• Changing Horses in Midstream: DFARS Case 2004-D010
  • January 9, 2006 | Authors: Sean P. Bamford; Michael A. Hordell
  • Law Firm: Pepper Hamilton LLP - Washington Office
  • On July 12, 2005 the Department of Defense (DoD) published a proposed rule that would establish explicit requirements aimed at preventing the unauthorized disclosure of export-controlled information and technology under DoD contracts. (See 70 Fed. Reg. 39976-78, Defense Acquisition Regulations Supplement (DFARS) Case 2004-D010.) The requirements would assist the government and contractors in identifying and protecting information and technology that is controlled under either the Department of Commerce's Export Administration Regulations (EAR), 15 CFR Parts 730-74, or the Department of State's International Traffic in Arms Regulations (ITAR), 22 CFR Parts 120-30.

    This proposed rule would require: 1) that contractors maintain an effective compliance program; 2) unique badging for foreign nationals and foreign individuals; and 3) that before granting foreign nationals or foreign individuals access to export-controlled information and technology (whether a for-profit/not-for-profit entity or a university), the contractor would first obtain an export license, other authorization or exemption. The proposed rule also states that any access to export-controlled information or technology by a foreign national or a foreign individual anywhere in the world, including the United States, would be deemed an "export to the home country of the foreign national or foreign individual." In addition, the contracting officer would be required to "ensure that contracts identify any export-controlled information and technology, as determined by the requiring activity."

    Many who commented on the proposed rule complained that DoD's actions were premature. Their complaint was based on the fact that the Department of Commerce's Bureau of Industry and Security (BIS) consideration of its Advanced Notice of Proposed Rulemaking, 70 Fed. Reg. 15607 (Mar. 28, 2005), which would have changed its interpretation of the deemed export requirements for "equipment use technology" in fundamental university research and other contexts, and as such was reviewing responses to. However, on December 13, 2005, BIS announced that it was no longer considering a change in its interpretation of the deemed export requirement. It is not clear at this time what impact, if any, BIS's decision will have on DoD's proposed rule.

    Other concerns raised in the comments included the financial and administrative burden of the new requirements, and the new authority provided to contracting officers. The rule would abolish provisions of National Security Decision Directive (NSDD) 189 (September 1985), which was reaffirmed by the Bush Administration in 2001. NSDD states in part that fundamental research should, to the maximum extent possible, remain unrestricted, and the only method for controlling information generated during federally funded fundamental research is through the security classification system. The new rule would allow the DoD to control security and access in fundamental research projects by contract.

    Though the period for submitting comments on the proposed rule was scheduled to close at midnight on October 12, comments were submitted as late as October 19, and the debate on DFARS Case 2004-D010 is far from over. We will keep you posted on any future developments.