United States: DoD's Proposed Rule Would Create Additional Risk And Burdens For Contractors Handling Export-Controlled Information

Key Points

  • On October 31, 2016, the Department of Defense (DoD) issued a proposed rule titled, "Withholding of Unclassified Technical Data and Technology from Public Disclosure" ("Proposed Rule").
  • The Proposed Rule would establish a new policy and procedure for the dissemination of certain technical data subject to the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) by DoD to qualified U.S. and Canadian defense contractors and by those contractors to their subcontractors and others.
  • A contractor's qualification to access export-controlled data and technology would be temporarily revoked upon DoD's receipt of "substantial and credible information" of a violation of U.S. export control law by the contractor or any of its employees.
  • Public comments are due on December 30, 2016.


The Proposed Rule creates a procedure for DoD to release unclassified technical data subject to EAR and ITAR to "qualified contractors," which are defined to mean qualified U.S. and Canadian contractors. The Proposed Rule raises critical operational and legal issues for U.S. and Canadian defense contractors seeking to obtain ITAR and EAR technical data from DoD: (1) the certification requirements related to qualification, (2) the use of overlapping and confusing terminology throughout the rule regarding the type of information subject to the rule, (3) the limitations on further dissemination and (4) the possibility of disqualification for export violations. The following provides a brief summary of the process, the contractor certification requirement, the type of information subject to the rule, the disclosure limitations and the issue of disqualification.


The Proposed Rule states that the procedures for release of technical information applies to only information that meets the following three criteria: (1) the information must be on the U.S. Munitions List (USML) or Commerce Control List (CCL); (2) the information would require a license, exception, exemption or other authorization in accordance with U.S. export laws and regulations; and (3) the information is not under the control of the Nuclear Regulatory Commission pursuant to the Atomic Energy Act of 1954, as amended, and the Nuclear Non-Proliferation Act of 1978, as amended. If the information meets these criteria, DoD will authorize release of the criteria to the qualified contractor, except in three circumstances: (1) the qualification of the contractor has been temporarily revoked for one or more of several reasons described in more detail below, (2) the controlling DoD office judges the requested technical data and technology to be unrelated to the purpose for which the qualified contractor is certified, or (3) the technical data and technology is being requested for a purpose other than to permit the requester to bid or perform on a contract with the DoD or other U.S. government entity.

Contractor Certification Requirement

To become a qualified U.S. contractor, the individual or enterprise must certify and acknowledge a variety of terms, including that the person who will act as the recipient of the export-controlled technical data and technology on behalf of the U.S. contractor is a U.S. citizen or lawful permanent resident located in the United States. The certification must specify the contractor's business activity, which will be used by the DoD controlling office as a basis for approving or disapproving specific requests for technical data and technology. An important condition that may prove troublesome is that the contractor must state that, to the best of its knowledge, no person employed by it, or acting on its behalf, with access to the data or technology has violated U.S. export control laws or a certification previously made to DoD under the provisions of this rule.

Interestingly, this provision could provide a disincentive for U.S. companies to make voluntary disclosures of ITAR and EAR violations to the departments of State and Commerce, respectively. Voluntary disclosures could be used as evidence by DoD to reject an application for qualification. Moreover, it could have a significant impact on internal investigation processes for export control issues: individuals required to make the certifications to DoD under this Proposed Rule may feel compelled to seek confirmation through their internal compliance functions about the validity of the statement that the company has not "violated U.S. export control laws." Particularly without a time limitation on this certification, it represents an extremely high — perhaps impossible — bar for any major defense contractor.

DoD should reconsider the phrasing of the requirement in Section 250.3 under subsection five of the definition of "Qualified U.S. Contractor" in order to avoid the unintended consequences of the broad language of "violated U.S. export control laws" in its certification requirement.

Relationship to ITAR and EAR and the Ambiguity of Varying Terminology Used in the Proposed Rule

The Proposed Rule states that it does not introduce any additional controls on the dissemination of technical data and technology by private enterprises or individuals beyond those specific by export control laws and regulations or in contracts or other agreements. This is helpful because the Proposed Rule uses a series of overlapping and conflicting terms and descriptions to describe what is subject to the rule, including "technology," "technical data" and "technical information." The rule could be much more streamlined by reducing its use of differing terms and descriptions, as well as eliminating some altogether.

Ultimately, the Proposed Rule clarifies that it applies to only certain types of unclassified technical data, as defined in the ITAR, and certain types of technology, as defined in the EAR, that are subject to those regulations. It does this through the "procedures" section of the rule (Section 250.6). Through subsection 250.6(b)(1) in particular, DoD confirms that certain terminology used in the Proposed Rule (e.g., the phrases "technical information" and "unclassified technical data and technology that discloses technology or information with military or space application") is ultimately irrelevant with respect to the application of the Proposed Rule to contractor requests.

