On October 3, 2023, the Federal Acquisition Regulation (FAR) Council released two new proposed cybersecurity rules. The first of the two, covered in a separate blog, is titled “Cyber Threat and Incident Reporting and Information Sharing,” and adds new requirements to the cybersecurity incident reporting obligations of federal contractors. The second rule, titled “Standardizing Cybersecurity Requirements for Unclassified Federal Information Systems,” covers cybersecurity contractual requirements for unclassified Federal information systems.

Both rules arise from Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”). We have covered developments under this Executive Order as part of a series of monthly posts. The first blog summarized the Cyber EO’s key provisions and timelines, and subsequent blogs described the actions taken by various government agencies to implement the Cyber EO from June 2021 through November 2023. This blog describes key requirements imposed by the proposed “Standardizing Cybersecurity Requirements for Unclassified Federal Information Systems” rule (the “Proposed Standardizing Rule”)

Proposed Cybersecurity Requirements for Unclassified Federal Information Systems

As directed by the Cyber EO, the Proposed Standardizing Rule would establish cybersecurity policies, procedures, and requirements for contractors that develop, implement, operate, or maintain Federal Information Systems (“FIS”). Under the rule, a FIS is defined as “an information system used or operated by an agency, by a contractor of an agency, or by another organization on behalf of an agency.”

The proposed rule indicates that contractual cybersecurity standards currently applicable to unclassified FISs “are largely based on agency-specific policies and regulations.” According to the Director of CISA and the FAR council, a standardized set of minimum cybersecurity standards established under the Proposed Standardizing Rule when it becomes final will: (1) streamline requirements, (2) improve Government contractor compliance; and (3) ensure that unclassified FISs are better positioned to protect from cyber threats. To accomplish these objectives, the Proposed Standardizing Rule would add a new FAR subpart 39.X, “Federal Information Systems” to prescribe Government-wide policies and procedures for agencies when acquiring FIS services. The rule also augments or revises the language of other FAR parts, including FAR parts 2, 4, 7, and 37. In addition, upon issuance of a final rule, agencies will be required to remove any duplicative, agency-specific cybersecurity requirements.

Two New FAR Clauses

The Proposed Standardizing Rule adds two new FAR clauses for use in FIS contracts. One clause will apply to contracts using cloud computing services, and the other will apply to contracts using non-cloud computing (i.e., on-premises) services.  Under the rule, contracting officers will include both clauses in all new solicitations and contracts, including contracts below the simplified acquisition threshold and contracts for commercial products and services including commercial off the shelf (COTS) items.

The two new clauses contain several common provisions. For example, both clauses reference the FAR clause proposed by the “Cyber Threat and Incident Reporting and Information Sharing” rule and require the contractor to grant additional government access rights for inspection, audit, and investigation of cyber incidents. Both clauses also require the contractor to indemnify the Government “against any liability arising out of the performance of [an FIS] contract.” The proposed rule lists, non-exhaustively, two specific scenarios requiring contractor indemnification: (1) liability arising from the contractor’s unauthorized use of copyrighted material; and (2) liability arising from the contractor’s potential or actual unauthorized disclosures.  

The two new clauses also contain several unique provisions, and contractors that use both cloud- and non-cloud computing services must comply with the requirements of each clause as applicable.

New Requirements under FAR Clause 52.239-XX, “Federal Information Systems Using Cloud Computing Services”

  • Security Controls and Safeguards: Under this clause, the agency will identify the FIPS 199 impact level and corresponding Federal Risk and Authorization Program (FedRAMP) level for the cloud computing services under the contract. The clause then requires contractors to implement and maintain the applicable security and privacy safeguards appropriate to that impact level.
  • Maintaining Systems within the United States: Additionally, for any FIS required to meet FIPS Publication 199 high impact requirements, the proposed clause will require the contractor to maintain “within the United States and its outlying areas” all government data that is not physically located on U.S. Government premises.

New Requirements under FAR Clause 52.239-YY, “Federal Information Systems Using Non-Cloud Computing Services”

  • Annual Assessments: Under this proposed clause, for systems designated as Moderate or High impact under FIPS 199, the contractor will be required to: (1) Perform an annual, independent assessment of the security of each FIS; (2) Conduct an annual cyber-threat hunting and vulnerability assessment; (3) Report the results of its assessments to the agency contracting officer, including recommended improvements or risk mitigations; and (4) Implement any agency requested improvements and mitigations for the FIS.
  • Security and Privacy Controls: The proposed clause will require contractors to implement applicable NIST security and privacy standards specified by the contracting agency. The contractor will also be required to develop, and continually update, a System Security Plan to support authorization of applicable FIS. Finally, as with FIS using Cloud Computing Services, the contractor must maintain, within the United States or its outlying areas, all U.S. Government data that is not physically located on U.S. Government premises for a FIS that is required to meet FIPS Publication 199 High impact requirements.
  • Maintain List of Operational Technology Equipment: The proposed clause requires the contractor to develop and maintain a list of the physical location of all Operational Technology (“OT”) associated with the FIS contract. The clause defines OT as “programmable systems or devices that interact with the physical environment or manage devices that interact with the physical environment.” Examples of OT specified by the clause include industrial control systems, building management systems, fire control systems and physical access control mechanisms.

Comments on the Proposed Standardizing Rule were originally due by Dec. 4, 2023, but the government extended the period for comments until Feb. 4, 2024.

Photo of Robert Huffman Robert Huffman

Bob Huffman represents defense, health care, and other companies in contract matters and in disputes with the federal government and other contractors. He focuses his practice on False Claims Act qui tam investigations and litigation, cybersecurity and supply chain security counseling and compliance…

Bob Huffman represents defense, health care, and other companies in contract matters and in disputes with the federal government and other contractors. He focuses his practice on False Claims Act qui tam investigations and litigation, cybersecurity and supply chain security counseling and compliance, contract claims and disputes, and intellectual property (IP) matters related to U.S. government contracts.

