United States: DOE Proposes Highly Burdensome Reporting Obligations With Respect To Export Compliance

On September 8, 2008, we posted a commentary on a newly promulgated interim rule relating to "Export-Controlled Items," that was finalized in 2010 and is now set forth at DFARS Subpart 204.73 and implemented in principal part by the clause set forth at 52.204-7008. Click here. That rule was relatively straightforward, basically reminding DOD contractors (1) that they were obligated to "comply with all applicable laws and regulations regarding export-controlled items" and (2) that those compliance obligations existed independent of the new DFARS rule and its implementing clause. In reality, while the clause had the capacity to transform an export violation into a breach of contract, with all of the attendant liabilities and risks that attend such breaches, it imposed no new substantive obligations on DOD contractors.

If DOE has its way, DOE contractors will soon be confronted with far more rigorous export-related obligations. Under a proposed rule published at 78 Fed. Reg. 35195 (June 12, 2013), DOE contractors would find themselves obligated, in effect, (1) to advise virtually every recipient of any transmittal under any DOE contract with an export compliance notice that rivals the obverse page of a credit card agreement, and (2) to affirmatively notify the contracting officer of every export control requirement that the contractor has determined apply to the performance of its contract and that the contractor has taken "appropriate steps" to comply with those requirements. These obligations transcend any reporting obligations heretofore imposed on contractors and will impose significant administrative burdens and legal risks on DOE contractors.

The period for public comment on the proposed rule expires at the close of business on July 12, 2013. So, time is short to make your views known.

The principal flaws in the proposed clause are in paragraphs (c) and (e). Paragraph (c) requires a notice to be included "in all transfers, sales or other offerings of unclassified information, materials, technology, equipment or software pursuant to a DOE contract." We will address the notice itself below, but let's stop and dwell on that language, because it advises the contractor when it must include the notice. If the contractor includes the notice where required, it complies with the contract; if it does not include the notice when required, it breaches the contract.

Let's start at the beginning – "all transfers." Just what does that mean? Does it apply only to formal transfers, such as contract deliverables, or does it include all "transfers" of any information, including transfers via e-mail between (a) contractors and government customers, (b) contractors and private customers, (c) contractors and higher tier contractors, (d) employees of the same contractor? A little clarification would seem to be in order here. Without such clarification, contractors should probably operate on the assumption that "all" means just that, because they will find no leniency from regulators, enforcement personnel or whistleblowers.

What about "information"? The notice is not limited by its terms to "transfers" of "information" that is subject to export controls. It simply applies, indiscriminately, to all transfers pursuant to a DOE contract. Read literally, the notice is mandatory in an email establishing the time for any meeting to be convened under any DOE contract. Silly? Of course, but that is the literal, plain meaning import of the rule. And the same notice would be required for any "materials" transferred under the contract, including items that are not export controlled.

Let's move to the end of the sentence in question – "pursuant to a DOE contract." The dictionary defines "pursuant to" to mean "in accordance with," a term that is in turn defined to mean "agreement" or "conformity" with. Does this mean that the transfer must be required by the contract in order for the notice to attach? Or, will any "transfer" be covered that occurs under the broad umbrella of contract activity provided that the transfer is not in "disagreement" with or out of "conformity" with its terms? Again, given the risks, prudence would suggest a broad interpretation in the absence of further regulatory clarification.

The notice itself is simply overpowering. In full flower, I replicate it below:

[Start of Export Restriction Notice]

Export Restriction Notice—The use, disposition, export, and re-export of this property are subject to export control laws, regulations and directives, in effect on the date of contract award and as amended subsequently, that include but are not limited to: the Atomic Energy Act of 1954, as amended; the Arms Export Control Act (22 U.S.C. 2751 et seq.); the Export Administration Act of 1979 (50 U.S.C. app. 2401 et seq.) as continued under the International Emergency Economic Powers Act (Title II of Pub.L. 95–223, 91 Stat. 1626, October 28, 1977; 50 U.S.C. 1701 et seq.); Trading with the Enemy Act (50 U.S.C. App. 5(b) as amended by the Foreign Assistance Act of 1961); Assistance to Foreign Atomic Energy Activities (10 CFR part 810); Export and Import of Nuclear Equipment and Material (10 CFR part 110); International Traffic in Arms Regulations (22 CFR parts 120 through 130); Export Administration Regulations (15 CFR parts 730 through 734); regulations administered by the Office of Foreign Assets Control (31 CFR parts 500 through 598); DOE Order 142.3A, Unclassified Foreign Visits and Assignments Program, October 14, 2010; DOE Order 551.1D, Official Foreign Travel, June 24, 2008; and DOE Order 580.1A, Department of Energy Personal Property Management Program, March 30, 2012; and the Espionage Act (37 U.S.C. 791 et seq.) which among other things, prohibit—

(1) The making of false statements and concealment of any material information regarding the use or disposition, export or reexport of the property; and

(2) Any use or disposition, export or reexport of the property which is not authorized in accordance with the provisions of this agreement.

