August 14, 2006
The Department of Defense (DoD) on August 14, 2006, published a proposed rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to address requirements for preventing the unauthorized disclosure of export-controlled information and technology under DoD contracts. The proposal follows an earlier proposed rule, which was published at 70 Fed. Reg. 39976 on July 12, 2005. The earlier proposal was widely criticized, particularly by the educational research community. As a result of the negative feedback received in response to the first proposal, DoD has taken the unusual step of publishing a second proposed rule.
The second proposed rule largely eliminates the specific DoD requirements regarding export control compliance programs contained in the first proposed rule, including requirements for segregated work areas and badges for research participants. In lieu of these specific requirements, the second proposed rule is intended to remind contractors of their obligation to comply with export regulations and place responsibility on both the contractor and the government to notify the contracting officer if contract performance will generate or require access to export-controlled information or technology. The proposed rule would direct the requiring activity to notify the contracting officer prior to the issuance of the solicitation if
(1) the contract is for research and development, supplies or services, and export-controlled information or technology will be involved;
(2) the contract is for supplies or services, and the requiring activity is unable to determine that export-controlled information or technology will not be involved; or
(3) the contract is for fundamental research only, and export-controlled information or technology will not be involved.
The definition of "fundamental research" is taken from National Security Decision Directive (NSDD) 189, and means basic and applied research in science and engineering, the results of which ordinarily are published and shared broadly within the scientific community, as opposed to proprietary research or industrial development, design, production and product utilization, the results of which ordinarily are restricted for proprietary or national security reasons. The proposed rule notes that the Export Administration Regulations (EAR) exempt information resulting from fundamental research from export controls, but information required to conduct fundamental research is not exempted from export controls.
The proposed rule includes three new contract clauses:
DFARS 252.204-70XX, Requirements for Contracts Involving Export-Controlled Information or Technology. This clause applies when the requiring activity has given the contracting officer pre-solicitation notice that performance of the contract will involve export-controlled information or technology. It includes a space for the contracting officer to identify the specific export-controlled information and technology that will be involved in performance of the contract. However, it also provides that if, during performance of the contract, either the government or the contractor becomes aware that the contractor will generate or need access to export-controlled information or technology not listed in the clause, that party shall notify the other party and either (1) modify the listing of export-controlled information or technology, or (2) negotiate a contract modification to eliminate the requirement for performance of work that would involve access to or generation of export-controlled information or technology not already listed in the clause.
DFARS 252.204-70YY, Requirements Regarding Access to Export-Controlled Information or Technology — Fundamental Research. This clause applies when the requiring activity has given the contracting officer pre-solicitation notice that the work is fundamental research only, and export-controlled information or technology will not be involved. It imposes the same obligation on each party to notify the other if, during performance of the contract, the party becomes aware that the contractor will generate or need access to export-controlled information or technology. In the event of such notice, the clause provides that the parties may modify the contract to either include the clause at DFARS 252.204-70XX or eliminate the requirement for performance of work involving export-controlled information or technology.
DFARS 252.204-70ZZ, Requirements Regarding Access to Export-Controlled Information or Technology. This clause applies to research and development contracts that do not include the first proposed clause, DFARS 252.204-70XX, and supply or service contracts for which the requiring activity notified the contracting officer that it is unable to determine that export-controlled information or technology will not be involved. This clause is similar to the second proposed clause, DFARS 252.204-70YY, in that it states that the parties do not anticipate that performance of the contract will generate or require access to export-controlled information or technology, and imposes the same post-award notification and modification requirements discussed above.
Although less administratively burdensome than the first proposal, the second proposed rule will nevertheless impose an additional notification requirement on the contractor. The proposed rule is an important reminder to ensure that you are complying with all export control laws and regulations, including those administered by the Bureau of Industry and Security at the Commerce Department for commercial or dual-use items, and those administered by the State Department for military items. The burden of export compliance — including the knowledge and training necessary to determine whether a product or technology is controlled for export to a particular destination — remains with the exporter or the company that allows access to such product or technology to a foreign national in the United States. The proposed rule makes clear that DoD is intent upon ensuring government contractors comply with export control laws and reinforces the need for government contractors to develop and maintain robust export compliance programs.
Comments on the second proposed rule are due not later than October 13, 2006.
© 2006 Gibson, Dunn & Crutcher LLP
The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.