On August 13, 2020, the Office of Management and Budget (OMB) released new revisions to its Guidance for Grants and Agreements set forth under 2 CFR (commonly referred to as the Uniform Guidance). The Uniform Guidance governs the terms of federal funding issued by agencies, including grants, cooperative agreements, federal loans, and non-cash assistance awards.
Ryan Burnette advises clients on a range of issues related to government contracting. Mr. Burnette has particular experience with helping companies navigate mergers and acquisitions, FAR and DFARS compliance issues, public policy matters, government investigations, and issues involving government cost accounting and the Cost Accounting Standards. Prior to joining Covington, Mr. Burnette served in the Office of Federal Procurement Policy in the Executive Office of the President, where he worked on government-wide contracting regulations and administrative actions affecting more than $400 billion dollars’ worth of goods and services each year.
The National Institute for Standards and Technology released the draft of NIST Special Publication 800-172 (“NIST SP 800-172”) on July 6, 2020. This draft special publication succeeds the prior draft NIST SP 800-171B that NIST published in June 2019, and operates as a supplement to the NIST SP 800-171 controls that federal contractors generally must comply with in order to transmit, process, and store Controlled Unclassified Information (“CUI”).
Like the draft of NIST SP 800-171B released last year that it replaces, the publication recognizes that the basic and derived security controls in NIST SP 800-171 are “not designed to address APTs [Advanced Persistent Threats].” As the publication notes, “the APT may find ways to breach and/or compromise boundary defenses and deploy malicious code within a defender’s system.” Thus, the additional safeguards in NIST SP 800-172 are meant to “outmaneuver, confuse, deceive, mislead, and impede the adversary—that is, take away the adversary’s tactical advantage and protect and preserve the organization’s critical programs and high value assets.”
Comments on the draft are due on August 21, 2020.
(This article was originally published in Law360 and has been modified for this blog.)
Companies in a range of industries that contract with the U.S. Government—including aerospace, defense, healthcare, technology, and energy—are actively working to assess whether or not their information technology systems comply with significant new restrictions that will take effect on August 13, 2020. These new restrictions prohibit the use of certain Chinese telecommunications equipment and services, and a failure to comply can have dramatic consequences for these companies. The new restrictions also will have an immediate impact on mergers and acquisitions involving a company that does—or hopes to do—business with the Federal government. In this article, we highlight some key considerations for M&A practitioners relating to these restrictions.
On July 14, 2020, the U.S. Government’s Federal Acquisition Regulatory Council (“FAR Council”) published an interim rule to implement Section 889(a)(1)(B) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (“FY19 NDAA”). When the new rule takes effect on August 13, it will prohibit the Department of Defense and all other executive branch agencies from contracting—or extending or renewing a contract—with an “entity” that “uses” “covered telecommunications equipment or services as a substantial or essential part of any system.” The restrictions cover broad categories of equipment and services produced and provided by certain Chinese companies—namely Huawei, ZTE, Hytera, Hangzhou Hikvision, Dahua, and their affiliates.
The new rule will be applicable to all contracts with the U.S. Government, including those for commercial item services and commercially available-off-the-shelf products. Companies with a single one of these contracts will soon have an ongoing obligation to report any new discovery of its internal “use” of certain covered telecommunications equipment and services to the Government within one business day with a report of how the use will be mitigated ten business days later. Further, although companies can seek to obtain a waiver on a contract-by-contract basis from agencies, these waivers must be granted by the head of the agency, and may only extend until August 13, 2022 at the latest.
The new rule is the second part of a two-stage implementation of Section 889’s restrictions on covered telecommunications equipment and services in Government contracting. It builds on an earlier rule that implemented Section 889(a)(1)(A) of the FY19 NDAA on August 13, 2019 by prohibiting an executive branch agency from acquiring certain covered telecommunications equipment or services that is a substantial or essential part of any system.
The new rule is expansive in scope, and its effects will be felt far beyond the traditional defense industrial base. Thus, mergers and acquisitions practitioners are well advised to become familiar with the rule and consider how it might impact any future transaction where an acquisition target does at least some business with the Government or has aspirations to do so in the future.
On July 10, 2020, the interim rule implementing Section 889(a)(1)(B) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (Pub. L. No. 115-232) was released by the U.S. Government’s Federal Acquisition Regulatory Council. Section 889 prohibits the U.S. Government from buying (as of August 2019)—or contracting with an entity that uses…
In recent years, both Congress and the Executive Branch have made it a key priority to mitigate risks across the industrial and innovation supply chains that provide hardware, software, and services to the U.S. government (“USG”). Five of these initiatives are likely to result in new regulations in 2020, each of which could have a fundamental impact on companies’ ability to sell Information, Communications, Technology and Services (“ICTS”) to the USG. As these requirements begin to take hold, federal contractors should be mindful of potential impacts and the actions that can be taken now to prepare for increased USG scrutiny of their supply chain security.
