Supply-chain rules could blindside vendors

A newly implemented Defense Department rule aimed at protecting the IT technology supply chain could wind up cutting contractors out of the federal procurement process without their knowledge, according to the Information Technology Alliance for Public Sector (ITAPS).

An interim rule for the Defense Federal Acquisition Regulation Supplement published in the Federal Register on Nov. 18, 2013, states that all vendors that sell IT products or services must comply with DOD's supply-chain risk requirements, a standard that ITAPS said is too vague.

The federal government has been moving to protect technology and equipment from possible spying, cyberattack and tampering by implementing supply-chain risk management systems. The effort is a response to the increase in cyber incursions and concerns about the integrity of IT and other gear that is manufactured overseas.

On Jan. 21, Trey Hodgkins, a senior vice president at ITAPS, sent a letter to Dustin Pitsch at the Defense Acquisition Regulations System warning that the interim rule's nonspecific requirements could wind up excluding potential contractors from the federal procurement process without the vendors' knowledge and could also hobble their business with private companies. ITAPS' parent organization, the IT Industry Council, sent a letter to Pitsch in November voicing similar concerns.

ITAPS also argued that the new rule is a bigger deal than DOD made it out to be in November. According to Hodgkins' letter, DOD did not characterize it as a "major rule," which has an economic impact of more than $100 million. Hodgkins said the rule would have an impact "well in excess of $100 million" if the effects on personnel, loss of tax dollars and ripple effects from prime contractors to subcontractors are taken into account. Major rules require a more stringent review and a public comment period.

The possibility of companies being excluded from procurement opportunities without their knowledge is particularly troubling to ITAPS. Hodgkins said that if DOD determines that a company does not have adequate supply-chain protections in place, it "will have the same effect as a permanent debarment of the company across the entire federal government."

"Such a company would become known, either openly or confidentially, as a 'tainted' source, and their government business would eventually cease to exist," Hodgkins' letter states, adding that the effect could extend far beyond the company's government business.

"Many companies also have clauses in their commercial contracts that bar them from business if the federal government has excluded them as a source," the letter states. "Should the government exclusion become known to their commercial customers, it is not unreasonable to expect that commercial business for that company also would be affected, if not cease."

ITAPS officials want DOD to change the designation of the interim rule to just a proposal and open it up to industry for more review and comment. The group would also like the government to give explicit notice to individual vendors before taking any action so they can address DOD's concerns.

Erica McCann, ITAPS' manager of federal procurement, told FCW there is no timeline for DOD to formally turn the interim rule into a permanent rule, which essentially makes the interim rule a de facto permanent change. If DOD does decide to review it, ITAPS has called for an open public meeting to discuss the change, McCann said.

"This rule is fraught with flaws and needs to be reissued," she said.