On March 12, 2024, the Department of Defense (DoD) published a final rule, revising the eligibility criteria for the voluntary DoD Defense Industrial Base (DIB) Cybersecurity (CS) Activities Program.  The intent of the rule is to permit all defense contractors that own or operate unclassified information systems that process, store, or transmit covered defense information to participate in the program.  Previously, only cleared contractors were permitted to participate in the sharing of this information.  The final rule also amends identity proofing requirements by eliminating the need to obtain a medium security certificate to participate in either the voluntary or mandatory reporting regimes.  The rule will take effect on April 11, 2024, and DoD anticipates a significant increase in contractor participation.

Additional information about the rule is outlined below.

Continue Reading DoD Expands Contractor Cybersecurity Information Sharing Program

On March 11, 2024 the Cybersecurity Infrastructure Security Agency (CISA), released the much anticipated final version of its common Secure Software Development Attestation Form.  Finalization of the form is a notable development for developers of software that is sold to the U.S. Government for two reasons.  First, the form is expected to be used widely by Government agencies to fulfill requirements set forth in recent OMB memoranda for those agencies to ensure that the software they procure or use is secure by requiring attestations from software developers.  Second, as set forth under OMB guidance, final approval of the form by the Office of Information and Regulatory Affairs (OIRA) triggers a countdown wherein agencies need to begin collection of the forms within three months for “critical software” and within six months for all other software.

Continue Reading OMB Approves Final CISA Secure Software Attestation Common Form, Triggering Clock for Collection

On March 7, 2024, the Department of Transportation’s (“DOT”) Federal Highway Administration (“FHWA”) announced a proposed rule to rescind a longstanding general waiver of Buy America requirements for manufactured products (the “Manufactured Products Waiver”).  If finalized, this would be a major change for the agency, reversing a policy that has been in place for more than 40 years.

FHWA has imposed Buy America requirements for domestic iron and steel on its projects since 1978 (see 23 U.S.C. § 313; 23 CFR § 635.410), but in 1983, the agency determined that it was in the public interest to waive the requirement as to manufactured products based on the agency’s belief that manufactured products were not used in federal highway projects in sufficient quantities to have an effect on the overall cost of a project and therefore did not require Buy America protections.  That general waiver has been in place ever since.

This change in policy comes in the wake of the 2021 Infrastructure Investment and Jobs Act’s Build America, Buy America (“BABA”) provisions, which expanded Buy America coverage broadly in federal financial assistance programs for infrastructure.  BABA requires that all steel, iron, construction materials, and manufactured products used in such products be “produced in the United States.”  BABA also discourages the use of general applicability waivers like FHWA’s Manufactured Products Waiver and required review of existing waivers. 

FHWA sought comments on its longstanding manufactured products waiver in March 2023 and received over 9,400 comments from the public.  Commenters included manufacturers, labor organizations, construction contractors, industry associations, State departments of transportation, and even members of Congress.  Based on a consideration of this feedback and in recognition of other domestic content policies, including Executive Order 14005, “Ensuring the Future Is Made in All of America by All of America’s Workers,” FHWA is proposing to discontinue its Manufactured Products Waiver and modify its regulations to include domestic content requirements for manufactured products.

Continue Reading Federal Highway Administration Announces Proposed Rule Ending Longstanding Buy America Waiver for Manufactured Products

On February 15, 2024, the Department of Defense (“DOD”) issued a final rule that increases the domestic content requirements for defense procurements. 

The new rule amends the Defense Federal Acquisition Regulation Supplement (“DFARS”) to implement Executive Order 14005 (“EO”).  The EO was intended to strengthen the requirements of the Buy American Act (“BAA”) by, among other things, directing the FAR Council to issue new rules increasing the domestic content threshold for determining whether a product qualifies as a domestic end product. 

Although the FAR Council issued a final rule implementing the EO on March 7, 2022, the BAA requirements for defense procurements remained unchanged.  The new DOD rule aligns the DFARS BAA provisions with the FAR revision implemented in 2022.

The new rule (1) increases the applicable domestic content threshold for domestic end products, and (2) creates a framework for the application of an enhanced price preference for domestic products that are considered critical products or are made up of critical components.

Higher Domestic Content Threshold

Previously, the cost of domestic components had to exceed 55 percent of the cost of all components in order for a product to qualify as a domestic end product.  Under the new rule, the domestic content threshold is 65 percent in calendar years 2024 through 2028.  Beginning in calendar year 2029, the threshold will be 75 percent.  The increased threshold modifies the DFARS definitions for domestic end product, qualifying country end product, and domestic construction material. 

