Overview: Innovation opportunities within the National Defense Act for 2023 | Fenwick & West LLP | Daily News Byte

Overview: Innovation opportunities within the National Defense Act for 2023 |  Fenwick & West LLP

 | Daily News Byte


The US government’s national security and economic priorities for fostering and adopting innovation are on full display in the soon-to-be-finalized National Defense Authorization Act for Fiscal Year 2023 (NDAA). In this client alert, we highlight provisions that may be of interest to technology and life science companies of all sizes.

As we approach the end of 2022, Congress is set to conclude and President Biden is expected to sign the 2023 NDAA into law authorizing appropriations for the Department of Defense (DOD), the Department of Energy and other defense-related activities. In addition to serving as an appropriations authority, the NDAA would establish defense policies and restrictions, and address organizational administrative issues related to DOD, which may have larger implications for the technology and life sciences industries. The FY 2023 NDAA, as passed by Congress, would support a total of over $850 billion in funding.

Technology-focused highlights

  • Artificial intelligence (AI) and digital solutions: DOD must establish priority business projects for data management, artificial intelligence, and digital solutions for business efficiency and warfighting capabilities, including committing to a five-year program to procure AI systems for DOD cyberspace operations. Specific appropriations include $75 million for the Defense Advanced Research Projects Agency (DARPA). Other non-DOD agencies are also being directed to expand their use of AI.
  • cyber security: The NDAA will also include funding for cyber operations, including consortium funding and workforce pilot programs.
  • Cloud Service Providers: DOD would be required to set a policy for future DOD contracts with cloud service providers that will handle classified data that would allow DOD to conduct independent testing of commercial cloud infrastructure before it goes live on DOD networks. a.
  • Other technologies: Selected highlights of industry specific funding or other directives include:
    • Quantum Computing Activities (DARPA): $20 million
    • Electronic warfare, jamming and signature technologies: $85 million
    • Support for the development, experimentation and transition of 5G technology: $120 million
    • Aircraft technology (cheap, cost-effective): $25 million. (“Attritable aircraft” is an affordability solution in which an unmanned aircraft can be produced quickly without the expectation of extended service life and is built specifically in response to new and unexpected threats.)
    • Internet Freedom and Bypass Technology: $49 million
    • Technology for people with disabilities: $44 million
    • Wearables in health technology: DOD to pilot program to monitor brain health from overpressure exposure using commercially available wearable sensors
  • Financing and policies related to climate technology:
    • Environmental cleanup: $6.8 billion
    • Military construction, including resiliency and energy conservation projects, solar roofs, establishing microgrid standards, commissioning a feasibility study to adopt innovative construction techniques and sustainable materials, and creating electric vehicle charging infrastructure: $19.5 billion
    • Future requirements for non-tactical vehicles: Depending on initial cost estimate reports, beginning on October 1, 2035, non-tactical vehicles purchased or leased by DOD must be electric or zero-emission or run on advanced biofuels or hydrogen.
    • Rare Earth Reclamation/Recycling: DOD should establish a spent battery recycling policy that promotes the recovery or recovery of precious metals, rare earth minerals, or other elements of strategic importance.

Highlights of the Ministry of Defense’s contracting and procurement policy

  • Software: The new program would test the feasibility of unique approaches to negotiating software data rights to improve the speed, efficiency and effectiveness of defense procurement.
  • Life Sciences: DOD would be authorized to enter into transactions other than contracts, cooperative agreements, or grants to conduct medical care and health studies or demonstration projects.
  • Highlights of small businesses: The NDAA will codify the Mentor-Protégé program in small business partnerships with larger companies and establish a five-year pilot program for a protégé to receive substantial compensation for engineering, software development, or manufacturing customization contracts, and will codify the aggregate evaluation program used by the Small Business Administration to assess how well federal agencies are achieving their small business contracting goals. The NDAA also requires DOD to create a commercial due diligence program that would support small businesses to identify threat actors.
  • Codification of the FedRAMP program within the General Services Administration: The NDAA will create a standardized approach for evaluating and authorizing cloud computing products and services for unclassified information on federal agency systems.
  • Inflation adjustments: Under certain conditions, the NDAA will provide temporary authority to modify contract terms and conditions or the option to provide an economic price adjustment for fixed-price type contracts through December 31, 2023.

Foreign policy and significant restrictions

  • Guidelines specific to China: The NDAA will mandate an assessment of dual-use technologies that the Chinese Communist Party could exploit, including better monitoring of Chinese companies working with universities, prohibiting federal agencies from procuring semiconductor products or services from certain Chinese companies (SMIC, IMTC, and CKSMT). and expanding the ban on Chinese equipment provided by drone maker DJI and other entities subject to certain restrictions. Also, there are new restrictions on DOD’s supply chain for products that are mined, manufactured or manufactured by forced labor from the Xinjiang Uyghur Autonomous Region.
  • Continued funding to Taiwan and Ukraine to support US policies: The NDAA will continue to fund ongoing policies regarding US-Taiwan relations, as well as continued security assistance to Ukraine. Regarding the latter, the Department of Defense cannot use funds for (i) US-Russia military cooperation until fiscal year 2027; and (ii) activities that recognize Russian sovereignty over Crimea, Donetsk, Luhansk, and other territories in Ukraine, unless doing so would be in the interest of U.S. national security.
  • Discovering the Rare Earth Supply Chain: All contractors providing DOD with rare earth or strategic/critical materials magnets will be required to disclose where the magnets were mined, and DOD may require the contractor to implement a tracking system throughout its supply chain.
  • Mitigation of foreign investment risks: The NDAA will direct the DOD to provide more oversight of analysis methods to prevent a foreign rival capital market from benefiting from the bankruptcy of a United States company.
  • Other prohibitions:
    • The NDAA will prevent the intelligence community from securing grants unless the potential recipient certifies that it has disclosed any funding from China, Iran, North Korea, Russia or Cuba in the five years prior to the grant application.
    • The NDAA will also bar companies operating unmanned aircraft systems from China, Russia, Iran, and North Korea from contracting with the DOD or the Coast Guard starting October 1, 2024.

Other notable details:

  • Foreign suppliers of pharmaceutical products: DOD should develop guidelines to identify gaps and risks in supply chain management of scarce pharmaceutical supplies due to reliance on foreign suppliers.
  • India and New Zealand: DOD will engage with India’s Ministry of Defense to promote cooperation on new technologies, readiness and logistics, while New Zealand has been added to the National Technology Industrial Base to enhance cooperation on research, development and production for a reliable industrial base.
  • Microelectronics Working Group: The NDAA will establish conditions for a government-industry-academia forum to share items of interest related to microelectronics research, development, and manufacturing.


While this cannot fully summarize the NDAA, we hope it provides insight into some of the defense funding priorities and policies set forth by Congress. As we continue to study the new law, we will continue to send alerts and analysis to help you navigate potential NDAA compliance opportunities or requirements.


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