VIEWPOINT: NDAA Continues Development of Provide Chain Vigilance to Scale back Reliance on China
9/26/2023
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The fiscal 12 months 2024 Nationwide Protection Authorization Act contains a number of provisions that proceed the development of vigilance of defense-critical provide chains to cut back the Protection Division’s reliance on China, Russia and different so-called “international locations of concern.”
Given rising apprehension over the safety of U.S. provide chains, the federal government’s threat tolerance has decreased dramatically whereas regulatory and provide chain necessities for firms doing enterprise with the federal government have elevated.
The Protection Division and different nationwide safety companies are centered not solely on the place suppliers conduct their operations, however overseas possession, management or affect of suppliers. The division is extra centered than ever on overseas affect arising not solely from overseas nationwide govt management but additionally the skilled relationships of key administration personnel, third-party enterprise preparations, and complicated international provide chains.
And the Pentagon will insist that contractors deliver an intensified focus to those points, too.
Of main concern to the division is overseas possession, management or affect inside software program and {hardware} provide chains of mission essential merchandise deployed in delicate army installations or essential infrastructure.
There’s an emphasis on decreasing threat of essential software program that was: initially developed utilizing supply code from; continues to be maintained and/or patched in; or is in any other case accessible by overseas builders situated in or topic to the legal guidelines of nations of concern, specifically, China and Russia.
It’s crucial for all contractors to know the diploma to which mission-critical merchandise are sourced from overseas entities or derived from overseas supply code.
The necessity for resiliency, variety and safety of U.S. provide chains got here into sharp focus after the pandemic, in addition to subsequent provide chain disruptions skilled due to Russia’s conflict in Ukraine.
President Joe Biden’s Government Order 14017, America’s Provide Chains, signed in February 2021, required U.S. companies together with the Protection Division to evaluate particular provide chain dangers related to essential minerals and uncommon earth minerals, along with defense-critical provide chains inside the protection industrial base.
Sure provisions inside the FY 2024 NDAA advance the division’s efforts to handle essential minerals and uncommon earth minerals, together with Part 1415 “Essential Mineral Independence” requiring a method to develop provide chains that aren’t depending on mining or processing of essential minerals in or by international locations corresponding to China and Russia.
Different provisions of the NDAA, together with Sections 867-869, concentrate on analyzing provide chain vulnerabilities, figuring out dependence on overseas entities for sure finish objects and parts, and requiring provide chains of main protection acquisition applications to be considerably manufactured in the USA.
Part 867 would set up a pilot program for analyzing and constantly monitoring key provide chains. A non-public entity would monitor provide chains for coated weapons platforms, that means weapons platforms recognized in Part 1251(d)(1) of the 2021 NDAA, and analyze protection industrial base provide chains for potential points and vulnerabilities in addition to alternatives for enchancment.
Part 868 would require the comptroller common of the USA to conduct a research figuring out the Protection Division’s dependence on overseas entities for sure finish objects and parts, together with the extent to which its procurement processes allow figuring out the nation of origin of finish objects and parts.
The research would additionally present suggestions for legislative or administrative motion to handle recognized vulnerabilities, to incorporate various provide chains or various sources.
Part 869 would implement a rulemaking course of to ascertain an enhanced home content material requirement for manufactured articles, supplies, or provides of main protection acquisition applications to be considerably manufactured in the USA. The thresholds for figuring out whether or not articles, supplies, or provides are thought-about to be considerably manufactured in the USA begins at greater than 60 p.c, will increase to 65 p.c between Jan. 1, 2024 by 2028, and 75 p.c after Jan. 1, 2029.
Nonetheless, the home content material requirement wouldn’t apply to international locations which can be members of the nationwide know-how and industrial base: Australia, Canada, New Zealand, and the UK. Moreover, the home content material requirement would exclude articles manufactured in international locations which have executed a reciprocal protection procurement memorandum of understanding with the USA, corresponding to sure European and NATO allies, Egypt, Israel and Japan.
Given the Protection Division’s goal to have larger transparency and scale back Chinese language and/or Russian dependencies in provide chains, it isn’t solely foreign-owned firms who should be aware of elevated provide chain necessities, fairly all firms inside the protection industrial base.
Certainly, these new provisions are usually not the one necessities that contractors will quickly have to fulfill. The division is anticipated to problem an instruction outlining the way it would require contractors performing sure massive protection contracts to exhibit that they don’t seem to be foreign-owned or influenced earlier than contract award, pursuant to Part 847 of the FY 2020 NDAA.
Firms who don’t possess the aptitude to determine and assess overseas possession, management or affect considerations inside provide chains or potential choices for mitigations may have to show to outdoors consultants to know how one can stay in compliance with the Protection Division and different U.S. laws. The stakes have by no means been greater.
Jessica Curyto is a senior director of regulatory threat at The Chertoff Group. She served because the particular advisor to the assistant secretary of export administration and as performing chief of workers of the Bureau of Trade and Safety on the Division of Commerce. Ed Shapiro is a senior advisor to The Chertoff Group. He’s an knowledgeable on authorities contracting guidelines, together with compliance with legal guidelines and laws governing procurement and contractor integrity.
Matters: Worldwide, Manufacturing, Industrial Base