Bob has leading expertise advising companies that are defending against investigations, prosecutions, and civil suits alleging procurement fraud and false claims. He has represented clients in more than a dozen False Claims Act qui tam suits. He also represents clients in connection with parallel criminal proceedings and suspension and debarment.

Bob also regularly counsels clients on government contracting supply chain compliance issues, including cybersecurity, the Buy American Act/Trade Agreements Act (BAA/TAA), and counterfeit parts requirements. He also has extensive experience litigating contract and related issues before the Court of Federal Claims, the Armed Services Board of Contract Appeals, federal district courts, the Federal Circuit, and other federal appellate courts.

In addition, Bob advises government contractors on rules relating to IP, including government patent rights, technical data rights, rights in computer software, and the rules applicable to IP in the acquisition of commercial items and services. He handles IP matters involving government contracts, grants, Cooperative Research and Development Agreements (CRADAs), and Other Transaction Agreements (OTAs).

Photo of Susan B. Cassidy Susan B. Cassidy

Ms. Cassidy represents clients in the defense, intelligence, and information technologies sectors.  She works with clients to navigate the complex rules and regulations that govern federal procurement and her practice includes both counseling and litigation components.  Ms. Cassidy conducts internal investigations for government…

Ms. Cassidy represents clients in the defense, intelligence, and information technologies sectors.  She works with clients to navigate the complex rules and regulations that govern federal procurement and her practice includes both counseling and litigation components.  Ms. Cassidy conducts internal investigations for government contractors and represents her clients before the Defense Contract Audit Agency (DCAA), Inspectors General (IG), and the Department of Justice with regard to those investigations.  From 2008 to 2012, Ms. Cassidy served as in-house counsel at Northrop Grumman Corporation, one of the world’s largest defense contractors, supporting both defense and intelligence programs. Previously, Ms. Cassidy held an in-house position with Motorola Inc., leading a team of lawyers supporting sales of commercial communications products and services to US government defense and civilian agencies. Prior to going in-house, Ms. Cassidy was a litigation and government contracts partner in an international law firm headquartered in Washington, DC.

Photo of Ashden Fein Ashden Fein

Ashden Fein advises clients on cybersecurity and national security matters, including crisis management and incident response, risk management and governance, government and internal investigations, and regulatory compliance.

For cybersecurity matters, Mr. Fein counsels clients on preparing for and responding to cyber-based attacks, assessing…

Ashden Fein advises clients on cybersecurity and national security matters, including crisis management and incident response, risk management and governance, government and internal investigations, and regulatory compliance.

For cybersecurity matters, Mr. Fein counsels clients on preparing for and responding to cyber-based attacks, assessing security controls and practices for the protection of data and systems, developing and implementing cybersecurity risk management and governance programs, and complying with federal and state regulatory requirements. Mr. Fein frequently supports clients as the lead investigator and crisis manager for global cyber and data security incidents, including data breaches involving personal data, advanced persistent threats targeting intellectual property across industries, state-sponsored theft of sensitive U.S. government information, and destructive attacks.

Additionally, Mr. Fein assists clients from across industries with leading internal investigations and responding to government inquiries related to the U.S. national security. He also advises aerospace, defense, and intelligence contractors on security compliance under U.S. national security laws and regulations including, among others, the National Industrial Security Program (NISPOM), U.S. government cybersecurity regulations, and requirements related to supply chain security.

Before joining Covington, Mr. Fein served on active duty in the U.S. Army as a Military Intelligence officer and prosecutor specializing in cybercrime and national security investigations and prosecutions — to include serving as the lead trial lawyer in the prosecution of Private Chelsea (Bradley) Manning for the unlawful disclosure of classified information to Wikileaks.

Mr. Fein currently serves as a Judge Advocate in the U.S. Army Reserve.

Photo of Michael Wagner Michael Wagner

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government…

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government investigations, including False Claims Act cases. He has particular expertise representing individuals and companies in suspension and debarment proceedings, and he has successfully resolved numerous such matters at both the agency and district court level. He also routinely conducts internal investigations of potential compliance issues and advises clients on voluntary and mandatory disclosures to federal agencies.

In his contract disputes and advisory work, Mr. Wagner helps government contractors resolve complex issues arising at all stages of the public procurement process. As lead counsel, he has successfully litigated disputes at the Armed Services Board of Contract Appeals, and he regularly assists contractors in preparing and pursuing contract claims. In his counseling practice, Mr. Wagner advises clients on best practices for managing a host of compliance obligations, including domestic sourcing requirements under the Buy American Act and Trade Agreements Act, safeguarding and reporting requirements under cybersecurity regulations, and pricing obligations under the GSA Schedules program. And he routinely assists contractors in navigating issues and disputes that arise during negotiations over teaming agreements and subcontracts.

Photo of Ryan Burnette Ryan Burnette

Ryan Burnette advises defense and civilian contractors on federal contracting compliance and on civil and internal investigations that stem from these obligations. Ryan has particular experience with clients that hold defense and intelligence community contracts and subcontracts, and has recognized expertise in national…

Ryan Burnette advises defense and civilian contractors on federal contracting compliance and on civil and internal investigations that stem from these obligations. Ryan has particular experience with clients that hold defense and intelligence community contracts and subcontracts, and has recognized expertise in national security related matters, including those matters that relate to federal cybersecurity and federal supply chain security. Ryan also advises on government cost accounting, FAR and DFARS compliance, public policy matters, and agency disputes. He speaks and writes regularly on government contracts and cybersecurity topics, drawing significantly on his prior experience in government to provide insight on the practical implications of regulations.