Kate M. GrowleyDavid Bodenheimer

As a part of the Senate’s recent passage of the 2013 National Defense Authorization Act, Senator Carl Levin (D-MI) has introduced an amendment that would direct the Department of Defense to establish procedures requiring contractors with security clearances to make disclosures when their covered networks have been successfully breached. Amendment 3195 appears to be the latest chapter in the recent trend at the federal and state levels to expand private sector obligations to report data security breaches.

However, this latest breach notification proposal by the Senate Armed Services Committee Chairman raises significant questions for those that it seeks to regulate. In particular, the Amendment creates uncertainty about its scope and the notification process. SA 3195 broadly asks the DOD to determine not only the process by which contractors must report breaches, but to also determine which contractor networks are subject to that process. If the DOD interprets the Amendment expansively, it could extend not only to classified networks, but also to those that are unclassified. Given the expanded responsibilities of the Defense Security Service (DSS) to assist government contractors with cybersecurity for both their classified and unclassified networks, the implementing the DOD procedures would presumably follow suit and opt to include reporting requirements covering unclassified, in addition to classified, networks.

Amendment 3195 does establish broad audit and inspection rights for the DOD to probe the private networks of cleared DOD contractors. Specifically, the bill states that any resulting DOD process must include a mechanism by which the DOD can access a contractor’s networks to perform forensic analyses. Such right of entry may create some of the same tensions that DOD contractors experience in dealing with the scope of the Defense Contract Audit Agency’s access to a contractor’s financial and other sensitive information during an audit. Beyond the usual confidentiality concerns, this provision could open the door to other types of investigations if the DOD network audit uncovers wrongdoing unrelated to the original security breach. How deeply may the DOD penetrate the contractor’s networks? What happens if the DOD security auditors trip across attorney-client privileges or other secrets unrelated to the original purpose of the audit? Will a safe harbor be available to contractors? These questions remain unanswered.

Regardless of its future progress in Congress, Amendment 3195 – like many other legislative and regulatory expansions – reflects the growing scrutiny of contractors for data security breaches and cybersecurity shortfalls.