Andrew Swick and Margaret M. Cassidy
We are going to unpack some parts of the FY26 NDAA most relevant to defense contractors and their advisors. This installment covers Industrial Base Investment and Opportunities, organized into five subcategories:
- Industrial Base Fund & capacity investments;
- Domestic sUAS and IndoPacific cooperation;
- Portfolio Acquisition Executive (PAE) and centralized acquisition;
- Requirements process and commercial first approach; and
- Workforce and advanced manufacturing.
Bottom Line: The FY26 NDAA sharply expands DoD’s industrial base toolkit—newly flexible Industrial Base Fund authorities create immediate business opportunities but also new contractual and compliance obligations for contractors and their lawyers and other advisors. (Full bill: S.1071 — National Defense Authorization Act for FY2026).
- Industrial Base Fund and Capacity Investments (Sections §867, §832, §873)
What Changed: Section §867 broadens the Defense Industrial Base Fund’s authorities so DoD can make targeted investments in critical suppliers, surge capacity, and domestic manufacturing. Sections §832 and §873 create explicit incentives and processes for qualifying secondary/tertiary suppliers and for onshoring and diversifying supply chains.
Why It Matters: Funding is now more programmatic and strategic; not just grants or loans, but funding tied to capacity commitments and resilience metrics. That means contractors who can demonstrate scalable domestic capacity, dual-use manufacturing capabilities, or rapid surge plans will be prioritized for award of DoD awards.
Practical Risks and Opportunities: Expect new solicitation requirements and contract clauses tying funding to domestic content and statements of work requiring robust reporting as well as detailed performance milestones. Contractors and subcontractors that are disciplined in their performance will likely see more opportunities for contract award. Contractors and subcontractors that do not have rigor in their execution or who are unable to develop proposals with clear performance milestones and reporting on performance may not fair as well.
What To Do Now: All contractors and subcontractors should:
- Develop and negotiate clear detailed statements of work that include performance metrics and reporting obligations.
- Review capabilities and operations for opportunities to build efficiencies in costs and in production.
- Map your supply chain, identify singles source risks as well as non-U.S. sources and develop updated sourcing plan, as needed.
- Prepare a capacity expansion pitch including costs, timelines, workforce plans aligned to DoD priorities.
- Prepare for audits designed to review compliance with statements of work.
- Domestic sUAS Industrial Base & IndoPacific Cooperation (Sections §914, §1253)
What Changed: Section §914 mandates a remediation plan for the small UAS industrial base. The remediation plan requires onshoring production, expanding capacity and reviewing capabilities conducted by an independent review. Section §1253 funds partnerships with IndoPacific allies to strengthen regional industrial resilience.
Why It Matters: sUAS suppliers with U.S. production and secure supply chains will see preferential access to contracts. IndoPacific cooperation opens joint procurement and co-development pathways requiring contractors to manage export controls and foreign ownership, control and influence, even if not a cleared contractor.
What To Do Now: If you work in sUAS:
- Audit and document your sourcing of hardware, software and technology for domestic content.
- Conduct a risk assessment on your export compliance requirements: Are your products, software, or technology export controlled? If so, do you need a license to work with IndoPac partners? How are you managing non-U.S. access in the U.S. or outside of the U.S. to comply with export requirements?
- Make sure you have robust, documented due diligence practices so you know who your customers, business partners, and investors are, to include procedures for when you encounter a person, entity or country banned by the U.S.
- Whether your items are export controlled or not, make sure your agreements include requirements to comply with U.S. export controls, avoid prohibited partners and countries, and comply with defense acquisition regulations.
- If you are performing under a defense contract make sure you can work with partners in IndoPac, whether you have export-controlled products or not.
- Portfolio Acquisition Executive (PAE) & Centralized Acquisition (Section §1802)
What Changed: Section §1802 creates Portfolio Acquisition Executives to centralize oversight across related programs, replacing some traditional PEO structures.
Why It Matters: By centralizing acquisition oversight, DoD aims to reduce duplication and accelerate purchasing. This will concentrate decision authority so engaging early with PAEs will be decisive for shaping requirements and source selection.
What To Do Now: Rework your capture strategies to respond to this new reality by targeting portfolio leads, preparing unified value propositions across program lines, and be ready for standardized reporting.
- Requirements Process & Commercial First Approach (Sections §1821, §1832)
What Changed: Section §1821 mandates that DoD take a commercial first posture. That is, acquisition needs to focus on purchasing solutions from pioneering commercial entities that can develop more quickly; are more agile in production; and capable of pivoting to DoD evolving needs. Section §1832 expands Modular Open Systems Approach (MOSA) to speed tech insertion into DoD programs which means DoD expects systems to be interchangeable and use of non-proprietary standards to limit vendors getting locked into a proprietary application or IT system they built.
Why It Matters: Nontraditional defense contractors (click here for our blog on who nontraditional defense contractors are) and commercial vendors will have more opportunities for DoD contracts. DoD will work to purchase commercial solutions or commercial-off-the-shelf solutions that will allow for more modular architectures. DoD will be keen to negotiate technical data licenses and other intellectual property licenses with contractors to allow for software and technology to be used across the organization.
What To Do Now: To benefit from these changes, contractors and subcontractors should consider:
- Validating that their products, software and technology are commercial items or commercial-off-the-shelf items.
- Develop license agreements, SaaS agreements, maintenance and support agreements, reseller agreements, service agreements, and similar agreements to protect intellectual property and data consistent with DFARS.
- Document the funding source for the development all software and technology such as private, DoD or a mixture of private and DoD, since this will likely need to be disclosed to DoD.
- Work to develop and adapt software and technology so that it is packaged and can be offered as modular, integrable components.
- Innovation Hubs & Working With Allies (Section §1846)
What Changed: Section §1846 requires DoD to fund robotic and automation processes efficiencies to speed up munitions manufacturing, make it more efficient and capable of scaling for critical munitions. Additionally, it requires innovation hubs to foster collaboration among the military, universities and industry with the goal of developing and scaling innovative dual-use and advanced manufacturing, to include additive manufacturing. Last, with the goal of strengthening the global industrial base, U.S. businesses will be supported to collaborate with allies on advancing technology and improving manufacturing.
Why It Matters: Innovation hubs and working with allies will likely foster collaboration and partnerships for tech and talent, with other entities, including across borders and with DoD. Participation may require businesses to share data and possibly even intellectual property.
What To Do Now: Contractors and subcontractors both in the U.S. and abroad should:
- Explore partnerships with other businesses and universities.
- Review export compliance requirements and the requirements for working outside the U.S. because these requirements don’t collapse because of these initiatives.
- If partnering, make sure to have contracts in place that clearly define who funds the capabilities, who owns the intellectual property, what each party is expected to do, and that include reps and warranties around compliance with law.
Final Thoughts:
The NDAA may serve DoD and open opportunities for companies because:
- It requires a commercial acquisition;
- Working with partners and allies creates opportunities both for U.S. and non-U.S. defense tech;
- Increasing speed, efficiency and ability to scale production benefits both national security and the companies that can do it;
- Blowing up some bureaucracies while investing in pioneering tech is fertile ground for companies that can innovate, scale and work globally.
In the middle of difficulty lies opportunity. Albert Einstein
