Co-authored by: Alan Pate

On October 22, 2013, the Department of Defense (DoD) published its Final Rule establishing a program for promoting voluntary sharing of cyber threat information between the DoD and government contractors. The DoD intends this information sharing program to “enhance and supplement” participating defense contractors’ capabilities to safeguard DoD information.  Unlike failed legislative attempts to promote sharing of cyber threat information between industry and government (such as the proposed Cyber Intelligence Sharing and Protection Act), the Final Rule provides no protection from legal liability for participants in this program.

Under the Final Rule, the U.S. Government will provide participating defense contractors with information on cyber threat information and recommendations for addressing those threats.  In turn, participating defense contractors will report to the DoD any “cyber incidents” that could potentially compromise DoD programs or missions.  According to the Final Rule, cyber incidents must be reported to the DoD within 72 hours of their discovery.  After initial cyber incident reports are filed, this information may then be used by the Government to alert other participating defense contractors.  The Final Rule provides that when sharing threat information, the DoD will not identify the contractor who initially reported the threat.

Potential Advantages of Participation

Although the program’s effectiveness remains to be seen (and will ultimately depend on the levels of participation), there are potential benefits defense contractors should consider.   First, the program has the potential to provide companies an invaluable resource on current cyber threats that they may not otherwise receive.  As set out in §236.5 of the Final Rule, this information sharing program is designed to facilitate the distribution of cyber threat information aggregated from participating companies.  Access to this threat information may allow program participants and their information security teams to better prepare for and respond to cyberattacks.

Although the Final Rule provides that “voluntary participation in this program is not intended to create any unfair competitive advantage or disadvantage in DOD source selections”, the key word here is “unfair”.  It remains possible that a program participant may benefit from a more favorable evaluation when bidding on DoD contracts, where it is “fair” to consider participation in this program because a project involves highly sensitive DoD data, which is vulnerable to cyber threats.  Participation in the information sharing program may demonstrate to the DoD a company’s awareness of current cyber security threats and accountability for handling DoD data.

Risks of Participation

That being said, there are risks associated with the implementation of this program.  This program may require companies to share information that they would normally keep internal and confidential.  Companies might be concerned that this information could be subject to public disclosure (such as through a FOIA request) or could cause competitive harm when the threat information is shared with competitors. The Final Rule addresses these concerns by providing at §236.5(h)  that the U.S. Government will protect against unauthorized disclosure by asserting all applicable FOIA exemptions; and providing at §236.5(e) that data provided by a program participant will be cleared of any attribution information before it is distributed to the other program participants.

The Final Rule also explicitly provides, at §236.6, that participation in the information sharing program does not relieve a contractor of liability for contractual violations.  Therefore, a contractor could disclose an incident in accordance with this voluntary program, and then have the DoD bring a claim against it for violation of a security provision in an active contract.  While U.S. government contracts typically impose an obligation to report security threats to sensitive government information, participation in this program may expand existing contractual reporting obligations.

A further concern for defense contractors is the Final Rule’s restriction on disclosure of information furnished to a contractor by the Government in accordance with the information sharing program.   Under the Final Rule, participating contractors must obtain permission from the DoD before disclosing any information provided by the Government under this program to any third-party.  Participants must even obtain DoD approval and a separate written agreement to disclose such information with their service providers.  This restriction on sharing “government furnished information” could potentially prevent a company from complying with other cyber threat reporting obligations, such as disclosures in public filings required by the SEC or reporting obligations to insurance providers.  Companies that elect to participate in the Information Sharing Program with the DoD will be required to execute a “Framework Agreement”. Participating companies should address these third party disclosure issues in the Framework Agreement.

How to Apply

Companies may submit their applications now for the Information Sharing Program on the DoD’s website.  Before companies may participate in this program, §236.6 of the Final Rule requires defense contractors to “perform a legal review of its policies and practices that support its activities” under the information sharing program and “make a determination that such policies, practices, and activities comply with applicable legal requirements.” Depending on the nature of the company applying for the program, making this legal determination may require a company to review its compliance with a number of state and federal data privacy laws.

The Final Rule comes into effect on November 21, 2013 and is codified at 32 C.F.R. 236.