In particular:
As of the 3rd quarter of calendar year 2022, actual inflation has exceeded what was expected by 9 percentage points since inflation began to rise in January 2021.
From Fiscal Years (FY) 2021 to 2023, the total loss of buying power to the Department of Defense (DoD) from this unexpected inflation will exceed $110 billion dollars.
Why we (and others care) is that this shortfall arrives at a potentially very dangerous time as we try to fund Ukraine, and deal with China, etc. – all the while the defense industrial base still suffers from COVID-19, supply chain, and workforce challenges, etc.
Left unaddressed, DoD will, of course, continue to see issues with maintenance, cost overruns, lower readiness, etc.
Congress knows all of this and have heard it all year – and Dr. LaPlante (Under Secretary of Defense for Acquisition and Sustainment) never followed up on specific guidance on what relief would be given. (Our educated guess on good sources is that he was counseled to punt, and let Congress give the initial guidance and instructing DoD to put a finer point on it 90 days after.) Hence, Section 822 (attached) was placed in the National Defense Authorization Act for Fiscal Year 2023 or FY23 NDAA.
The NDAA has been passed by both the House and the Senate, and President Biden should sign it within the week.
Obviously, I am no lawyer, and I am unsure how the amount changes impacts anyone directly, but Sec. 822 “Modification of Contracts to Provide Extraordinary Relief Due to Inflation Impacts” should (should) provide some relief for contractors and subcontractors in fixed price contracts that are working to navigate contractual requirements under significantly increased inflationary and supply-chain pressures. The below was gathered/collated from reading Sec. 822 and several other reference sources – but I would respectfully recommend putting your expert eye to it Matt for a closer look.
When enacted (I don’t think there is any real risk of POTUS not signing it) Section 822 will amend Title 50 to provide “extraordinary contractual relief” in several ways, including by increasing the approval and Congressional notification thresholds to $500,000 and $150,000,000, respectively. Notably, the new language makes clear that relief will be available to contractors and subcontractors and without additional consideration. Section 822 also provides that authority under the section begins when the law is enacted - and ends on December 31, 2023.