On December 23, 2022, President Joseph R. Biden signed into law the 2023 National Defense Authorization Act (NDAA) as Public Law No. 117-7776, which included Section 822: “Modification of Contracts to Provide Extraordinary Relief Due to Inflation Impacts.” This section temporarily gives new discretionary authority to the secretary of defense to modify firm fixed-price (FFP) contracts to provide monetary relief to affected contractors and subcontractors. This new authority is specifically aimed at helping contractors where costs are outpacing price due solely to economic inflation.
Who is eligible?
Section 822 is available to both prime contractors and subcontractors across all Department of Defense (DoD) agencies. Prime contractors may seek a contract adjustment for themselves and their subcontractors. If a prime is unable or unwilling to request an adjustment for a subcontractor, then the subcontractor may seek relief directly from the government.
What should contractors do right now?
Because this new authority to provide relief is set to expire on December 31, 2023, contractors should waste no time in assessing their eligibility.Contractors who believe that they may be eligible should begin preparing and cataloging documentation that shows how they were affected “due solely to economic inflation.”
During this process, contractors should “account only for the actual cost of performing such eligible contract or such eligible subcontract, but may account for indirect costs of performance, as the Secretary of Defense determines appropriate.”
When will we know more?
Further guidance is expected from DoD — specifically from the under secretary of defense for Acquisition and Sustainment — by March 23, 2023.
Section 822 also amended threshold requirements for certain adjustments. Under the new law, the threshold for approval of any adjustment was raised from $50,000 to $500,000 and the congressional notification threshold was raised from $25 million to $150 million.
The implementation of Section 822 has the potential to provide much needed relief to DoD contractors. To receive the relief that they are eligible for under the law, contractors must be diligent in complying with all of the requirements of Section 822 as they are implemented by DoD. Because the window for submission will be so short, time is of the essence. Bradley continues to monitor, assess, and advise on all aspects of the implementation of Public Law No. 117-7776, especially Section 822.