I examined how and whether the newly passed National Defense Authorization Act (NDAA) will provide inflationary relief for government contractors in a recent article for Reuters. Government contractors who had firm fixed price contracts awarded in the last two years are finding that the work performed now is more expensive due to rising inflation costs.
As I explained in the article, “The economic instability of the current contracting marketplace could inhibit the recruiting and retention of quality talent and drive government contractors, especially small businesses, out of the market, leading to gaps in national security capabilities, decreased competition, and an overall deterioration of the defense industrial base.” The NDAA hopes to alleviate some of this uncertainty with Section 822 of the bill which gives “the Secretary of Defense authority to modify contracts to ameliorate the worst effects of inflation, but it is far from a panacea for the industry’s problems.”
Further, the Section 822 – applicable to both prime contractors and subcontractors – allows contractors to request a contract modification when ‘due solely to economic inflation, the cost to a prime contractor of performing such eligible contract is greater than the price of such eligible contract.’ Additionally, the government is prohibited from asking for any consideration in return for the modification.”
I concluded, “Section 822 is a welcome development for the DOD contracting community and for U.S. national security more broadly, but its potential effectiveness is not yet certain.”
The full article, “Defense Authorization Act Provides Inflationary Relief for Government Contractors,” was published by Reuters on December 20 and is available online or in the PDF linked here. I wrote a companion piece about Section 822 of the bill in a previous blog post.