 3) do so in a way that can be scaled
across different supply chains of interest by a DOD user.

The final DIU solicitation is for Hypersonic and High-Cadence
Airborne Testing Capabilities (HyCAT). Hypersonic vehicle
technology has evolved by leveraging the same infrastructure used
for missile development and testing. The availability of this
infrastructure has accelerated hypersonic development and decreased
initial testing costs. However, current land- and sea-based test
ranges are optimized for low-cadence and operationally
representative tests that replicate the trajectory and velocity of
the hypersonic weapon system. The slow pace of hypersonic R&D
has resulted in more expensive and less effective products. Thus,
the DOD is searching for a specialized hypersonic vehicle with
unique attributes to find a solution to this problem.

New Biotechnology Executive Order

President Joe Biden
signed an executive order (EO) on Sept. 14, 2022, announcing
new investments and resources to advance national biotechnology and
biomanufacturing initiatives. This EO seeks to bolster efforts by
the DOD and other federal agencies to ensure U.S. economic and
national security by leveraging biotechnology to secure, strengthen
and diversify the domestic manufacturing supply chains of critical
goods, products and services.

After the signing, the DOD announced $1.2 billion in new
investments in biomanufacturing. Emerging biomanufacturing
capabilities will help the DOD address logistical challenges across
multiple DOD mission areas. Furthermore, biotechnology will enable
the DOD to source mission-critical materials domestically without
relying on fragile supply chains, develop materials with novel
properties to enhance systems ranging from hypersonics to
submarines and greatly reduce logistical and resupply timelines by
providing point-of-need manufacturing for building materials and
energy production.

Over the next five years, the DOD will invest $1 billion in
bioindustrial domestic manufacturing infrastructure to catalyze the
establishment of a domestic bioindustrial manufacturing base
accessible to U.S. innovators. This support will incentivize
private- and public-sector partners to expand manufacturing
capacity for products important to commercial and defense supply
chains, such as critical chemicals. An additional $200 million will
support enhancements to biosecurity and cybersecurity postures at
these facilities.

DOD Hosts First Joint Safety Council

On Aug. 26, 2022, the DOD
held its inaugural quarterly Joint Safety Council (JSC), which
included representatives from the Army, Navy, Marine Corps, Air
Force, National Guard Bureau and Office of the Secretary of
Defense. The JSC originates from a National Commission on Military
Aviation Safety (NCMAS) recommendation to provide a dedicated focus
on operational safety challenges and augment existing safety
programs by helping “bridge the gap between commercial
aviation practices and military aviation realities.” Congress
endorsed the NCMAS recommendation, authorizing the JSC in the FY
2022 NDAA. The JSC will integrate with the DOD’s existing
safety governance process, which will provide a conduit to elevate
operational safety recommendations to senior DOD leaders.

At this first meeting, leaders reviewed the JSC Charter and FY
2022 NDAA-assigned tasks and discussed specific JSC focus areas and
objectives through calendar year 2023. The JSC is scheduled to meet
again regarding safety of military operations (including aviation,
afloat, ground and tactical vehicles) and related regulations and
policy reforms, such as safety data standards and safety-related
maintenance, supply chain, personnel management and training
challenges.