Source: http://govcon.mofo.com/national-security/new-department-of-defense-requirements-supply-chain-risk/
Timestamp: 2019-04-21 14:49:17+00:00

Document:
On October 30, 2015, the Defense Acquisition Regulations System of the Department of Defense (DoD) published in the Federal Register (80 FR 67244) a final rule (the “Final Rule”) that adopts with changes an interim rule (78 FR 69268) amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement § 806 of National Defense Authorization Act (NDAA) for FY 2011, “Requirements for Information Relating to Supply Chain Risk,” as amended by § 806 of the NDAA for FY 2013 (the “Interim Rule”). The Final Rule, effective October 30, 2015, requires inclusion of an evaluation factor regarding supply chain risk in specified types of procurements relating to national security systems. While the Final Rule addresses some of the concerns raised in a Client Alert we published on November 26, 2013, DoD has the right to exclude contractors and subcontractors from certain procurements without notice or an opportunity to understand the nature of and resolve any alleged supply chain risk.
There were three primary positive changes to the Interim Rule. First, the scope of the Final Rule covers only covered systems as discussed below and not all information technology. Second, contractors no longer have to flow down the contract clause to subcontractors. Third, the Final Rule deletes the requirement to maintain controls because DoD could not identify specific standards or controls that are appropriate for all procurements. This does not mean that controls will not be required, however, as each DoD agency will establish its own standards or controls particular to each procurement.
Deciding to withhold consent to a particular subcontractor or to direct a contractor to exclude a particular source from consideration for a subcontract.
The Final Rule states that DoD does not presently plan to use § 806 authority to exclude a source based on failure to meet a qualification standards to reduce supply chain risk. Before this § 806 authority may be used, DoD must develop qualification standards in accordance with the requirements of 10 U.S.C. § 2319 and provide these standards to potential offerors.
Under DFARS 239.7305, DoD may disclose information related to a § 806 exclusion to “appropriate parties.” “Appropriate parties” is not defined; however, § 806(d)(2) lists other DoD components or Federal agencies. Thus, DoD presumably can notify nearly every Federal agency that manages procurements that may be subject to the same or similar supply chain risk. It is only a limited consolation that the Final Rule states who will be notified is to be determined on a case-by-case basis (allowing for the DoD agency to be judicious in its use of the exclusion authority), that DoD will try to work with contractors on mitigation strategies to avoid a § 806 exclusion, and that contractors are eligible to compete for future solicitations even after a § 806 exclusion. The fact is that if information regarding the contractor’s exclusion is disseminated to other agencies, a § 806 exclusion can serve as a de facto debarment. Per the Final Rule, any such exclusion “will be based generally on classified intelligence information” and accordingly “a dispute resolution mechanism is not appropriate under these circumstances.” Section 806(d)(1) states that if an agency takes a covered procurement action and limits disclosure of information, this action is not subject to bid protest before the Government Accountability Office or in any Federal court. With respect to DoD’s authority to refuse to consent to a particular subcontractor or to direct a contractor to exclude a particular source from consideration for a subcontract, the Final Rule says that “DoD does not intend to provide equitable adjustments or other remedies.” To make it worse, if the DoD agency decides to limit what it discloses to the excluded contractor, the contractor might be unable to fully resolve any alleged deficiencies.
The Final Rule limits the new DFARS solicitation provision and contract clause to “solicitations and contracts for information technology, whether acquired as a service or as a supply, that is a covered system, is a part of a covered system, or is in support of a covered system.” This includes commercial (FAR Part 12) solicitations and contracts.
Any equipment, or interconnected system(s) or subsystem(s) of equipment, that is used in the automatic acquisition, storage, analysis, evaluation, manipulation, management, movement, control, display, switching, interchange, transmission, or reception of data or information by the agency.
(B) Subparagraph (A)(i)(V) does not include a system that is to be used for routine administrative and business applications (including payroll, finance, logistics, and personnel management applications).
Pose questions where possible prior to submitting bids in order to develop details on what the DoD agency is expecting.

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