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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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