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Evan D. Wolff

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Crowell & Moring has issued its fifth annual report on regulatory trends for in-house counsel. “Regulatory Forecast 2019: What Corporate Counsel Need to Know for the Coming Year” explores a diverse range of regulatory developments coming out of Washington and other leading regulatory centers of power, and it takes a deep dive into international trade—examining the challenges and opportunities that will arise in the year ahead as global businesses compete in the digital revolution and operate their businesses across borders.

The section focusing on government contracts, “Battening Down the Hatches on Cybersecurity,” discusses why doing business with the federal government will get tougher as requirements for cybersecurity become stricter.

Also relevant to contractors is the article “Congressional Influence on Rulemaking is On the Rise,” which discusses how congressional input on rulemaking is increasing as the Trump administration pursues deregulation.

Be sure to follow the conversation on Twitter with #RegulatoryForecast.

Adding to the Defense Contract Management Agency’s (DCMA) new cybersecurity responsibilities, the Department of Defense (DoD) Under Secretary of Defense for Acquisition and Sustainment (USDAS) recently issued a memorandum titled Strategically Implementing Cybersecurity Contract Clauses that increases DCMA’s role.  The memorandum tasks DCMA with implementing a process to perform company-wide assessments of contractors’ compliance with the DFARS Safeguarding Clause and the related solicitation provision, DFARS 252.204-7008 Compliance with Safeguarding Covered Defense Information, in lieu of the current contract-by-contract assessment of the Clause and Provision requirements.

Specifically, the memorandum addresses the inefficiencies caused by DFARS 252.204-7008, which requires contractors to self-certify on a contract-specific basis implementation of National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171 as required by the Safeguarding Clause.  USDAS notes that this approach impedes the effective implementation of requirements to protect the DoD’s Controlled Unclassified Information (CUI).  To resolve these issues, the memorandum directs DCMA to develop a proposed path to issue no-cost bilateral block modifications to contracts administered by DCMA and recommend to the USDAS a set of business strategies to:

  • obtain and assess contractor system security plans (SSPs) and associated plans of action and milestones (POAMs) at a strategic level as an alternative to the contract-by-contract review;
  • propose a methodology to determine contractors’ cybersecurity readiness at a strategic level and assign levels of confidence for contractors’ readiness assessment at the corporate, business sector or facility level; and
  • propose how to communicate contractors’ cybersecurity readiness and confidence level to DoD components.

Of note, DCMA is further instructed to engage industry to discuss methods to oversee the implementation of the DFARS Safeguarding Clause and NIST SP 800-171.  It is possible that this industry engagement may occur through another DoD Industry Day, since the last DFARS Safeguarding Clause-related Industry Day occurred almost two years ago.

Industry will once again take a “wait and see” approach to the DoD’s policy implementation since the DCMA is directed to take action after March 1, 2019.

The National Institute of Standards and Technology (NIST) recently published a draft special publication titled Systems Security Engineering: Resiliency Considerations for the Engineering of Trustworthy Secure Systems (Volume 2), which provides guidance to professionals responsible for the activities and tasks related to the system life cycle processes in NIST’s flagship publication, NIST Special Publication 800-160 Volume 1 (Volume 1).  Volume 2 is the first in a series of systems security engineering publications supplementing Volume 1, and describes how to apply cyber resiliency concepts, constructs, and engineering practices, as part of systems security engineering.

Volume 1 built upon well-established international standards for systems and software engineering to describe the actions necessary to develop more defensible and survivable systems.  Volume 2 describes cyber resiliency principles that organizations can select and apply to their own systems based on the organization’s threat environment.   These principles help organizations address certain types of advanced cyber-threats that have the capability to breach critical systems, establish a presence within those systems often undetected, and inflict immediate and long-term damage to economic and security interests.  Among other things, developers could look to the draft publication for guidance on how to increase the security of older legacy systems in order to limit potential hackers’ access in the event of a data breach.   NIST is accepting public comments until May 18, 2018.

Information has become foundational in today’s federal and corporate arenas and is increasingly under threat and exploitation. Last month, attorneys from Crowell & Moring’s Privacy & Cybersecurity group lent their voices to WFED/WTOP radio to discuss how the public and private sectors are responding. Listen in here as our colleagues discuss the cyber threat landscape, what steps the federal government and private industry are taking to protect their information, and what trends they’re keeping their eyes on for the coming year.

Yesterday, the DoD published an Interim Rule that, if finalized as drafted, would expand the already onerous requirements of the DFARS Safeguarding Clause to a broader array of potentially 10,000 defense contractors.  Citing “recent high-profile breaches of federal information,” the DoD’s Interim Rule emphasizes the need for clear, effective, and consistent cybersecurity protections in its contracts. 