Continue Reading Contractor Supply Chain Readiness – An Update on Expected Regulatory Changes
On May 5, 2020 the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency’s (“CISA”) Information and Communications Technology (“ICT”) Supply Chain Risk Management (“SCRM”) Task Force (the “Task Force”) released a six-step guide for organizations to start implementing organizational SCRM practices to improve their overall security resilience. The Task Force also released a revised fact sheet to further raise awareness about ICT supply chain risk.
As we discussed in a prior blog post on the Task Force’s efforts, the Task Force was established in 2018 with representatives from 17 different defense and civilian agencies, as well as industry representatives across the information technology and communications sectors. The Task Force has been focused on assessing and protecting security vulnerabilities in government supply chains. Since its founding, the Task Force has inventoried existing SCRM efforts across the government and industry, including some of the practices reflected in the guide.…
Continue Reading CISA Information and Communications Technology Supply Chain Risk Management Task Force Releases New Guidance on Security Resiliency
On March 13, the President declared a national emergency in response to the COVID-19 pandemic. Doing so activated the authorities available to the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121-5207 (the “Stafford Act”) to provide federal assistance to state and local governments responding to the emergency, including financial assistance.
The federal assistance is coordinated and provided through the Federal Emergency Management Agency (“FEMA”) under the National Response Framework. Although the Stafford Act generally does not make funding directly available to private businesses, a large portion of the nearly $50 billion that the President said will be available to FEMA may be used to procure goods and services from contractors assisting the relief effort.
On January 31, the Department of Defense (“DoD”) released Version 1.0 of its Cybersecurity Maturity Model Certification (“CMMC”). This is the fourth iteration of the CMMC that DoD has publicly released since it issued the first draft in October, and it is intended to be the version that auditors will be trained against, and that will eventually govern defense contractors’ cybersecurity obligations. (We discussed the draft versions of the CMMC in earlier blog posts, as well as DoD’s Version 1.0 release announcement.)
As outlined in more detail below, the CMMC is a framework that “is designed to provide increased assurance to the DoD that a DIB [Defense Industrial Base] contractor can adequately protect CUI [Controlled Unclassified Information] at a level commensurate with the risk, accounting for information flow down to its subcontractors in a multi-tier supply chain.”
DoD stated publicly that it plans to add CMMC requirements to ten Requests for Information (“RFIs”) and ten Requests for Proposals (“RFPs”) by the end of this year, with contractors and subcontractors expected to meet all applicable CMMC requirements at the time of award. DoD has indicated that these RFPs may involve relatively large awards, as it anticipates that each award will impact approximately 150 different contractors at all levels of the supply chain and at various levels of CMMC certification. DoD’s goal is to have CMMC requirements fully implemented in all new contract awards by Fiscal Year 2026.
On Friday January 31, 2020, Ellen Lord, Under Secretary of Defense for Acquisition and Sustainment, Kevin Fahey, Assistant Secretary of Defense for Acquisition, and Katie Arrington, the Chief Information Security Officer for the Department of Defense (“DoD”), briefed reporters on the release of the Cybersecurity Maturity Model Certification (“CMMC”) Version 1.0. We have discussed draft…
On December 13, the Department of Defense (“DoD”) released the latest version of its Cybersecurity Maturity Model Certification (“CMMC”). This is the third iteration of the draft model that DoD has publicly released since it issued the first draft in October. (We previously discussed Version 0.4 and Version 0.6 of the CMMC in prior blog posts.)
DoD describes the CMMC as “a DoD certification process that measures a DIB sector company’s ability to protect FCI [Federal Contract Information] and CUI [Controlled Unclassified Information].” DoD has stated publicly that it intends to begin incorporating certification requirements into solicitations starting in Fall 2020, with compliance audits beginning in late 2020 or early 2021. Depending the sensitivity of the information that contractors will receive in the course of performing work for DoD, they will be expected to demonstrate compliance through third party audits with the requirements set forth under one of five certification levels. This applies even where contractors will not be handling FCI or CUI in the course of performing their contracts.
The two most significant updates to the model in this version of the draft are (i) the addition of “Practices” for obtaining Level 4 and 5 certifications, and (ii) an expansion of “clarifications” section, which now covers the requirements of Levels 2 and 3 of the model, in addition to Level 1. These changes and others are discussed in more detail below. Given the expected release in late January 2020, it is likely that the requirements in this draft will closely resemble those that will be set forth in Version 1.0 of the CMMC framework, which is anticipated to serve as the basis for the first contractor audits.