DFARS Proposed Export Controls Rule Would Require Supplying DCMA with Copy of Relevant Export Authorizations

On March 22, 2023, the Department of Defense (DoD) published a proposed rule to amend Defense Federal Acquisition Regulation Supplement (DFARS) clause 252.225-7048. This amendment would implement an additional export control requirement for certain contractors. Specifically, the amendment would require contractors to provide the Defense Contract Management Agency (DCMA) certain information concerning export authorizations obtained or relied upon to perform contracts requiring both (1) delivery to, or production or performance in, “government quality assurance countries” and (2) “government quality assurance surveillance oversight.”

SOURCE: Pillsbury Global Trade Blog

The proposed rule defines “government quality assurance countries” as “countries that have current Government Reciprocal Quality Assurance agreements with the Department of Defense or Reciprocal Government Quality Assurance annexes contained in a Reciprocal Defense Procurement Memorandum of Understanding.” These countries include Australia, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Israel, Italy, Republic of Korea, Netherlands, Norway, Poland, Romania, Slovakia, Spain, Sweden, Türkiye, and the United Kingdom.

“Government quality assurance surveillance” is a means to determine if a contractor’s performance meets the performance standards contained in the contract.

Under some contracts with foreign military agencies, it is agreed that the foreign government will perform quality assurance activities in lieu of the DCMA pursuant to the agreements referenced above. The proposed rule is intended to facilitate the DCMA’s ability to analyze whether the officials of the receiving country are authorized to perform those functions under the applicable U.S. export controls. Currently, the DCMA relies on the generally applicable authority of the government to review contractor records as established in Federal Acquisition Regulation 4.703(a) in order to obtain access to a contractor’s export authorizations. The proposed rule argues that the DCMA is not able to obtain the necessary documentation that suits its purpose under FAR 4.703(a) unless DCMA personnel travel to the contractor’s site to review the records there, and that this process is burdensome and time consuming.

Under the proposed rule, when a contract requires government quality assurance surveillance oversight and delivery to, or production or performance in, a government quality assurance country, the contractor will be required to provide the appropriate DCMA contracting officer “relevant export authorizations” and contact information for the empowered official or export point of contact. “Relevant export authorizations” is defined in the proposed rule as “an export license exemption, export license exception, export license, or other approval.”

The proposed rule would apply to all such contracts, including contracts at or below the simplified acquisition threshold, as well as contracts for commercial products or services, including commercially available off-the-shelf items.

The proposed rule also includes definitions for several additional terms:

• “Export License Exception” means a “special authorization that allows export or re-export, under stated conditions, of items that are subject to the EAR that would otherwise require and export license.”
• “Export License Exemption” refers to “authorization that exempts the item or items from the otherwise applicable licensing requirements under certain conditions.”
• “Empowered Official” and “Other Approval” are now included as defined terms and follow the ITAR definition.

As DFARS 252.225-7048 already makes clear, ITAR and EAR compliance is not only a regulatory requirement, but also an administrative requirement for certain DoD contracts. This rule further emphasizes the importance of contractors’ compliance with export control licensing and recordkeeping requirements.

DoD is accepting comments on the proposed rule until May 22, 2023.