A new Department of Defense (DoD) requirement for contractors has been proposed. This would require contractors to provide applicable export authorizations when receiving certain types of government contracts. This proposed amendment to the Defense Federal Acquisition Regulation Supplement (DFARS) would empower the Defense Contract Management Agency (DMCA) to request export authorizations when contracts require Government Quality Assurance Surveillance Oversight.
Government Quality Assurance Surveillance Oversight
Government Quality Assurance Surveillance is used to assess contractor performance to ensure that specific objectives have been met. This is accomplished by having contractors submit a Quality Assurance Surveillance Plan (QASP). This document identifies performance objectives and the specific methods of inspection used to verify compliance. A QASP is required when contracts are designated for countries in the European Union, Israel, Turkey, and the United Kingdom.
At present, the DCMA must either have government personnel travel abroad or have foreign auditors perform these assessments. Export licensing documents must specify if foreign auditors can be utilized. It can require a significant amount of time to determine if licensing allows for foreign auditors. Therefore, this requirement would provide the agency to know if they can delegate foreign auditors more quickly.
Number of Entities Effected
While a number of prime contractors may be affected by this requirement, the DCMA estimates that relatively few small entities will fall under these additional requirements. Based on an analysis of contracts that required government quality assurance oversight surveillance between May of 2018 and May of 2019, only 723 were classified as small entities. This is important because of the burden associated with additional reporting and record keeping.
As with other proposed changes in these types of regulations, the DoD is inviting comments from effected parties, especially small businesses involved in these types of contracts. Comments should cite 5 U.S.C 610 (DFARS Case 2018-D053) when submitted.
The proposed amendment would require contractors to submit export authorizations. These authorizations could include export licenses, export license exceptions, or export license exemptions. Export licensing is required to ensure that United States national security and foreign policy objectives are maintained when defense products or services are exported that are controlled under the International Traffic in Arms Regulations (ITAR). These controls are also required for the export of commercial products and services whose export is controlled by the Bureau of Industry and Security (BIS) under the Export Administration Regulations (EAR).
Licensing requirements are determined by classification of an article or service under the ITAR and EAR. When an item has been found to be enumerated under these regulations various prohibitions or licensing requirements may exist depending on the type of product, its intended end use, and the country of export.
Technical Assistance Agreements
Another control for export compliance is the Technical Assistance Agreement (TAA). A TAA is a document that specifies the arrangement between an exporter and a foreign person who is a recipient of a defense service. The information covered by TAAs include any information required on the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles. TAAs are often a requirement for the following activities:
- Support of exported direct commercial sales
- Overseas maintenance or training
- Demonstrations, evaluations or consultations
- Activities in support of U.S. government sponsored foreign contracts
Export Control Classification
An export can include sale of goods within the United States to a person or entity that is not a U.S. person. A transfer of technical data can also be considered an export which can be conducted by means of a phone call or email. Export Control Classification begins with the defining the technical specifications for the item to be transferred. This applies to actual shipments as well as transfers of technical data.
It is important to note that a given product may fall under numerous classifications based on how regulations are interpreted. It is essential to ensure that a thorough analysis be conducted to ensure that due diligence for compliance has been met. Therefore, it is not prudent to rely on a customer’s or supplier’s classification as there are severe consequences for non-compliance.
CVG Strategy Export Compliance Expertise
New DoD requirements for contractors and subcontractors will place additional scrutiny on the licensing of exported products and services. Governmental enforcement has become more stringent in recent years for failures to comply with the ITAR and the EAR.
Failure to comply with regulations can result in criminal prosecution including imprisonment and fines. It can also result in civil penalties and disbarment from export activities. Your business cannot afford to have its reputation ruined by a failure to comply.
CVG Strategy can help you establish and maintain a coherent an effective Export Compliance Management System that will address these new DoD requirements for contractors. We can assist you by performing export control classifications, perform audits, and educate your team. Regardless of whether your business falls under EAR or ITAR, CVG Strategy has the expertise to help.