2017 NDAA Establishes Preference For DoD Fixed-Price Contracts

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The 2017 National Defense Authorization Act establishes a preference for the DoD to use fixed-price contracts, and will require executive approval of cost reimbursement procedures for certain high-dollar procurements.

Section 829 of the 2017 NDAA is titled, quite simply, “Preference for Fixed-Price Contracts.” Section 829 specifies that, within 180 days after the 2017 NDAA is enacted, the DFARS are to be revised to establish a preference for fixed-price contracts (including fixed-price incentive fee contracts) when a DoD determines which contract type to use for a particular acquisition.

It isn’t clear whether Congress intends the DFARS to ultimately include a stronger fixed-price preference than already exists in the FAR. At present, FAR 16.301-2 and FAR 16.301-3 place important limitations on a Contracting Officer’s ability to select a cost reimbursement contract type, including, under FAR 16.301-2, where “[c]ircumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract.”

The 2017 NDAA’s preference for DoD fixed-price contracts does go beyond the FAR in one important respect. Starting on October 1, 2018, a DoD contracting officer will not be permitted to enter into a cost reimbursement contract in excess of $50 million unless the contract is approved by “the service acquisition executive of the military department concerned, the commander of the combatant command concerned, or the Under Secretary of Defense for Acquisition, Technology, and Logistics (as applicable).” The threshold for approval will fall further to $25 million on October 1, 2019.

Given the existing FAR restrictions on cost reimbursement contracts, it remains to be seen whether Section 829 will represent a significant shift in DoD procurement policy. DoD’s proposed DFARS amendments, which should be published by mid-2017, will shed some light.

2017 NDAA: The National Defense Authorization Act for Fiscal Year 2017 appears poised beneath the president’s pen for signing. It includes some massive changes as well as some small but nevertheless significant tweaks sure to impact Federal procurements in the coming year. For the next few days, SmallGovCon will delve into the minutia to provide context and analysis so that you do not have to.