DFARS Rule on Release of Proprietary Data

But Tuesday is Cost Principles Day?!

For those of you following for a while, usually on Tuesday I post another in the series on 31.205.  This week I have to mix it up a little because of pending rules coming out of DoD.  There are actually three that are posting to the FR as final tomorrow, but one in particular is of note.

SUMMARY: DoD has adopted as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2010 that provides authority for certain types of Government support contractors to have access to proprietary technical data belonging to prime contractors and other third parties, provided that the technical data owner may require the support contractor to execute a non-disclosure agreement having certain restrictions and remedies.

I added the pretty color and bold for emphasis, but really?!  Talk about the potential for opening Pandora’s box (and for those in the younger generation that is not a radio app).  pandoras-boxUntil now, the exceptions to nondisclosure of proprietary data were limited to high level “types” of data and “special needs” critical to Government operations.  The amendment to the USC implemented by this rule adds the exception for release of this privately developed data to Government support contractors.

The real “teeth” in the rule are in the definition of “a covered Government support contractor” – already an existing term under 252.227-7013(a).  Throughout the rule explanation, the Government continually refers to the fact that the person/entity receiving the data will be a “covered Government support contractor” and subject to the same rules in place with the person/entity that is providing the data.  This includes non-disclosure of the information and legal recourse in the event of a breach of contract under such unauthorized disclosure.

The question follows – Does this mean all employees are required to enter an NDA in order to comply with the rule?  DoD has added a new paragraph to 252.227-7025 explicitly requiring “the recipient contractor to ensure that its employees are subject to use and non-disclosure obligations” before those employees are allowed to access the data.  The rule-making body has really gone to a decent amount of trouble to answer the comments and make the rule less ambiguous, but I still have a little “devil’s advocate” in me…

…Once upon a time someone invented a round object and placed a spindle of some sort in the middle of it.  He then attached the other end of that spindle thing to another round object and created what we now refer to as “wheels.”  Just over the hedge from this tinkerer was another inventor and he decided this stone concept was probably a little too heavy, so he used a round piece of wood to do the same thing.  It was much lighter and easier to replace.  Fashioning a wheel from a rock is not an easy task!  Inventor #2 then moved on to vulcanized rubber and steel belts and became a thousandaire.  Tinkerer #1 got run over on the downhill when his cart was bumped by someone with wooden wheels.

stonewheelIt was just a small change, but the improvement came from looking in on the proprietary data and using it.  There is a lot of work that #1 had to go through to get to the point of the spindle/axle concept and #2 was able to benefit from that.  Because the government didn’t leave that hedge high enough for #2 not to peak in, #1 was able to take the idea and run with it way before his competitor was able to market it.  He would not have had access to the data until everyone else and would have had to reverse engineer it rather than just move forward.  Could you imagine what would have happened if #2 saw the cave drawings before the prototype was done?


…Scenario 2 takes into account the fact the liability for release is waived if the documents are not appropriately marked (252.227-7015(d)).  Since this information could be accessed electronically and the data could not yet have been marked as such… well, you get the point.  A short example, but effective nonetheless.

Because this is a final rule, there isn’t much more I can provide other than this brief analysis.  I will leave you with the official definition of the “covered Government support contractor.”


(5)  “Covered Government support contractor” means a contractor under a contract, the primary purpose of which is to furnish independent and impartial advice or technical assistance directly to the Government in support of the Government’s management and oversight of a program or effort (rather than to directly furnish an end item or service to accomplish a program or effort), provided that the contractor—

(i)  Is not affiliated with the prime contractor or a first-tier subcontractor on the program or effort, or with any direct competitor of such prime contractor or any such first-tier subcontractor in furnishing end items or services of the type developed or produced on the program or effort; and

(ii)  Receives access to technical data or computer software for performance of a Government contract that contains the clause at 252.227-7025, Limitations on the Use or Disclosure of Government-Furnished Information Marked with Restrictive Legends.


About Marty Herbert

With 13 years of government contract administration, analysis, finance, and audit experience, I have established a firm baseline in ethics and a specialization in government contracts that has prepared me to become a subject matter expert in my field. I am currently working on enhancing government contracts management and compliance through workflow tools and product offerings - attempting to make the process proactive as opposed to reactive.
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