Page 12: of Marine News Magazine (May 2006)

11 13

By Barbara D. Linney and Edward J. Hoffman

Many government contractors doing business with the Department of Defense (DoD) are unaware of a pending proposed rule that will mandate use of a contract clause on export compliance. A new

DFARS subpart will require use of the clause in solicitations and contracts for research and development or services and supplies that may involve the use or gen- eration of export-controlled information or technology. The proposed rule focuses attention on the much misunderstood "deemed export" concept, under which a release or disclosure of export-controlled information or technology to foreign nationals in the United States constitutes an export that requires prior authorization from the applicable export control agency.

Contractors who brush off the new requirements as inapplicable to their oper- ations because they mistakenly believe that they are not engaging in export activ- ity will risk contract claims as well as export enforcement action.

The proposed rule is designed to imple- ment the recommendations contained in a 2004 report issued by the DoD Office of the Inspector General (OIG), which con- cluded that DoD did not have "adequate processes to identify unclassified export- controlled technology and to prevent unauthorized disclosure to foreign nation- als." The report cited the tendency of government contractors to rely on their contract to identify whether use or gener- ation of unclassified export-controlled information or technology would be required in the course of performance.

However, the OIG found that less than a third of the contracts reviewed in the course of the audit on which the report was based contained clauses that refer- enced export control laws, and that approximately 25% of the contractors vis- ited were unaware of the federal export control laws and regulations.

The primary sources of export control regulations affecting federal government contractors are the Arms Export Control

Act, as implemented by the International

Traffic in Arms Regulations (commonly referred to as the ITAR), and the Export

Administration Regulations (EAR). The

ITAR regulates the export of defense arti- cles, defense services, and technical data listed on the United States Munitions List (USML), while the EAR regulate various commercial items, primarily those that are critical to national security or can be diverted for uses contrary to national security or in support of terrorism. The

EAR contain a comprehensive list of items subject to national security and other controls (known as the Commerce

Control List or CCL), as well as a number of important end use and end user restric- tions. The ITAR are administered by the

U.S. Department of State's Directorate of

Defense Trade Controls (DDTC); the

EAR are administered by the U.S. Depart- ment of Commerce's Bureau of Industry and Security (BIS).

In response to the OIG's concerns, in

July 2005, DoD published a proposed rule that attracted comments from over 300 contractors, universities, and federally funded research and development centers.

The new contract clause, as then pro- posed, would have required compliance 12 • MarineNews • May, 2006

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