On October 30, 2015, the Department of Defense (“DoD” or the “Department”) issued a Final Rule amending the Defense Federal Acquisition Regulation Supplement (“DFARS”) and clarifying the scope of the DoD’s ability to evaluate and exclude contractors that represent “supply chain risks” in solicitations and contracts involving the development or delivery of IT products and services related to National Security Systems (“NSS”). The Final Rule clarifies that the DoD’s exclusion authority is limited to procurement of NSS, explains that decisions apply on a procurement-by-procurement basis, and removes the flow down requirement that was present in the Interim Rule. The Final Rule also encourages contracting officers to consider imposing a Government consent requirement for all subcontracts.  Our in-depth analysis of the Final Rule is available here.

As we previously discussed when the DoD issued its Interim Rule, these amendments are significant because they provide the DoD with authority to undertake a Section 806 Action to exclude IT contractors from contract participation or withhold consent to subcontract if the Department determines that a contractor or subcontractor presents a supply chain risk.  Notably, the DoD may implement this tool without providing pre- or post-exclusion notice to or engaging in dialogue with contractors.  Further, the Final Rule states that Section 806 Actions are not reviewable in a bid protest before the Government Accountability Office or in any Federal court.  The lack of procedural protections led commentators to the Interim Rule to suggest that contractors could be effectively excluded from DoD procurements without advance notice or an opportunity to object.  The DoD attempted to address this de facto debarment concern by clarifying that each Section 806 decision to exclude is done on a procurement-by-procurement basis. Nevertheless, multiple exclusions without an opportunity to object or address the Government’s concerns could effectively result in a blanket exclusion.

In addition to outlining the DoD’s authority under Section 806 Actions, the Final Rule allows the Department to use an evaluation factor to assess supply chain risk when making procurement decisions and imposes on contractors an ongoing obligation to “mitigate supply chain risk.”  However, the DoD declined to provide guidance in the Final Rule regarding the manner in which the evaluation factor will be applied or the appropriate means of mitigating supply chain risk.

In short, under the Final Rule, contractors may be excluded from certain DoD IT procurements without (1) notice or an opportunity to be heard, (2) an impartial review of the DoD’s decision, or (3) an opportunity to take corrective action.  In addition, contractors must address a new supply chain risk evaluation factor and satisfy an ongoing obligation to “mitigate supply chain risk.”  Given the potentially significant impact of the Final Rule, contractors would be well advised to closely monitor the DoD’s implementation of these amendments.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Susan B. Cassidy

Ms. Cassidy represents clients in the defense, intelligence, and information technologies sectors.  She works with clients to navigate the complex rules and regulations that govern federal procurement and her practice includes both counseling and litigation components.  Ms. Cassidy conducts internal investigations for government…

Ms. Cassidy represents clients in the defense, intelligence, and information technologies sectors.  She works with clients to navigate the complex rules and regulations that govern federal procurement and her practice includes both counseling and litigation components.  Ms. Cassidy conducts internal investigations for government contractors and represents her clients before the Defense Contract Audit Agency (DCAA), Inspectors General (IG), and the Department of Justice with regard to those investigations.  From 2008 to 2012, Ms. Cassidy served as in-house counsel at Northrop Grumman Corporation, one of the world’s largest defense contractors, supporting both defense and intelligence programs. Previously, Ms. Cassidy held an in-house position with Motorola Inc., leading a team of lawyers supporting sales of commercial communications products and services to US government defense and civilian agencies. Prior to going in-house, Ms. Cassidy was a litigation and government contracts partner in an international law firm headquartered in Washington, DC.

Photo of Alexander Hastings Alexander Hastings

Alex Hastings advises clients across a broad range of government contracting issues, including advising clients in transactional matters involving government contractors and assisting defense contractors and pharmaceutical companies in securing and performing government contracts.

Mr. Hastings also advises clients concerning best practices in…

Alex Hastings advises clients across a broad range of government contracting issues, including advising clients in transactional matters involving government contractors and assisting defense contractors and pharmaceutical companies in securing and performing government contracts.

Mr. Hastings also advises clients concerning best practices in e-discovery. He assists in investigations and litigations that involve complex e-discovery issues and has represented clients in matters involving the U.S. Department of Justice, Securities and Exchange Commission and the United States International Trade Commission.

Mr. Hastings’ government contracts experience includes advising clients regarding new developments in regulatory requirements, including the Federal Acquisition Regulation’s (FAR) anti-human trafficking requirements and the FAR and Bayh-Dole Act’s intellectual property provisions. Mr. Hastings also provides due diligence regulatory advice to clients contemplating the acquisition of government contracting entities or assets.

Mr. Hastings’ e-discovery experience includes advising a wide-array of clients on best practices in information governance and document collection and assisting clients develop effective mobile device and document management policies.

Mr. Hastings also maintains an active pro bono practice and routinely writes on issues related to government contracts and e-discovery.