[End of Export Restriction Notice]

I have highlighted the language in paragraph (c)(1) only to underscore the fact that DOE is quite mindful that misinformation communicated with respect to export compliance can have drastic consequences under Title 18 and, potentially, under the civil provisions of the False Claims Act in Title 31.

Which leads us to paragraph (e). Let this sink in for a moment:

The Contractor shall notify the Contracting Officer in a timely manner, in writing, of:

(1) Any export control requirements it has determined apply to contract performance; and

(2) That it has taken appropriate steps to comply with such requirements.

Now, go back and read the notice. First, paragraph (e) requires you to make an affirmative determination of which of those many, many statutory and regulatory requirements applies to contract performance. The DOE's rationale for this requirement is simple – you have a duty to make that determination in any event or you risk violating an applicable requirement. This is true, but it really does beg the question – "If the duty exists independent of the clause, what purpose is served by paragraph (e)?" It cannot be to educate the contractor; the notice in paragraph (c) already lists all the potentially relevant obligations.

What conceivable purpose is served by obligating the contractor to notify the contracting officer of the rules and regulations that apply to the contract? Is not the Government generally the ultimate arbiter of the rules it promulgates? If specificity with respect to the application of export rules is desired on a contract-by-contract basis, why does the proposed rule not merely require the agency, when issuing a solicitation, to identify the specific export controls that apply to the contract and simply remind the contractor, as the DFARS rule does, of its general obligation to comply with the applicable rules? The proposed approach merely affords the agency, the IG, the DOJ and whistleblowers the opportunity to second guess the contractor's judgment – or even the adequacy of the process pursuant to which it reached that judgment – and to seek administrative or punitive recourse against the contractor for mistakes in reports that would be unnecessary but for paragraph (e).

Second, you now have an affirmative duty, not only to comply with the laws that you hope you have properly determined to be applicable to your contract, but to advise the contracting officer that you have taken "appropriate steps" to comply with them. What steps are "appropriate"? How often do you need to update your advice to the contracting officer? Do any changes to your internal controls, policies and procedures necessitate an updated advisory? Does the rule require you to disclose the steps you deem to be appropriate? No, not explicitly. But does anyone believe that auditors and IGs will ignore the opportunities presented here to till those fields?

There are other problems with and inconsistencies in the proposed rule. For example:

  • The Notice of Proposed Rulemaking states that the rule is being proposed "for consistency with a 2010 amendment to the Department of Defense Acquisition Regulations . . ." It would appear, frankly, that the DEAR draftsmen either have not read the DFARS or require vocabulary training with respect to the meaning of "consistency."
  • Paragraph (h) of the proposed rule requires flow down to subcontracts, but the flow down is not limited to subcontracts the subject matter of which is export controlled. That problem, of course, is identical to the one discussed above in trying to interpret and apply the prescribed "Export Restriction Notice." And it raises two potential problems. First, will the in terrorem effect of the Notice simply dissuade smaller and less sophisticated subcontractors from participating in the contracting process altogether? Note, this flow down requirement extends to all tiers. Second, there is a slight linguistic difference between the prefatory language relating to the Notice and the flow down requirement. Paragraph (c) requires the Notice to be included in "all transfers, sales or other offerings of unclassified information, materials, technology, equipment or software." Paragraph (h) requires flow down into any subcontract that involves "transfer, sale or other offering of items, including but not limited to unclassified information, materials, technology, equipment or software." (Emphasis added) Query, what are these other "items"? Or is this just inattentive draftsmanship. The law generally presumes that differences in language, particularly within the same regulation, are intended to have some meaning.

At bottom, this proposed DEAR rule evidences the complete disconnect between rule makers and the real world and the administrative burdens (spelled "c-o-s-t") and legal risks that unnecessary rules impose on contractors. This rule is not necessary – the obligation to comply exists, as the NPR and paragraph (b) of the proposed clause explicitly state, irrespective of the clause. Moreover, to justify this proposed rule based on its purported consistency with the DFARS borders on the delusional.

It is time to pick up your pen – or your laptop – and let the DOE know what you think. Remember, July 12th is your deadline. Silence forfeits your right to complain when the rule becomes final.

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.

Authors
Events from this Firm
29 Nov 2017, Webinar, Los Angeles, United States

This webinar will cover issues that California employers must face when managing a remote workforce of employees who “telecommute” for work. Due to the growing number of employees that work from home, California employers must know how to manage this new remote workforce in order to offer competitive career opportunities for a new generation of employees, while also being careful not to violate the complex California employment laws that govern these work arrangements.

30 Nov 2017, Conference, Brussels, Belgium

The European Competition and Regulatory Law Review (CoRe), the Computer and Communications Industry Association (CCIA) and the Vrije Universiteit Brussel (VUB) are delighted to invite you to our joint conference discussing some of today’s most frequently asked questions: Does competition law enforcement require an update for online markets?

4 Dec 2017, Conference, Virginia, United States

The Government Contract Management Symposium (GCMS) is held annually by the National Contract Management Association (NCMA) in the Washington, DC metro area. Formerly intended for those in federal sector, it has grown to provide training for professionals in both government and industry contracting.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

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.

Disclaimer

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.

Registration

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 by clicking here .

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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Emails

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 .

Security

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.