Trade Secrets

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The Senate passed the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015 [pdf] on Friday, December 12, 2014. President Obama is expected to sign the bill into law. The $585 billion bill authorizes the Pentagon’s activities in FY 2015. It includes $521.3 billion in base defense spending and another $64 billion in war funding. Here is a summary of the procurement reform initiatives that will be relevant to contractors in the upcoming year:

  1. Cyber incident reporting for operationally critical contractors. Section 1632 of the 2015 NDAA directs the Secretary of Defense to designate and notify “operationally critical contractors,” a term narrowly defined in the bill. After notification, designated contractors will be required to report to the Department of Defense each cyber incident with respect to any network or information system of such contractor. Reports must include: an assessment of the effect on the contractor’s ability to meet the Department’s contractual requirements; the technique used in the cyber incident; any sample of malicious software obtained; and a summary of information compromised by the incident. Despite the disclosure requirement, section 1632 provides for protection of contractor trade secrets and confidential commercial or financial information. It also limits the dissemination of information obtained to relevant entities and agencies.
  2. Enhanced authority for non-DOD Chief Information Officers. Section 831 of the NDAA increases the role of Chief Information Officers of agencies other than the Department of Defense. It provides that an agency may not enter into a contract for information technology unless the contract has first been reviewed and approved by the agency’s Chief Information Officer. The head of each covered agency must ensure that its Chief Information Officer has a significant role in all annual and multi-year planning, budgeting, and reporting related to information technology. The bill requires the Director of OMB and the Chief Information Officers of appropriate agencies to increase the efficiency and effectiveness of information technology investments and to develop opportunities to consolidate the acquisition and management of information technology services. The Chief Information Officer of each covered agency is directed to inventory agency data centers and develop a multi-year strategy for consolidation and optimization of those data centers inventoried.
  3. DOD CIO positions consolidated. Section 901 of the 2015 NDAA incorporates a DOD proposal to combine the positions of Chief Information Officer and Deputy Chief Management Officer into the position of Under Secretary of Defense for Business Management and Information. The new Under Secretary will oversee business operations, personnel, and IT projects and will be appointed by the President with the advice and consent of the Senate. This change will not take place until the next administration.

Since the Federal Awardee Performance and Integrity Information System opened to the public on April 15, 2011, contractors have been concerned that their trade secrets and other proprietary information might also become accessible. With good reason—the interim version of FAR 52.209-9 provided for the public availability of all newly submitted information other than “past performance reviews.”

The final rule on public access to FAPIIS specifically addresses the problem. Rather than simply ignoring Freedom of Information Act exemptions entirely as the interim rule did, the final form of FAR 52.209-9 (Jan. 3, 2012) [pdf] includes a mechanism that allows the contractor to identify information covered by a FOIA exemption.

Should the federal government require prospective government contractors to disclose their political contributions? The Obama administration weighed in on this issue in April with a draft executive order entitled “Disclosure of Political Spending by Government Contractors.” As the title suggests, the draft order would require a contractor submitting an offer to perform a federal contract to disclose political contributions exceeding $5,000 made within two years preceding the offer. The order has generated significant controversy. Many have expressed fear that the information would be used inappropriately as a new factor in awarding federal contracts. The controversy intensified last month when Senator Susan Collins (R-ME) and Representative Darrell Issa (R-CA) proposed the Keeping Politics Out of Federal Contracting Act of 2011, which would prohibit the disclosures called for in the draft executive order.

Contractors seeking to comply with the new requirement to report the compensation of their five highest paid executives under FAR 52.204-10 (July 2010) still have a lot of unresolved questions. We heard some of the questions during our June 8, 2011 webinar on the topic, which was sponsored by L2 Federal Resources, LLC, publisher of The Contracting Post. Thanks for hosting!

Here are some of the questions posed, along with our answers.

It’s a worst-case scenario for many government contractors. Despite using strict confidentiality agreements and bold restrictive legends, the government releases a valuable trade secret to the public. The Trade Secrets Act may result in criminal consequences for the offending individuals, but the more pressing question for the contractor is how to recoup the loss of a valuable asset. The recent decision in Spectrum Sciences and Software, Inc. v. United States, No. 04-1366C (Fed. Cl. Feb. 14, 2011) [pdf], offers some guidance.