Late last month, President Biden signed the Fiscal Year (FY) 2025 National Defense Authorization Act (NDAA) into law. The FY 2025 NDAA authorizes $895.2 billion in funding for the Department of Defense (DoD), about a 1 percent increase from 2024. The bill, which sets pentagon policy for the year, is now in its 64th consecutive year. In this blog, we’ll review some key highlights of the NDAA that will be most relevant for government contractors.
What is the NDAA?
First, let’s briefly cover the purpose of the National Defense Authorization Act (NDAA). The NDAA is an annual piece of legislation that outlines the budget, expenditures, and policies for the U.S. Department of Defense (DoD). Since its inception in 1961, the NDAA has been pivotal in defining how federal funds are allocated to defense and national security initiatives, including procurement, research and development, and personnel policies.
For government contractors, the NDAA often contains provisions that directly impact how contracts are awarded, managed, and regulated.
Key Highlights from the 2025 NDAA
The 2025 NDAA outlines several updates and initiatives that government contractors should be aware of. Below are some of the most significant provisions:
1. Increased Defense Budget: The 2025 NDAA authorizes a record defense budget of $895 billion. This budget includes significant allocations for:- Advanced weapon systems
- Cybersecurity infrastructure
- Artificial Intelligence (AI) and machine learning projects
We can expect to see the defense budget grow as we enter a new presidential administration.
2. Acquisition Policy Changes: The NDAA includes several updates to acquisition policy. We’ll include some of the highlights:- Acquisition and sustainment training: this new training program for the DoD will emphasize the acquisition of commercial products, commercial services, and commercially available off-the-shelf items.
- Section 804: Codifies middle tier acquisition, meaning it authorizes continuous iterative prototyping and fielding of a product for an unlimited number of 5-year periods. This differs from the 2016 NDAA which was 2-5 years, and once the time was up, a new program needed to be established.
- Section 805 of the NDAA: codifies the existing software acquisition pathway. This promotes rapid software development and streamlines software acquisition because it eliminates some steps in the acquisition process that are not suited for software.
- Section 815 states Contracting Officers (COs) must rely upon historical data of recent prices paid when determining if the costs of a subcontract, a purchase order, or modification thereof are “fair and reasonable”.
Two pilot programs are going to be established in this NDAA to evaluate the practicality of using AI for security-related biotechnology applications and optimizing workflow at DOD facilities. AI is also authorized to be used in certain DoD business operations such as auditing financial statements.
4. Enhanced Cybersecurity Standards: Contractors will need to meet stricter cybersecurity requirements, including compliance with the latest Cybersecurity Maturity Model Certification (CMMC) standards.Section 1612 of the 2025 NDAA tasks the DoD with establishing a dedicated cyber intelligence unit to support military cyber operations and enhance defensive cyber capabilities. Additionally, Section 1515 requires DoD to identify products and services to improve the cybersecurity of and mitigate the risk of cyberattacks against mobile devices used by DoD, and to report to Congress a determination whether DoD should procure any such technologies.
Why Does the NDAA Matter for Government Contractors?
The NDAA not only sets defense priorities but also introduces new compliance requirements, procurement policies, and funding opportunities. It serves as a blueprint for government spending in areas critical to national defense, which means it alludes to future business opportunities for federal contractors. It’s important you are aware of the key features of the NDAA and any other provisions that may affect your industry.
Preparing for Contracting Opportunities in 2025
The 2025 NDAA is just one way you can stay on top of the spending priorities and shifts in 2025. As we all know, the presidential administration is changing in just a few weeks, so it’s important you are aware of the influx of changes we’re about to see as it relates to legislation and procurement. If you want to learn more about how the new administration will impact contract spending, check out our blogs:
- 5 Federal Contracting Trends to Follow in 2025
- Spending Trends We Can Expect to See with the Upcoming Trump Administration
- How the Department of Government Efficiency (DOGE) Could Impact Government Contracting
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