garth

Hey Neil, Solid points. I will add I have negotiate terms with most of the major DOD contractors over the last 10 years and I have not heard a sound argument in support of this type of language. The most common argument is that it is required to perform their prime contract obligations. Which if true would only require a license grant to the limited extent to make us of the work performed or delivered in the performance of the prime contract obligations under which the subcontract was issued.

Neil / Joel, Thanks for the thoughts. Its seems the USG would be have a vested interest in addressing this issue as the cost is most likely being absorb by them. In my experience, and according to various surveys (WCC and NCMA), the IP clause is one of the most heavily negotiated provisions, and the time and resources (cost) the contracting community expends, along with the cost of the licenses grants the prime contractors obtains, for their own use, are no doubt being passed on the USG.

Primes Contractor Overreaching in Obtaining Subcontractor's Intellectual Property Rights Has anyone had any experience with DCMA ensuring prime contractors do not overreach in obtaining rights in subcontractors' technical data? Many prime contractors include Intellectual Property clauses in their standard terms that appear to enlarge the prime contractor's rights in its subcontractor's and suppliers' technical data and intellectual property in contravention of DFARS 252.227.7013 Rights in Technical Data -- Noncommercial Items. DFARS 252.227.7013 Rights in Technical Data -- Noncommercial Items states: "No other clause shall be used to enlarge or diminish the Government's, the Contractor's, or a higher-tier subcontractor's or supplier's rights in a subcontractor's or supplier's technical data ….", and "The Contractor and higher-tier subcontractors or suppliers shall not use their power to award contracts as economic leverage to obtain rights in technical data from their subcontractors or suppliers…". Some examples of prime contractors' Intellectual Property clauses that seem to violate this requirement: Example #1 "Seller-Owned Intellectual Property. Seller shall retain ownership of all Background Intellectual Property and of any Foreground Intellectual Property not assigned to Buyer pursuant to this Article paragraphs (d) and (e) (collectively, "Seller-Owned Intellectual Property"). Unless otherwise expressly agreed in writing to the contrary and in addition to U.S. Government's Intellectual Property rights, Seller grants to Buyer an nonexclusive, irrevocable, sublicensable, paid-up, royalty-free worldwide right to make, have made, sell, offer for sale, use, execute, reproduce, display, perform, distribute (internally or externally) copies of, and prepare derivative works of any and all Seller-Owned Intellectual Property in the performance of its Government Contract or higher-tier contract obligations (including obligations of follow-on contract or contracts for subsequent phases of the same program)." Example #2 "For Technical Data and Computer Software in which the Government has Unlimited Rights, Supplier hereby grants to Buyer an irrevocable, non¬exclusive, paid-up, worldwide license, with the right to grant sublicenses, to Use, including the right to make or have made, such Supplier's Technical Data and Computer Software for any purpose whatsoever, and to have or authorize others to do so." The requirement appears to have originated from the Hearings on Proprietary Rights & Data before Subcommittee No. 2 of the House Select Committee on Small Business, 86th Cong. 2d Sess. (1960). Among the concerns voiced by industry was that higher-tier contractors were inappropriately requiring language in subcontracts that granted the higher-tier contractor rights in the subcontractor's technical data. Some before the committee argued that the government has no role to play in the negotiations of contracts between contractors and their subcontractors, and it is incumbent on the subcontractors to defend their rights more aggressively. However, the argument that prevailed was that while it is true subcontractors should stand up for their own rights it is also true that: " we [the government] do have an interest in subcontracts, because if we find that prime contractors are requesting from their subcontractors more data or more rights in data than we required or than we ask the prime contractor to get, it may well be in a given case that the Government is, in fact, paying for this as part of the cost of the subcontract, in which case we are very interested because we do not want to pay for it. We are not asking for it and we do not want to pay for it." The House of Representatives, Subcommittee No. On Government Procurement on the Select Committee to Conduct Studies and Investigations of the Problems of Small Business, (July 1964) recognized DPC No. 6 as having satisfied the concerns raised in the earlier hearings; and pointed out the role of the DOD contracting community in monitoring the enforcement of the policy: "Those of you in the contract administration who have responsibilities for the review of contractors' purchase systems or approval of subcontract, must assure that prime contractors also do not overreach in dealing with their subcontractors. Our past experience has shown that prime contractors will frequently word their purchaser orders so that all data which they are to obtain from subcontractors is to be with unlimited rights." It appears from the history that Congress expected the U.S.G. to provide a check by what is now the Defense Contract Management Agency (DCMA) under what is now a Contractor Purchasing System Reviews (CPSR); however, given the number of contractors that included similar provisions it does not appear DCMA is performing this function.

