Fiscal Year 2023 started on October 1 and, without a final set of Department of Defense (DoD) authorizations and appropriations, the DoD currently is operating under continuing resolution.  A version of the National Defense Authorization Act (NDAA) for Fiscal Year 2023 bill passed the House of Representatives and has been sent to the Senate for its consideration.  The House version, H.R. 7900, in addition to authorizing the procurement of various items, would provide for further environmental and equity initiatives, such as providing for (i) electric vehicle charging stations at commissary stores and military exchanges, (ii) a pilot program to facilitate the transition of certain nontactical vehicles to electric vehicles, (iii) a temporary prohibition on cost-sharing requirements for contraceptive prescriptions and related services, (iv) imposition of data standards for certain agencies, (v) development of “gender-neutral fitness standards” for certain military occupational specialties, as well as (vi) prohibition on barring a veteran from federal employment solely because the veteran consumes or has consumed cannabis, and more.

The House bill includes a proposed Section 1413, which calls for a study and pilot program on semiconductors and the national defense stockpile. This Section would result in a report on “any supply chain vulnerabilities or choke points, including from sole sources of supply or geographic proximity to strategic competitors, including the critical minerals and strategic raw materials… required to product the semiconductors…” The House bill also includes Section 5875 which would provide for a working group to “address semiconductor supply chain issues caused by Russia’s illegal and unprovoked attack on Ukraine” and a report on semiconductor and supply chain disruptions due to Russia’s invasion of Ukraine.

Additionally, the House bill includes a proposed Section 6728, Unmanned Aerial Security, which would prohibit financial assistance or renewal of a contract to procure unmanned aircraft systems (UAS) or systems that detect UAS that are “manufactured in a covered foreign country or by a corporation domiciled in a covered foreign country,” or UAS that use certain components that are “manufactured in a covered foreign country or corporation domiciled in a covered foreign country.” The House bill also would prohibit financial assistance or procurement of UAS software operating systems that “uses network connectivity or data storage located in a covered foreign country or administrated by a corporation domiciled in a covered foreign country.” The House bill provides for limited exception to, or waiver of, these prohibitions.

The Senate is currently considering the House bill and has already received proposed amendments to it.  As reported in the Congressional Record on October 11, 2022, the proposed amendments include Section 5871, prohibiting procurement and use of certain semiconductor products and services, and Sections 5883 through 5887, prohibiting procurement and use of covered UAS from covered foreign entities.  Section 5871 would extend the prohibitions of Section 889 of the John S. McCain NDAA for Fiscal Year 2019 (which prohibits the government’s procurement or use of telecommunications and video surveillance products and services from a covered foreign country, China), to include a prohibition on the procurement or use of semiconductor products and services from a covered foreign county, including those designed, produced, or whose services are provided by “Semiconductor Manufacturing International Corporation (SMIC), ChangXIN Memory Technologies (CXMT), or Yangtze Memory Technologies Corp. (YMTC) (or any subsidiary, affiliate, or successor of such entities)”, as well as any entities that the Secretary of Defense, in consultation with the Director of the National Intelligence or the Director of the Federal Bureau of Investigation, “reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.” The amendment proposed would provide for a limited possibility of waiver if it is determined to be in the national security interests of the United States.

The proposed Senate amendments also include the American Security Drone Act of 2022, which for those purposes defines “covered foreign entity” to mean “an entity included on a list developed and maintained by the Federal Acquisition Security Council”, which will include any entity on the Consolidated Screening List, “[a]ny entity that is subject to extrajudicial direction from a foreign government, as determined by the Secretary of Homeland Security,” any entity determined to pose a national security risk, any entity “domiciled in the People’s Republic of China or subject to influence or control by the Government of the People’s Republic of China or the Communist Party of the People’s Republic of China, as determined by the Secretary of Homeland Security,” as well as “[a]ny subsidiary or affiliate of an entity” described in this Section 5882.

These requirements would significantly expand restrictions on what products and services could be provided to the DoD through the federal supply chain – indeed semiconductors are ubiquitous in products and services sold and used in the commercial world, as well as by the DoD.  Drones too are increasingly used in a variety of missions carried out by the DoD.

Given the current morass of supply chain shortages and delays, it is unclear whether and when these proposed restrictions would pass and take effect, or how many waivers or exceptions would need to be granted if they did. Section 889 has proven to be difficult to implement – it was passed in FY 2019, but it took significant time to implement and it is unknown how many exceptions to the prohibitions were actually granted.  Semiconductor prohibitions could pose even greater impacts, as they are used in a wide variety of products and services used by DoD. Given the serious impacts that these proposals would have on the supply chain and DoD operations, attention needs to be paid to developments in the NDAA over the coming weeks.

If you have questions about this blog, or other government contracts matters, contact the author or your Stinson counsel.