Targeting DoD’s Reliance on Russian Energy

By Scott A. Freling on June 9, 2020

Posted in Defense Issues, EU Law and Regulatory, Russia

At the end of last month, the Department of Defense (“DoD”) issued a class deviation to implement Section 2821 of the National Defense Authorization Act for Fiscal Year 2020 (“FY20 NDAA”), which seeks to reduce dependence on Russian energy by prohibiting the acquisition of energy sourced from inside Russia for DoD’s main operating bases in Europe. The Section 2821 restriction is an expansion of earlier limits enacted by Congress on the use of Russian energy in DoD’s European operations. Section 2821 is broader in scope than the earlier limits, and while it does contemplate that DoD may waive the prohibition in certain circumstances, the waiver process is demanding. Contractors with a focus on supplying energy to DoD or supporting its missions in Europe should be familiar with the Section 2821 restriction and the new class deviation.

Background

During the past few years, Congress has looked for ways to reduce DoD dependence on Russian energy for national security reasons. Congress enacted Section 2811 of NDAA for Fiscal Year 2019 (“FY19 NDAA”), which prohibited DoD from acquiring any furnished energy for the new Rhine Ordnance Barracks Army Medical Center in Germany, unless the Secretary of Defense certified, among other things, that the Medical Center would minimize the use of fuels sourced from inside Russia. In crafting Section 2811 of FY19 NDAA, Congress sought to protect the U.S. military’s primary casualty hospital in Europe from possible Russian aggression and manipulation. It contemplated that this requirement as to the Rhine Ordnance Barracks could be waived if the Secretary certified to the congressional defense committees that the waiver was “necessary to protect the national security interests of the United States.” Congress repealed and replaced Section 2811 of the FY19 NDAA with a new provision in the FY20 NDAA in order to expand the restrictions and put in place a more demanding waiver that granted Congress additional oversight.

New Class Deviation

Under the recent class deviation, the Secretary of Defense is prohibited from awarding contracts for the acquisition of furnished energy for any covered military installation in Europe that uses energy sourced from Russia, unless a waiver is granted. DFARS 252.225-7970 defines “covered military installation” as a military installation in Europe identified by the DoD as a main operating base. DFARS 252.225-7971 defines “furnished energy” as energy furnished to a covered military installation in any form and for any purpose, including heating, cooling, and electricity. This class deviation, directed by Section 2821 of the FY20 NDAA, applies to all energy supply contracts, subcontracts, and any other contractual instrument and allows for a broad interpretation of “main operating base.” While the new class deviation does not represent a blanket prohibition on all Russian-sourced energy, it sends a strong policy message that DoD’s European operating bases should eliminate any reliance on Russian-sourced energy.

Waiver Provision

The Secretary of Defense may grant a waiver for a specific contract on a case-by-case basis if it is “necessary to ensure an adequate supply of energy” and is balanced against the “potential risk” of reliance on Russian energy. Notably, Section 2821 of the FY20 NDAA includes a notice and wait requirement to provide Congress time to review the sufficiency of a Secretary’s waiver justification. The Secretary must submit a notice of waiver to the congressional defense committees no later than 14 days before the execution of the contract that includes the following elements: (1) the rationale for the waiver; (2) an assessment of how the waiver may impact European energy resilience; and (3) an explanation of DoD mitigation efforts for reduced Russian energy use.

In repealing Section 2811 of the FY19 NDAA and enacting Section 2821 of the FY20 NDAA, Congress has signaled that European energy resilience is an important national security issue. While the waiver provision does provide an avenue for relief where alternative energy sources may be currently unavailable, the requirement to include mitigation measures for reducing reliance on Russian energy with any waiver request highlights Congress’ commitment to eliminating Russian energy use over time.