My understanding is there are different types of IDIQ contracts. A requirements contract would require no miminium order, as the the buyers consideration is the promise to buy all future requirements - for a specified period - from the seller. An indefinite delivery contract has no such condition so a minimum buy obligation is required to form a contract. If it is not feasible to negotiate the pricing arrangement then I think a BOA setting out the terms would be about all one could accomplish. When you receive the prime contract you could negotiate the price and issue a subcontract.

Thanks Vern. I will try to find that reference and read through it; trust it is on point. And my apologies, I was assuming your thoughts were informed by some analysis.

Vern, Could you help with case citations to support your analysis?

This seemed noteworthy ... I would be interested in other folks thoughts. http://www.mckennalong.com/publications-advisories-3194.html

I choose rafieldjr content and style.

Neither one of us is getting paid are we.

I don't think the question is wheather the the prime contractor has the requirment to obtain certified cost or pricing data. I think question is if the subcontractor will only provide that data to the Government - as is the policy of many large contractors now days - and the prime contractor is not able to obtain timely support from DCAA or DCMA to review the data and provide a summary report to the prime contractor - which prime contractors have historically relied on - what are the options of the prime contractor It is a real time issure for a prime contractors.

The argument is not specific any particular requirment in the FAR. The argument is if the legal status of the regulations makes them binding on persons, including Government contractors and subcontractors, regardless of contractual agreement. The argument is that the FAR impliments many statutes (e.g., TINA, CICA, FARA, FASA, WSARA) over and above the statute providing their origianl authority. If there is sufficient nexus in regulations to the statutes they have the full force and effect of law. To that point i still content the cases are relevent. It seems Nash & Cibinic interpret Chrysler Corp. v. Brown, 441 U.S. 281 (1979) have a similar interpratation in their report Legal Status of Government Manuals and Instructions: Putting the Fox in Charge of the Chickens, 1 N&CR ? 77 (Oct. 1987). "The Supreme Court held that for a regulation to have the force and effect of law it must be: 1. Promulgated pursuant to a statute which can be reasonably said to contemplate the regulations, and 2. Published in accordance with the prior notice and hearing requirements of Administrative Procured Act, 5 U.S.C. 553. The Court held that such regulations are, in effect, the result of Congress' delegation of its legislative powers to the executive agencies. Their legal status makes them binding on persons, including Government contractors and subcontractors, regardless of contractual agreement."

I offer these two cases ... CHEVRON U. S. A. INC. v. NATURAL RESOURCES DEFENSE COUNCIL When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, 843*843 as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute. "The power of an administrative agency to administer a congressionally created . . . program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress." If Congress has explicitly left a gap for the agency to fill, there is an express delegation 844*844 of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. Sometimes the legislative delegation to an agency on a particular question is implicit rather than explicit. In such a case, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency. Note the wording indicating the standard necessary for a nexus between the statute and regulation does not appear to be particularly high: ?Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute? CHRYSLER CORP. v. BROWN, SECRETARY OF DEFENSE, ET AL In order for a regulation to have the "force and effect of law," it must have certain substantive characteristics and be the product of certain procedural requisites. The central distinction among agency regulations found in the APA is that between "substantive rules" on the one hand and "interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice" on the other. A "substantive 302*302 rule" is not defined in the APA, and other authoritative sources essentially offer definitions by negative inference. But in Morton v. Ruiz, 415 U. S. 199 (1974), we noted a characteristic inherent in the concept of a "substantive rule." We described a substantive rule?or a "legislative-type rule," id., at 236?as one "affecting individual rights and obligations." Id., at 232. This characteristic is an important touchstone for distinguishing those rules that may be "binding" or have the "force of law." Id., at 235, 236. That an agency regulation is "substantive," however, does not by itself give it the "force and effect of law." The legislative power of the United States is vested in the Congress, and the exercise of quasi-legislative authority by governmental departments and agencies must be rooted in a grant of such power by the Congress and subject to limitations which that body imposes. As this Court noted in Batterton v. Francis, 432 U. S. 416, 425 n. 9 (1977): "Legislative, or substantive, regulations are `issued by an agency pursuant to statutory authority and . . . implement 303*303 the statute, as, for example, the proxy rules issued by the Securities and Exchange Commission . . . . Such rules have the force and effect of law.

For sure that part! But I think the others as well.

After further analysis I think my original post is valid. If the FAR places a requirement on a contractor or subcontractor then, even absent any contractual language, it should be given deference as having the full force and affect as law. I think the argument that there is not sufficient statutory basis to allow the FAR to place requirements on contractors lacks support.