On June 17, 2013, the US Department of Defense (DoD), DAR Council issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement the Defense Trade Cooperation Treaty Between the United States and the United Kingdom (the US-UK Treaty), as well as the Treaty Between The Government of The United States of America and the Government of Australia Concerning Defense Trade Cooperation (the US-Australia Treaty) (collectively, the Treaties). The final rule is set forth at DFARS Subpart 225.79.

The Treaties eliminate certain export licensing requirements for exports within an “Approved Community” of companies and government agencies in the US, the UK, and Australia for projects in which the governments of those countries are the end users. Where the Treaties apply to a covered project or transaction, exports of most US defense articles are generally permitted to move freely, without the need for separate ITAR licenses.

The final rule largely tracks the interim rule issued in May 2012, on which we advised. The final rule, however, revises the interim rule to make clear that the US State Department, Directorate of Defense Trade Controls (DDTC)—not government program managers and contracting officers—controls questions of eligibility under the Treaties.

Background

The interim rule established certain procedures intended to “facilitate maximum use” of the US-UK Treaty by prospective contractors. In particular, the interim rule:

  • required government program managers and contracting officers to determine whether contracts were eligible under the US-UK Treaty, which in turn required them to assess the US-UK Treaty eligibility of any defense articles to be provided under particular contracts and solicitations;
  • required bidders, before award, to state in writing whether or not there were compliant exports (e.g., technical data exchanges) in response to the solicitation with respect to qualifying defense articles or, in the alternative, that there were no such exports; and
  • required contracting officers, after award, to identify ineligible defense articles and contract line items based on information furnished to them by program managers.

In our discussion of the interim rule, we found potentially problematic the requirement that program managers and contracting officers make treaty eligibility determinations. In particular, we observed that the provision arguably granted DoD authority to engage in classifications of defense articles, a prerogative that is exclusively reserved for the US State Department, Directorate of Defense Trade Controls (DDTC). We remarked that the provision could expose contractors to risk if they relied on a potentially erroneous DoD determination.

Final Rule

In the final rule, DoD revised the requirement relating to treaty determinations, in response to comments from the public expressing concern that DoD lacked authority to classify items as defense articles. Whereas the interim rule required program managers to identify relevant treaty scope paragraphs and defense articles with respect to “solicitations and contracts eligible for Treaty coverage,” the final rule requires such measures for “solicitations and contracts that may be eligible for Treaty coverage” (emphasis added), acknowledging the primacy of DDTC on questions of eligibility. Furthermore, DoD stated that it and the UK Ministry of Defence had jointly established a Management Board to help program managers and contracting officers coordinate with DDTC in making eligibility determinations.

Finally, DoD preserved the requirement that bidders state whether or not they had engaged in compliant exports in the solicitation process with respect to qualifying defense articles. DoD rejected commentary proposing that bidders instead simply acknowledge their obligation to comply with all treaty requirements, explaining that such a measure would require a similar fact-gathering exercise before submission of an honest response.

Conclusion

The final rule implements the Treaties in the DFARS, ostensibly providing for the free movement of defense articles within an “Approved Community”. The rule makes clear that determinations of eligibility under the Treaties rest with DDTC, not program managers and contracting officers. This eliminates the risk of contractors relying on erroneous classification determinations by DoD.