Unfortunately, subsection 250.6(b)(1) leaves a significant gap that must be addressed before the final rule or else it will result in ambiguity in the application of the Proposed Rule by DoD. Specifically, subsection 250.6(b)(1)(ii) states that only information requiring a license, exception, exemption, or other export authorization under export control laws and regulations will be subject to the Proposed Rule. The problem is that a determination as to whether a license, exception, exemption or other export authorization is required depends on information about the country of destination, end use and end user with respect to information subject to EAR, but there is no requirement in this subsection that links the analysis to any particular end user, end use, or country (e.g., countries identified in the contractor's release request).

For example, certain space technology may require a license for certain countries and not for others. Similarly, there are highly restrictive licensing requirements for low-level technology for countries subject to antiterrorism controls and sanctions laws (e.g., North Korea, Iran). DoD must modify subsection 250.6(b)(1)(ii) to provide better guidance on how to apply the test in that provision, or it will result in inconsistent approaches by DoD entities.

Disclosure Requirements

The Proposed Rule authorizes DoD to provide technical data and technology to "qualified U.S. contractors" for only "legitimate business purposes," which are limited to support of U.S. government approved sales to foreign governments, purchases of surplus property, sales or production for domestic and foreign commercial marketplaces (with appropriate export authorization), engaging in scientific research in a professional capacity and acting as a subcontractor to a qualified contractor. In turn, a qualified U.S. contractor may further disseminate technical data and technology, without additional DoD approval, to only:

  • employees and persons working on its behalf who meet citizenship and residency requirements
  • foreign recipients with an export license
  • other qualified U.S. contractors within the scope of the legitimate business purpose
  • the Department of State or Department of Commerce to apply for export licenses, which must be accompanied by a statement that the technical data and technology is controlled by DoD or
  • Congress or any federal, state or local government agency as required by law.

In contrast, DoD may provide technical data and technology to only a "certified Canadian contractor" where a "legitimate business relationship" exists between the contractor and the government. The existence of a "legitimate business relationship" is solely within the discretion of DoD and requires that a need exist to acquire, share, exchange or disseminate DoD technical information to anyone other than a DoD employee for the support of a DoD mission. Such a relationship may be established by a memorandum of understanding, agreement, contract or grant. Importantly, the Proposed Rule provides no parallel provision allowing certified Canadian contractors to further disseminate export-controlled information without DoD approval. Thus, it appears that, in addition to any authorizations required under U.S. export controls, certified Canadian contractors must also seek DoD approval to share technical information subject to the Proposed Rule with any party, including other qualified contractors.

Mandatory Revocation

The likely most controversial aspect of this regulation is that, "[u]pon receipt of substantial and credible information" under the following circumstances, a DoD Component will temporarily revoke the U.S. or Canadian contractor's qualification if the contractor or its employees:

  • violated U.S. export control law
  • violated its certification
  • made a certification in bad faith or
  • omitted or misstated a material fact.

As written, this revocation is mandatory, but the Proposed Rule does include a caveat that, if the temporary revocation would compromise a U.S. government investigation, the revocation may be delayed. In addition to the revocation, the DoD Component "must notify the appropriate law enforcement agency." In the context of export-controlled information, those agencies could include DOJ, the FBI, the State Department and Department of Commerce.

Upon a temporary revocation, the DoD Component is to notify the contractor and the Undersecretary of Defense for Acquisition, Technology and Logistics (USD (AT&L)), and the contractor will have an opportunity to respond in writing before being disqualified. If the basis for the temporary revocation cannot be removed within 20 working days, the DoD Component will recommend to the USD (AT&L) that the contractor be disqualified from receiving export-controlled information. The rule allows a U.S. contractor whose qualifications have been temporarily revoked to present information "showing that the basis for revocation was in error or has been remedied" and be reinstated.

The Proposed Rule could clearly benefit from clarification about the "substantial and credible information" standard. As noted above, to the extent that DoD uses voluntary disclosures as a basis for this determination, it would create a mandatory trigger based on a contractor's decision to follow long-standing policy that has been encouraged and fostered by the departments of State and Commerce to come forward to report violations of the ITAR and EAR. This is not the calculation that DoD should be injecting into the export compliance process within the contracting community.


Companies that are involved in DoD procurement are encouraged to closely read the Proposed Rule and critically examine the practical effects it may pose on their business activities and export control compliance programs. The public-comment period ends on December 30, 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions