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Final Rule Revises DFARS Data Rights Requirements and Procedures for Commercial Items and Major Systems

September 21, 2011

On September 20, 2011, the Department of Defense (DoD) issued a final rule (76 Fed. Reg. 58144) to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to implement section 802(b) of the Fiscal Year (FY) 2007 National Defense Authorization Act (NDAA) (Pub. L. 109-364) and section 815 of the FY 2008 NDAA (Pub. L. 110), which, together, modified 10 U.S.C. 2321(f)(2) with respect to the presumption of development at private expense for major systems.  Key changes are summarized below.

Commercial Items.  Under the final rule, if technical data is to be delivered to the Government for a commercial item that has been developed in any part at Government expense, the Government’s rights in that technical data will be governed by both DFARS 252.227-7013 (Rights in technical data—Noncommercial items) and DFARS 252.227-7015 (Technical data—Commercial items).  Thus, in those circumstances, DFARS 252.227-7015 will apply to the portions of the commercial item technical data developed exclusively at private expense and DFARS 252.227-7013 will apply to the portions of the technical data developed at Government expense.  In response to concerns that the prescription to use DFARS 252.227-7013 would result in the loss of an item’s commercial status, the preamble asserts that application of the clause would not affect the item’s status if it otherwise meets the commercial item definition at FAR 2.101.  Commercially available off-the-shelf (COTS) items (defined at 41 U.S.C. 431(c)(104)) are exempt from these requirements and will retain the presumption of development exclusively at private expense. 

Major Systems.  If the item is a major system (or a subsystem or component of a major system), the presumption of development exclusively at private expense does not apply, unless it qualifies as a COTS item.  Notwithstanding the lack of any statutory basis to do so, DoD extended this policy to noncommercial computer software for major systems, by adding a new provision to the clause at DFARS 252.227-7019 (Validation of asserted restrictions—Computer software).  The preamble explains that, with respect to computer software, the “major systems rule” was adapted only for application to noncommercial computer software and that the validation procedures would not be applicable to assertions based on mixed funds and would not restrict the contractor’s ability to segregate mixed-funding software development into privately-funded and Government-funded portions.

Subcontractors.  Citing “the best interests of the Government,” the rule removed 10 U.S.C. §§ 2320 and 2321 from the list of statutes set forth in DFARS 212.504(a), which prohibited their application to subcontracts for commercial items.  As a result, subcontracts for commercial items are now subject to the validation requirements of DFARS 252.227-7037, and the revised commercial item data rights clause at DFARS 252.227-7015 is required to be flowed down to subcontractors and lower-tier suppliers whenever any technical data related to commercial items developed in any part at private expense will be obtained from a subcontractor or supplier for delivery to the Government.  To the extent that any part of the subcontractor’s commercial item was developed at Government expense, the technical data related to those portions will be governed by DFARS 252.227-7013, as described above.

These changes underscore the need to carefully consider sources of funding before developing or modifying items—including commercial items—for which technical data might be delivered to the Government and the importance of developing and maintaining adequate records to justify any asserted restrictions on the Government’s use of that data based on development at private expense. 

Wiley Rein’s attorneys regularly counsel clients on the unique rules and contract clauses governing intellectual property and the Government’s rights in technical data and computer software under government contracts, and we continue to monitor regulatory and case law developments in this area.