To help contractors transition to the increased domestic content requirements, the new rule includes exceptions for awards made prior to January 1, 2030.  First, there will be a 55 percent fallback threshold for situations where domestic products at a higher threshold are not available or the cost to acquire them would be unreasonable.  Second, an alternate domestic content threshold may be applied at the discretion of an agency senior procurement executive in instances where it is not feasible to meet the increasing threshold, e.g., under an indefinite-delivery, indefinite-quantity contract.  Under the alternate domestic content threshold, the threshold in effect at the time of contract award would apply to the entire period of performance.

Enhanced Price Preferences for Critical Items and Components

Under the new rule, domestic end products containing a critical component or item are eligible for an enhanced price preference.  The rule relies on FAR 25.105 for its definition of “critical item” and “critical component.”  For now, FAR 25.105 itself has only a placeholder for the list of critical items and components.  The list will be populated in a separate rulemaking. 

Under the new framework, contractors must meet additional reporting requirements for certain products.  Defense contractors must identify all domestic end products containing a critical component or item.  They must also identify all foreign end products and indicate whether each foreign end product exceeds 55 percent domestic content.  Commercially available off-the-shelf (“COTS”) items are exempt from the enhanced reporting requirements.

The new rule also maintains certain domestic content provisions that are unique to defense procurements.  For example, the rule defines domestic content to include components that are mined, produced, or manufactured not only in the U.S., but also in qualifying countries — countries with reciprocal defense procurement memoranda of understanding or international agreements with the U.S. in which both countries agree to remove certain barriers to the purchase of supplies.

Defense contractors should be prepared to comply with the now-effective increased domestic content threshold and make plans for how they will eventually meet the 75 percent threshold before it is implemented in 2029.  Further, contractors should continue to monitor additional developments in this area, as policymakers on both sides of the aisle are increasingly focused on expanding domestic content requirements and incentivizing enforcement.

This is the thirty-third in a series of Covington blogs on implementation of Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”).  The first blog summarized the Cyber EO’s key provisions and timelines, and the subsequent blogs described the actions taken by various government agencies to implement the Cyber EO from June 2021 through December 2023.  This blog describes key actions taken to implement the Cyber EO, as well as the U.S. National Cybersecurity Strategy, during January 2024.  It also describes key actions taken during January 2024 to implement President Biden’s Executive Order on Artificial Intelligence (the “AI EO”), particularly its provisions that impact cybersecurity, secure software, and federal government contractors.

Anticipated Q1 2024 Actions Implementing the AI EO

Several agencies are expected to satisfy milestones related to the AI EO’s key requirements in the coming months.  For example, the Secretary of Commerce is expected to issue proposed rules requiring companies that develop certain large and sophisticated AI models to make periodic disclosures to the government.  A new post on the Covington Inside Global Tech blog provides substantive background and a sense of timing for that action and numerous others.  For more on the Executive Order, see our summary of its key provisions. 

This is the thirty-second in a series of Covington blogs on implementation of Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”).  The first blog summarized the Cyber EO’s key provisions and timelines, and the subsequent blogs described the actions taken by various government agencies to implement the Cyber EO from June 2021 through November 2023.  This blog describes key actions taken to implement the Cyber EO, as well as the U.S. National Cybersecurity Strategy, during December 2023.  It also describes key actions taken during December 2023 to implement President Biden’s Executive Order on Artificial Intelligence (the “AI EO”), particularly its provisions that impact cybersecurity, secure software, and federal government contractors.

Continue Reading December 2023 Developments Under President Biden’s Cybersecurity Executive Order, National Cybersecurity Strategy, and AI Executive Order

On January 30, 2024, the Federal Acquisition Regulatory Council (“FAR Council”) proposed a new “Pay Equity and Transparency in Federal Contracting” rule for government contractors.  The proposed rule intends to increase race and gender equity for employees of federal prime contractors and subcontractors by prohibiting them from requesting and relying on certain information about job applicants’ compensation history and requiring contractors to disclose compensation rates in job announcements for certain positions.  These requirements would apply to all prime contracts and subcontracts – including for commercial products and services – where the principal place of performance is within the United States, regardless of dollar amount or tier.  The proposed rule is the latest in a number of steps the Biden Administration has taken to address discriminatory pay practices in federal procurement and contracting since announcing an Executive Order on Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency in March 2022. 

The proposed rule’s potential impact and implications for contractors — as well as opportunities to submit comments on the issue — are discussed below.

