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Why Smart Companies Should Be Wary of Contracting with the Government


Vern Edwards

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Anyone selling or buying commercial items to the government should read the 43-page decision of the Armed Services Board of Contract Appeals in the matter of FlightSafety International, Inc., ASBCA No. 62659, Nov. 29, 2022. The case concerns a dispute with a commercial item subcontractor over rights in technical data.

Bob has provided a link to the decision:

FlightSafety International, Inc., ASBCA No. 62659, November 29, 2022.

The prime properly flowed four DFARS technical data clauses down to a sub. Altogether, the clauses were 33,671 words in length. Based on a sentence in one of the clauses the government claimed unlimited rights in the sub's technical data, which the sub had marked as proprietary because the data were developed exclusively at private expense. The government did not dispute that the data were developed exclusively at private expense, but challenged the contractor's markings. The subcontractor disputed the government's action. The board ruled for the government.

The government says it yearns to do business with innovative commercial contractors. This case shows why innovative commercial contractors should be wary of government contracts and subcontracts. The case is also very educational for government contracting personnel. Although about a subcontract for commercial items, it shows (1) the level of knowledge and skill required to do government contracting at a professional level, (2) why the professional standards promulgated by OFPP, and the training that agencies provide to their contracting personnel, are inadequate, and (3) why career-long personal study is essential if you really want to be a pro. It also shows why people who say there is too much focus on regulations are fools.

Professor Nash has written about the case in an article that will be published in The Nash & Cibinic Report next month. He says: "[H]ow many commercial companies are equipped to walk through this maze? A more rational response might be for a company reading about this decision to "just say no."

 

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  • Vern Edwards changed the title to Why Smart Companies Should Be Wary of Contracting with the Government

Doing my best to understand it, but it's a hard read. As I read it, there are two main parts to the decision: First, what can the government do with commercial technical data under DFARS 252.227-7015? Second, what legends are permitted on commercial technical data?

The first issue involves the "unrestricted rights" in the commercial clause (not "unlimited" but essentially the same). Despite the data being commercial, the government gets unrestricted rights in certain data, listed at (b)(1)(i) through (v), which includes form, fit, and function data, and data that "Are necessary for operation, maintenance, installation, or training (other than detailed manufacturing or process data)," commonly called "OMIT" data.

One of the things that makes the decision hard to understand is that the Board throughout uses the term "the data", but its analysis only applies to this limited category -- the (b)(1) data that is not detailed manufacturing or process data. Keep that in mind when you see the term "the data."

The Board goes on to conclude that the prohibition in (b)(2) against using commercial data to manufacture does not apply to (b)(1) data (except for detailed manufacturing or process data). Takeaway for contractors - unless it is detailed manufacturing or process data, everything in (b)(1) can be given to another contractor for manufacturing. This may be a surprise if your focus is on the restrictions in (b)(2) and you just glance over the data described in (b)(1).

More of a concern is issue 2, where the Board concluded that certain wording commonly found in commercial licenses cannot be used, because some government employees might get confused and think a restriction applied to the government. That may sound harsh, but it's implied in the decision. Acknowledging that the DFARS does not prescribe any particular commercial data legend, the Board nevertheless concludes that "proprietary", "confidential and proprietary", or similar words, cannot be used, because they imply a duty to protect the information, which would contradict the government's unrestricted rights. Similarly, a copyright notice cannot be used. Also improper - a phrase such as “It shall not be reproduced, distributed, or disclosed to others, except as expressly authorized in writing,” because this language is not limited to third parties and would contradict the government's unrestricted rights. 

Keep in mind, the analysis on the second issue also applies only to (b)(1) data. Small comfort though, as that data includes form, fit, and function data, and operation, maintenance, installation, or training data, all of which can be quite detailed.

So what are contractors to do, if the Board is not overruled? Right now they probably use their standard commercial legend on all commercial data delivered to the government. Must they create a separate legend for (b)(1) data, that clearly states that the restrictions only apply to third parties, not the government? Scrub the words "proprietary" and "confidential"? And also remove a copyright notice? This all would necessarily include a process for differentiating (b)(1) data from (b)(2) data. 

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