Over 40% of the Department of Defense’s budget is Operations and Maintenance (O&M) money.  Right now, any unobligated funds in that account, used to buy most commercial services and products, expires at the end of the year.  Congressman Mac Thornberry (R-GA), though, is proposing a change that would allow DOD to keep up to 50% of unobligated O&M money into the following fiscal year.  This could mean a big change for contractors used to seeing an end of year spending blitz.  It is true, but not very well known, that the departments of Homeland Security, Housing and Urban Development, Transportation, and Treasury already have such authority. How often it is used, though, is uncertain as many offices in these agencies continue to commit considerable dollars at the end of the fiscal year. The idea behind such flexibility is obvious:  to give agencies more time to make better acquisition decisions, rather than rush a lot of dollars out the door in a compressed time period.  That is a particular concern this year as agencies have delayed spending in many areas because of COVID-19.  There is considerable money left to renew existing projects and perhaps even initiate some new ones.  Thornberry will try to attach his amendment to the FY’21 DOD appropriations bill this summer.  Contractors may want to watch this closely as its passage could change future business development practices. 

Despite calls from industry, and even the Pentagon, to delay requirements that defense contractors purge all Huawei, ZTE, and other banned tech throughout their entire company, Congressional leaders seem unwilling to grant a statutory extension.  Indeed, House Armed Services Committee Chair Adam Smith (D-WA) would like the Government Accountability Office to initiate a report on the implementation of Section 889, the portion of the FY’19 defense bill that set the ban in motion.  The FCC recently named Huawei and ZTE as formal risks to national security.  The question of how contractors should comply, though, is difficult to answer.  No regulation has yet been issued for either review or comment.  A draft reg is thought to be stalled in OMB’s Office of Information and Regulatory Affairs.  The mere absence of a regulation, though, does not forestall the implementation of the law, Part B of which is scheduled to become effective August 13^th.  While DOD leaders had indicated earlier this year that they would like to see a six-month delay, one branch of the government can’t undo what another branch has done without some sort of formal action.  While some may believe that limited enforcement will provide a degree of relief, keep in mind that the initial watchdogs of company compliance were always more likely to be whistleblowers.  As such, contractors may be left to taking the broadest reading of the law, which bans the use of Huawei, ZTE and affiliated technologies throughout a DOD contractor’s company, regardless of where in the world it is located or whether or not the specific location is involved in DOD work.  The bottom line is that any company with significant DOD business must take precautions to ensure that both it and its subcontractors comply with the law.

While prime contractors may interact with sub-contractors every day, its usually about meeting a current requirement or how to approach an upcoming bid, not on some element of compliance.  When was the last time, though, that you checked the Country of Origin on products shipped from your key suppliers?  Are their key personnel still part of the company?  When was the last time they (or you) had training?  As a prime your responsibility runs beyond generating business and even beyond ensuring that your own compliance processes are up to date and being followed.  You are responsible for the performance of your sub-contractors and you can be financially liable, along with them, if there are gaps in their compliance.  While many large companies have an annual certification process for sub-contractors, many medium or smaller companies do not.  All prime contractors that work with sub-contractors should have regular oversight of their sub’s adherence to applicable compliance rules.  Topics to cover include size status, whether the source for key parts has changed, the existence of a business ethics program, compliance with FAR sub-k flow downs, and any other area that impacts a specific contract or agreement.  It can be difficult to ensure sub compliance at a time when workplaces are virtual, but your company is the one ultimately at risk during an audit or whistleblower incident. As with your own compliance, ensuring that sub-contractors are fulfilling their own obligations is a pennies on the dollar investment.   Taking the time now can save you – and your sub – money later on.