DoD forcing contractors under more control – DoD is expanding DFARS pushing contractors into negotiated prices and special license rights

Defense contractors may soon face changes to their rights in computer software and technical data. The U.S. Department of Defense (DOD) has proposed revisions to the Defense Federal Acquisition Regulation Supplement (DFARS) designed to shift intellectual property rights terms from the current standard to terms that are more individualized by contract – resulting in ownership and license rights that are more favorable to the government and less favorable to contractors. Among other changes, the new rules will require contractors to assign monetary value to their technical data and computer software in proposals. The new rules also will encourage the government to negotiate for special license rights. These proposed revisions, DFARS Case 2018-D071 and Case 2018-D018 (collectively referred to as the DFARS Cases), will revise the DFARS to comply with sections of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018. In their current form, however, the revisions address a wide range of changes that extend beyond the requirements of NDAA FY 2018. Contractors should begin to plan now for implementation of the new rules. Proposed Rules Late last year and earlier this year, DOD published Advanced Notices of Proposed Rulemaking (ANPR) addressing the DFARS Cases. As of the date of this publication, both DFARS Cases are currently under review by the Defense Acquisition Regulation Council's (DARC) Patents, Data and Copyrights Committee. The NPRM is forthcoming. DFARS Case 2018-D071 , the first ANPR published on Nov. 12, 2019, will implement Sections 835(a)(1), as amended by Section 867 of NDAA FY 2019 (10 U.S.C. § 2439) and 835(c) (10 U.S.C. § 2320(f)). Negotiation of Price for Technical Data (10 U.S.C. § 2439) Notably, while 10 U.S.C. § 2439 only requires price negotiations for data for major weapon systems, DOD's proposed rule would expand the regulatory requirement to "include commercial technical data, noncommercial technical data, and computer software (and associated license rights)[.]" According to the ANPR, DOD policy is to acquire needed technical data and computer software and associated license rights under contracts for the acquisition of supplies, services, and business systems. Accordingly, the primary proposed change would extend the scope of regulatory coverage to encompass contracts other than those for engineering and manufacturing development, production, or sustainment (including services contracts). DOD primarily is proposing to revise DFARS 215.470(a), which will direct contracting officers to require offerors provide estimates of the prices of data and associated licenses rights in order to evaluate cost to the government. The revision provides that "before making a source selection decision or awarding a sole-source contract, the contracting officer shall negotiate a price for data (including technical data and computer software) and associated license rights to be . . . provided under a contract for the development, production, or sustainment of a system, subsystem, or component; or services" (emphasis added). The proposed rule states that "such negotiations should be based upon the use of appropriate intellectual property valuation practices and standards." According to DOD, "it is only in the case when neither party desires a special license agreement (e.g., because neither party anticipates doing so would more equitably address the parties' relative interests), that the parties are not required to negotiate." Effectively, however the rule forces the contractor to engage in negotiations with the government, providing DOD with leverage to seek more rights and forcing the contractor to decide just how much it is willing to give away to secure the award. DFARS, Case 2018-D018 , the second ANPR published on Jan. 14, 2020, will implement Section 871 (10 U.S.C. § 2322a). DOD again proposes regulatory reform beyond the scope of the statute. As stated in the ANPRM, "although the statute focuses on detailed aspects of the delivery requirements for noncommercial computer software, the proposed DFARS revisions also recognize that the government must consider and acquire appropriate license rights in order to utilize those deliverables." DOD stated that, for this reason, it included references to "necessary license rights" and "associated license rights" throughout the proposed revisions. DOD is proposing to add the requirements of 10 U.S.C. 2322a, subsection (a) to DFARS 227.7203-2(b) nearly verbatim, requiring that the government's "needs determination" address "the acquisition at appropriate times in the life cycle of all computer software, related data, and associated license rights necessary to" (emphasis added) meet the government's needs for life cycle activities (e.g., reproducing, building, recompiling, testing, and deploying the software). The requirements of subsection (b) are to be included under DFARS 227.7203-2(c), making contracting officers responsible for ensuring that solicitations and contracts require "that any computer software, related data, and associated license rights identified in the needs determination" 1) include software in digital format, 2) not rely on external or additional software or data and 3) when the negotiated terms do not permit the inclusion of external or additional software or data, "include sufficient information to support maintenance and understanding of interfaces and software revision history, along with all necessary license rights" (emphasis added). As noted above, DFARS 252.227-7014 already provides DOD with substantial rights in noncommercial computer software and documentation. With this new DFARS provision, DOD seeks to expand its intellectual property (IP) rights even further. Conclusion Whether these proposed changes survive DARC's review, the notice rulemaking period and ultimately end up in the DFARS remains to be seen. DOD is taking an aggressive stance when it comes to rights in technical data and computer software – evidently with strong Congressional support. The DFARS Cases, as well as DOD's and Congress's actions, will continue to be monitored