On July 12, the Department of Defense issued a proposed rule affecting all DoD contractors who may come into contact with export-controlled technology or information. The proposal would amend the Defense Federal Acquisition Regulation Supplement (DFARS) to impose additional obligations on these contractors.
Export controls apply to any information or technology whose release to foreign nationals or foreign persons is restricted by the Export Administration Regulations or the International Traffic in Arms Regulations.
The proposed rule would require each contract to identify any export-controlled information and technology to which the contractor might gain access, and to include a standard clause imposing administrative, compliance, and training requirements upon the contractor. The clause must be incorporated into all solicitations and contracts for:
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research and development, or
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services or supplies that may involve the use or generation of export-controlled information or technology.
Specifically, the clause requires contractors to:
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register in accordance with the International Traffic in Arms Regulations (ITAR);
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maintain an effective export compliance program, including adequate controls over access to export-controlled information and technology;
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obtain all proper licenses, authorizations, and exemptions for allowing access to export-controlled information and technology by foreign nationals;
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periodically conduct training and perform assessments on export compliance controls; and
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comply with all other applicable laws and regulations regarding export-controlled information.
Although most large DoD contractors are generally familiar with export controls and have a working knowledge of the ITAR, many contractors lack this familiarity and knowledge. In addition, they are unlikely to have in place an effective export compliance program, and may not have the in-house capacity to conduct the required periodic training required by the clause.
The requirements of the proposed rule could significantly increase the risk of performing DoD work for this latter group of contractors. If they do not comply with the obligations set forth in this clause, including the compliance and training obligations, they may be found in breach of contract, which could potentially lead to termination of any affected contract, suspension/debarment, or other sanctions.
Gibson, Dunn & Crutcher has organized a multi-disciplinary team to assist our clients and friends in meeting these obligations. Lawyers from our International Trade and Government Contracts practices are available to consult with you to discuss your current compliance and training programs, and to evaluate them against the requirements of the proposed rule.
In addition, your company or professional organization may wish to submit comments to DoD regarding the proposed rule. The deadline for comments is September 12, 2005.
The proposed rule can be found in Federal Register Vol. 70, No. 132 (July 12, 2005) at page 39976.
For further information on export controls, please contact Judith A. Lee at (202) 887-3591. For further information on government contracts, please contact Joseph D. West at (202) 955-8658 or Diana G. Richard at (202) 887-3572.
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