Looking to 2019: Contracting advocates and experts lay out key issues in the year ahead

December 27, 2018

By Marjorie Censer

Contractors should expect a more uncertain year, given that the country will now have divided government, industry advocates and experts told Inside Defense.

However, they expect progress and changes on some of the key issues from 2018 as well.

Here's a look at some of the top focus areas:

Budget

Negotiations on the fiscal year 2020 budget are already in full swing. While the final amount is not yet clear, it's certain to be a more volatile year with Democrats set to take over the House.

Contractors will be looking to Congress to put together a two-year budget deal to avert sequestration again.

Wes Hallman of the National Defense Industrial Association told Inside Defense industry will be watching closely to see how that deal shakes out.

"Where that all comes together is going to be a result of real negotiations that are going to happen with a split government," he said.

Alan Chvotkin of the Professional Services Council told Inside Defense he expects the budget deal to be a "summer 2019 conversation."

"The one wild card in that conversation is the debt ceiling," he added.

Additionally, the debate over U.S. Space Command -- and how much it might cost -- could play into budget deliberations.

Focus on supply chain

The Pentagon this year unveiled what it's calling the fourth pillar of acquisition. Beyond cost, schedule and performance, DOD has intensified its focus on security.

Defense Secretary James Mattis earlier this year also established a task force meant to counter cyber threats to critical data and operations. The memo signed by Mattis set a time line that calls for specific actions next year.

Supply chain changes promise to affect "the defense industrial base all the way from the bigs to the fifth tier," Hallman told Inside Defense.

Part of the goal is to ensure contractors can keep control of their intellectual property and the security of weapon systems.

What's not yet clear is exactly where the responsibility is going to lie, he said, but noted he expects increased pressure on this issue.

Jeniffer Roberts, a partner at law firm Alston & Bird, told Inside Defense that certain prohibitions, including those on the government and contractors using Huawei and ZTE Technology products, are set to begin taking effect in 2019.

She and Katherine Veeder, a senior associate at the firm, said they'll be watching potential challenges to these bans. Kaspersky, for instance, has unsuccessfully challenged its ban but could seek to take the matter to the Supreme Court.

Pentagon acquisition czar Ellen Lord said last week the Pentagon is crafting a legislative proposal that would publicize software companies on the National Security Systems Restricted List so defense contractors will not work with them.

Chvotkin said "supply chain issues and risk management [are] going to be a significant issue."

"I think we'll continue to see both legislative and regulatory action around supply chain," he said.

Chvotkin also noted he's seeing contractors “doing a lot more inspecting of their supply chain than they've ever done before.”

"There's a lot more attention around the issue of who's in their supply chain and where their data is flowing down," he added.

Security clearances

This year, the Pentagon began the process of taking over security clearance evaluation responsibility for DOD employees and now is likely to take on the entire background investigations mission eventually. Facing a significant backlog, the Defense Department is pursuing continuous evaluation and automation to speed the process.

Hallman said NDIA is pleased with the direction the problem is headed.

"The ideas that they have are exactly right on harnessing the capabilities and the promise of big data to do continuous reviews of individuals," he said. "I think all of that is going in the right way. The key is going to be: are the resources going to be there behind this to really drive down that backlog."

Another key issue, he said, is reciprocity across agencies.

Chvotkin told Inside Defense his group is closely watching the transition of NBIB's defense work to DOD. Additionally, PSC is hoping to see changes that will make the process more effective.

"A lot more has to be done and a lot more can be done," he said. "I do see progress being made."

Industrial base analysis

This year, the Pentagon issued a new, White House-ordered review of the industrial base.

Hallman said he is watching for the "waterfall" that stems from the report.

"I don't think we've seen the results of what this is going to be," he added. "I think, especially the defense committees, are going to wake up and realize that there's a report that's rich in recommendations and data that they're going to take up."

Lord said DOD is seeking to spend about $250 million in the coming year to address more than 300 recommendations identified in the document.

Progress-based payments

Earlier this year, the Pentagon issued a proposed rule on progress-based payments that generated so much controversy it was quickly pulled.

However, industry advocates are expecting the department to take another stab at the rule, which was initially based on legislation.

"They're going to make another run at that," Hallman said. "The great thing is, as they've relooked at this, they've really done a better job of reaching out. . . . They're asking for inputs and they're trying to get an understanding . . . of what are the impacts of various rule changes."

DOD earlier this month announced a slate of public meetings related to progress-based payments.

Lord told reporters last week the Pentagon "went out with some ideas we had, perhaps, a little prematurely and we had not done the series of meetings that many of us wanted to do.

"We're really on what I'd call a listening tour right now," she continued.

But Chvotkin said he was "surprised" at the notice.

"How many times does the department want to hear no?" he said. "Quite honestly, I just can't see what is different until the department reflects a different approach."

Chvotkin said he's now watching for a Government Accountability Office report due in the spring. The report, sought in FY-19 legislation, calls for "an analysis of the effects of current financing levels of defense contracts on defense contractors and defense budgets."

Acquisition reforms

Chvotkin said he expects additional action this year in several key areas: rapid acquisition, intellectual property and the Section 809 panel.

"I think we're going to see an awful lot next year around rapid acquisition," he said. "The department just talks constantly about doing a better job of shortening the acquisition cycle."

Additionally, the Section 813 panel on technical data has completed its report, and the Army has issued a new intellectual property policy.

"I think there's just going to be a lot more attention to intellectual property," Chvotkin said.

Finally, the Section 809 Panel is slated to complete its work next month, potentially generating more recommendations for Capitol Hill and DOD to pursue.