It seeks to do so primarily by expanding the application of the DFARS Safeguarding Clause, which was once itself a heated point of debate.  Currently, the DFARS Safeguarding Clause imposes two sets of requirements on covered defense contractors.  First, they must implement “adequate security” on certain information systems, typically by implementing dozens of specified security controls.  Second, they must report various cyber incidents to the DoD within 72 hours of their discovery.  These requirements, however, apply only to information systems housing “unclassified controlled technical information” (UCTI), which is generally defined as controlled technical or scientific information that has a military or space application. 

The Interim Rule would expand that application to information systems that possess, store, or transmit “covered defense information” (CDI).  CDI would encompass UCTI, meaning that most contractors subject to the DFARS Safeguarding Clause would remain subject to the Interim Rule.  But CDI goes beyond the DFARS Safeguarding Clause by also including information critical to operational security, export controlled information, and “any other information,  marked or otherwise identified in the contract, that requires safeguarding or dissemination controls pursuant to and consistent with law, regulations, and Government policies.”  Significantly, the Interim Rule lists “privacy” and “proprietary business information” as examples of the latter, leaving many covered contractors to wonder exactly how far the definition of “covered defense information” goes.  To keep up with its new application, the Interim Rule would change the name of Clause 252.204-7012 from “Safeguarding Unclassified Controlled Technical Information” to “Safeguarding Covered Defense Information and Cyber Incident Reporting.” 

Another notable point of expansion would affect subcontractors.  Under the current DFARS Safeguarding Clause, subcontractors suffering a cyber incident must report to the pertinent prime contractor, who then submits the required report to the DoD.  Subcontractors do not report directly to the DoD under the current rule.  The Interim Rule would continue to require subcontractors to report cyber incidents to their primes, but it would also require subs to submit the required report directly to the DoD, creating the potential for inconsistent reports from the prime and sub regarding the same cyber incident.

Other key provisions of the DFARS Safeguarding Clause, however, would remain same.  For example, the Interim Rule would continue to apply to all solicitations and contracts, including those for commercial items.  The government would also remain required to protect any proprietary information that contractor reports pursuant to the Interim Rule.  The reporting timeline of 72 hours would also remain the same, which the Interim Rule dubs “rapid reporting.”  Additionally, and importantly, the Interim Rule would continue to recognize the probability that even information systems with “adequate security” may still suffer a cyber incident.  That is, the Interim Rule would explicitly state that the fact that a contractor has suffered a cyber incident and submitted a corresponding report would not necessarily mean that the contractor had failed to comply with the Clause’s broader cybersecurity requirements.

The Interim Rule likely does not come as a surprise to many.  Congress passed provisions to the National Defense Authorization Acts of 2013 and 2015 that called for the regulations that the Interim Rule now seeks to implement.  The Interim Rule has thus been a long time coming, but that the DoD chose to publish it now seems appropriate.  The executive branch has been implementing a whirlwind of cyber regulations specific to federal contractors, all in an effort to stem the nation’s cyber vulnerabilities.  Just last week, the Office of Management & Budget released proposed cybersecurity guidance that could lead to further amendments to the Federal Acquisition Regulation (FAR).  

 

Comments on the Interim Rule, which separately addresses cloud computer services and is discussed here, are due on or before October 26, 2015.

 

 

In conjunction with his remarks at the White House Summit on Cybersecurity at Stanford University earlier this month, President Obama signed Executive Order 13691, entitled “Promoting Private Sector Cybersecurity Information Sharing.”  Published in the Federal Register last week, the Order is intended to encourage and facilitate cybersecurity information sharing within the private sector, and also between government and the private sector.  The Order emphasizes that, because a large majority of the nation’s critical infrastructure is privately owned, cybersecurity is necessarily a shared public-private mission.  At the same time, however, it also recognizes that cybersecurity must balance the exigency of security against the privacy and civil liberties of the American people.

For a complete summary of the Order and its implications, continue reading here.

After a year of development, NIST has released the long-awaited Cybersecurity Framework, which promises to have significant implications for the public and private sectors alike. The final version retains much of the Framework Core set forth in its draft version and provides a blueprint to align cybersecurity efforts, along with the accompanying Roadmap document discussing next steps. Yet many questions remain, including how to further define voluntary adoption and its incentives, the impact on government contracting, and how third parties may use the standards. For a more detailed analysis of the NIST Cybersecurity Framework and its implications, please see our recent Bullet Analysis.

Please also join Crowell & Moring and The Chertoff Group on February 20, as we host panelists from NIST, DHS, the National Security Staff, and the private sector for a lively discussion regarding this and other critical developments, as well as what to expect in the coming year.