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Government Contracts Monitor

DoD Paves the Way for Foreign-Owned U.S. Contractors

April 15, 2014

By: Lindsay Simmons

DoD just issued an interim final rule for the protection of classified information disclosed to or developed by government contractors.  The rule (i) implements policy, (ii) assigns responsibilities, (iii) establishes requirements, and (iv) provides procedures to protect this information.  Among other things, the new rule establishes criteria for determining whether a contractor is under foreign ownership, control or influence (FOCI) and, if so, sets forth security measures that should be considered to negate or mitigate the effects of FOCI.  One of the most interesting aspects of this rule is DoD’s statement that “the procedures in this rule allow companies determined to be under FOCI to be cleared through a FOCI mitigation or negation agreement and thus realize billions of dollars in classified contracts.” 79 Fed. Reg. 19467 (April 9, 2014).  Welcome FOCI contractors!

Depending on the nature and extent of the FOCI, DoD mitigates the concerns raised by foreign ownership, control or influence by employing structures such as voting trusts, proxy agreements, special security agreements and security control agreement.  These mechanisms require trustees, proxy holders or outside directors appointed under the various mitigation structures to supervise and manage foreign-owned U.S. contractors.  According to DoD, these measures protect against unauthorized transfer of classified information to foreign interests.

What else does the mitigation program accomplish? FOCI mitigation maintains the capability of foreign-owned U.S. companies to compete for and perform classified contracts, thereby enhancing competition for DoD work which, in turn, allows DoD to experience significant cost savings.  But that’s not all.

By expanding the competitive field to include foreign-owned U.S. contactors who wish to compete to provide products and services, DoD opens the competitive field to foreign-owned U.S. companies that can offer highly innovative technologies and other important goods and services not otherwise available to DoD components.  Thus, the rule serves two masters:  DoD, by helping it to protect classified information but without sacrificing its ability to obtain cutting edge products and services and at competitive prices; and foreign-owned U.S. contractors, for whom the door is opened to a wider range of DoD procurement opportunities.


Lindsay Simmons is the attorney responsible for the content of this article.

© Jackson Kelly PLLC 2014


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