Continue Reading New Proposed Rule on Pay Equity and Transparency in Federal Contracting

On January 29, 2024, the Department of Commerce (“Department”) published a proposed rule (“Proposed Rule”) to require providers and foreign resellers of U.S. Infrastructure-as-a-Service (“IaaS”) products to (i) verify the identity of their foreign customers and (ii) notify the Department when a foreign person transacts with that provider or reseller to train a large artificial intelligence (“AI”) model with potential capabilities that could be used in malicious cyber-enabled activity. The proposed rule also contemplates that the Department may impose special measures to be undertaken by U.S. IaaS providers to deter foreign malicious cyber actors’ use of U.S. IaaS products.  The accompanying request for comments has a deadline of April 29, 2024.

The Proposed Rule would effectuate many of the requirements laid out in the Executive Order on Taking Additional Steps to Address the National Emergency with Respect to Significant Malicious Cyber-Enabled Activities (“E.O. 13984”).  E.O. 13984, issued three years prior to the Proposed Rule, set in motion requirements for IaaS providers to enact certain customer identity verification procedures and take special measures to prevent their services from being used by foreign actors for malicious cyber-enabled activities.  The AI provisions of the Proposed Rule stem from the more recent Executive Order on Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence (“E.O. 14110″), issued on October 30, 2023, which directed the Department to propose regulations for U.S. IaaS providers to (i) submit reports to the Department when a customer transacts with the provider to train an AI model that could be used for malicious cyber-enabled activities and (ii) ensure foreign resellers of IaaS products also conduct identity verification of foreign account holders.

The proposed regulations are further explained and summarized below:

Continue Reading Department of Commerce Issues Proposed Rule to Regulate Infrastructure-as-a-Service Providers and Resellers

On January 4, 2024, the U.S. Attorney’s Office for the District of New Jersey announced that it has filed criminal wire fraud and false statement charges against the Chief Executive Officer (CEO) of a company that knowingly sold certain surveillance and security cameras to prosecutors’ offices, sheriffs’ offices, and police departments in the state of New Jersey that were prohibited by Section 889.

As described in more detail in a prior client alert, Section 889 contains two prohibitions.

Section 889(a)(1)(A) took effect on August 13, 2019 and provides that “The head of an executive agency may not … procure or obtain or extend or renew a contract to procure or obtain any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.”  A similar prohibition, Section 889(b)(1), effective on August 13, 2020, is imposed on loan and grant funds, and prohibits agencies from expending any such funds on covered telecommunications equipment or services.  Because state and local governments regularly receive federal loans and grants, they are generally prohibited from using any of those funds to purchase covered telecommunications equipment or services.

Section 889(a)(1)(B) took effect on August 13, 2020 and prohibits the head of an executive agency contracting with (including extending or renewing a contract) any “entity” that “uses” “covered telecommunications equipment or services as a substantial or essential component of any system or as a critical technology of any system.”  In each case, covered telecommunications equipment or services includes all telecommunications equipment or services produced and provided by Huawei Technologies Company or ZTE Corporation, and video surveillance and telecommunications equipment or services produced and provided by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company, or any subsidiaries or affiliates of the five entities.

The Complaint alleges that the CEO (1) knew that state and local customers were subject to Section 889 prohibitions when expending certain funds used to buy cameras manufactured by Hangzhou Hikvision Digital Technology Company, and (2) falsely represented to those customers that the cameras that he was selling were compliant with Section 889 requirements.  The Complaint specifically notes that the CEO helped certain customers to obtain federal funding to purchase products that he was selling, and that approximately $15 million of the $35 million in cameras and equipment purchased by state and local government customers from the CEO’s company was federally funded. 

The Complaint further alleges that the CEO’s company sent wire transactions to an unnamed entity that was identified as one of the five entities or their affiliates that are defined within Section 889 as providers of covered telecommunications equipment.  The Complaint also alleges that when purchasing cameras from the prohibited company, the CEO’s company would take steps to conceal the origins of the cameras, including by requesting that the branding of the cameras be removed.  The compliant also states that the CEO informed state and local customers that his company had previously sold these cameras to federal agencies when he had not. 

Ultimately, although the facts described by the Complaint paint a picture of more extreme and willful efforts to skirt Section 889 requirements, the charges reflect that the Government is increasingly focused on supply chain security, and that is willing to bring criminal action for non-compliance where it feels that prosecution is appropriate. 

The Civilian Board of Contract Appeals has published its annual report for FY 2023, providing data regarding the number of appeals and contractor success rates at the Board.  The data illustrated a number of noteworthy points — and a few welcome trends — for the contracting community.

Continue Reading Contractors Had a Strong Success Rate Before the CBCA in FY 2023