What DoD Contractors Need to Know: New Changes to Cybersecurity and Cloud Computing Regulations

Justin A. Chiarodo and Philip E. Beshara

Justin A. Chiarodo Philip E. BesharaAs the federal government and contracting community near the end of a year filled with headline-grabbing cyber incidents, the Department of Defense (DoD) has recently issued interim cybersecurity and cloud computing regulations that amend the DFARS and impose important new information safeguarding, reporting, and cloud computing requirements. These are major changes that impact all DoD contractors, and if your company holds DoD contracts you should carefully review these new requirements and assess them as part of your broader corporate cybersecurity strategy.

This alert highlights the key requirements in the Interim Rule (available here).

Information Safeguarding and Cybersecurity Reporting

The Interim Rule expands DoD’s cybersecurity safeguarding and reporting requirements, including the types of information covered by the requirements, governing standards, and triggering events. Up until now, many of DoD’s cybersecurity requirements applied to select groups of defense contractors—those deemed “operationally critical” under the 2015 NDAA or “cleared defense contractors” under the 2013 NDAA, and contractors handling “unclassified controlled technical information,” or “UCTI,” under the DFARS.

The Interim Rule now applies safeguarding and reporting requirements to all contractors and subcontractors handling “covered defense information”:

  • Covered Defense Information includes information “[p]rovided to the contractor by or on behalf of DoD in connection with the performance of the contract,” or “[c]ollected, developed, received, transmitted, used, or stored by or on behalf of the contractor in support of the performance of the contract,” and falls into any of four broad categories:
    • Unclassified Controlled Technical Information
    • Critical Operations Security Information
    • Export Control Information
    • Any “other information requiring protection by law, regulation, or Government-wide policy”

Contractors must now provide “adequate security” to protect covered defense information from unauthorized access and disclosure.

Before the Interim Rule, DoD used National Institute of Standards and Technology (NIST) Special Publication 800-53 as a framework for security controls; however, citing ease of use and greater protections, the Interim Rule replaces SP 800-53 with NIST’s July 2015 standards under NIST SP 800-171 (“Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations”). DoD claims the new standards provide greater protections and ease-of-use, reducing required tasks by 30 percent.

The Interim Rule also expands the duty to report cyber incidents to DoD. Now a contractor must “rapidly report” to DoD (i.e., within 72 hours of discovering) any “cyber incident that affects a covered contractor information system or the covered defense information residing therein, or that affects the contractor’s ability to perform the requirements of the contract that are designated as operationally critical support.”

  • Cyber Incidents broadly include any “actions taken through the use of computer networks that result in a compromise or an actual or potentially adverse effect on an information system and/or the information residing therein.”
  • Compromises include “disclosure of information to unauthorized persons, or a violation of the security policy of a system, in which unauthorized intentional or unintentional disclosure, modification, destruction, or loss of an object, or the copying of information to unauthorized media may have occurred.”

Besides the reporting, contractors must also take several actions to preserve and protect information and cooperate with DoD:

  • Preserve and Protect. After discovering a cyber incident, contractors must “preserve and protect images of all known affected information systems” and “all relevant monitoring/packet capture data for at least 90 days from the submission of the cyber incident report to allow DoD to request the media or decline interest.”
  • Submission of Malicious Software. If malicious software is discovered and isolated, contractors must submit the software to DoD in accordance with instructions provided by the Contracting Officer.
  • Compliance with DoD Forensics. At DoD’s request, contractors must provide DoD “with access to additional information or equipment that is necessary to conduct a forensic analysis.”

The substance of the DFARS clause, 252.204-7012 Safeguarding Covered Defense Information and Cyber Incident Reporting, still must be flowed down to subcontractors at all tiers. Notably, the Interim Rule now requires subcontractors to report cyber incidents both to the prime contractor and directly to DoD. Likewise, lower-tier subcontractors must report the same information to their higher-tier counterparts.

Cloud Computing Requirements

Citing urgent security needs caused by the explosion in cloud computing environments, the Interim Rule also adds new cloud computing policies, representations, and contract language into the DFARS.

Cloud Computing Policies. The Interim Rule adds DFARS Subpart 239.76, which implements cloud computing acquisition policies previously set forth by the DoD Chief Information Officer. The Subpart provides:

  • DoD is generally required to acquire cloud computing services using commercial terms and conditions, such as End User License Agreements or Terms of Service.
  • DoD may only acquire cloud computing services from cloud service providers which have “been granted provisional authorization by [the] Defense Information Systems Agency” to provide services in accordance with the DoD CIO’s Cloud Computing Security Requirements Guide.
  • Unless specifically authorized, cloud service providers are required to maintain “all Government data that is not physically located on DoD premises” within “the 50 states, the District of Columbia, or outlying areas of the United States.”

Required Representations of Expected Cloud Computing Use. The Interim Rule also adds a new provision at DFARS 252.239-7009 which requires all prospective offerors to affirmatively represent whether or not they anticipate cloud services will be used in the performance of the contract—including any subcontracts resulting from the solicitation.

Cloud Computing Clause. Another significant development is the Interim Rule’s addition of a new “Cloud Computing Services” clause at DFARS 252.239-7010, which provides new standard contract language as well as minimum security requirements, access limitations and requirements, and incident reporting requirements, including:

  • Safeguards and Controls. The new clause requires contractors to implement and maintain administrative, technical, and physical safeguards and controls in accordance with the Cloud Computing Security Requirements Guide.
  • Data Maintenance. In furtherance of the domestic maintenance of “Government data” requirement highlighted above, the clause defines “Government data” as “any information, document, media, or machine readable material regardless of physical form or characteristics, that is created or obtained by the Government in the course of official Government business.”
  • Cyber Incident Reporting. The new clause requires contractors to “report all cyber incidents that are related to the cloud computing service provided” under the contract.
  • Facility Access. The new clause includes a broad grant of Government access to contractor data, personnel, and facilities, requiring that the “Contractor shall provide the Government, or its authorized representatives, access to all Government data and Government-related data, access to contractor personnel involved in performance of the contract, and physical access to any Contractor facility with Government data, for the purpose of audits, investigations, inspections, or other similar activities, as authorized by law or regulation.”

Looking Forward

With public comments due October 26, 2015, we will continue to monitor this important regulatory change; however, contractors should not expect significant changes in the final version and should make sure to adjust their cybersecurity practices accordingly. The publication of the Interim Rule is available here.

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