On June 17, 2026, the General Services Administration (GSA) released a revised version of proposed General Services Administration Regulation (GSAR) clause 552.239–7001 on safeguarding Artificial Intelligence (AI) for public comment, responding to industry concerns regarding scope, applicability, and operational feasibility. The revised clause narrows its applicability to contractors using Large Language Model Artificial Intelligence Systems (LLMs) to process Government Data—but for contractors within its scope, compliance obligations are now far more detailed and enforceable. Below, we discuss key changes.
Scope and Applicability
The clause only applies to GSA contracts where Government Data will be processed by an LLM. The clause does not apply when:
- AI is embedded in common commercial products (e.g., word processors, maps).
- AI functionality is merely incidental to the procurement.
Supply Chain
Under the revised clause, contractors are required to exercise due diligence in selecting and overseeing their LLM Developers, System Operators, System Integrators, and Service Providers and notify the Contracting Officer of any noncompliance. The clause provides two safe harbors for contractors to satisfy the due diligence requirement – contractors can either flow down the clause’s applicable requirements to, or obtain attestations from, the third parties involved with the LLM.
Government Data Rights and Restrictions
The revised clause continues to take an aggressive stance on government data rights—but with a critical change: the government’s license to use the LLM is now limited to the specific purposes and scope of work defined in the contract, not “any lawful Government purpose” as before. This is a significant narrowing of government rights and a win for contractors seeking to limit use beyond the scope of the contract.
The government still owns all Government Data and Custom Developments, and contractors receive only a limited license to copy, store, transmit, modify, display, and use Government Data and Custom Developments for contract performance. Contractors still may not use Government Data to train, improve, or fine-tune LLMs and Government Data cannot be used for marketing, business analytics, or other commercial purposes. Government Data must be deleted at the conclusion of contract performance unless otherwise directed. Importantly, contractors now retain their rights to the underlying models, base systems, and pre-existing background intellectual property.
Data Protection and Segregation Requirements
The revised proposal significantly expands and operationalizes the Government Data protection requirements, replacing the prior version’s high‑level “eyes‑off” standard with detailed, prescriptive controls, and leaves far less discretion to contractors in how compliance is achieved.
- More Prescriptive Human‑Access Restrictions. The revised clause specifies concrete technical and operational mechanisms to prevent human access during normal operations. These include automated ingestion and response generation without human review, technical access controls, encryption rendering data unreadable to personnel, safeguards allowing system monitoring without data exposure, and audit logging that tracks activity without displaying Government Data.
- New Data‑Minimization Requirement. The revised clause adds an explicit requirement that Government Data be stored or processed only when reasonably necessary to perform the contract, which may require contractors to reassess retention periods, system architecture, and processing workflows.
- Expanded Transparency and Auditability. As with the prior version, the revised clause requires commercially available and technically feasible tools that enable the government to maintain records of processing activities, but the revised clause now embeds this requirement within a broader framework of audit logging and operational transparency tied to human‑access restrictions, increasing government visibility into LLM operations.
- Tightened Data Localization Controls. The revised clause clarifies that Government Data generally must remain within agreed‑upon premises or FedRAMP‑authorized services and elevates approval authority to the Contracting Officer. This further aligns AI data handling with FedRAMP expectations and narrows contractor flexibility.
- Clarified Segregation Requirements with FedRAMP Safe Harbor. The revised clause confirms that logical segregation of Government Data does not require physical or dedicated instances and expressly states that continued compliance with the applicable FedRAMP authorization level satisfies segregation requirements. This clarification is favorable for contractors operating multi‑tenant cloud and AI environments.
Change Management:
Routine model updates, provider substitutions, FedRAMP changes, or bias/safety degradations now require notice to the government. Under the revised clause, contractors must use reasonable efforts to provide the government with concurrent access to successor LLMs for 30 days for major versions and 15 days for minor versions, which is far less burdensome than the prior version.
Foreign Ownership or Control
Instead of a blanket prohibition on any foreign-developed, manufactured, or controlled AI components, the new rule focuses on the actual risk of foreign control, compulsion, or adversary-government influence and allows incidental foreign components if the risk is properly mitigated.
Enforcement and Consequences
Noncompliance can result in suspension, remediation demands, and decommissioning cost recovery. Notably, the proposed clause removes prior ambiguity by requiring that:
- The Contracting Officer insert a not-to-exceed percentage of contract value for decommissioning cost liability in the contract and
- The government disclose sufficient information for the Contractor to remediate alleged performance issues with the LLM.
Looking Ahead
The significant revisions between the January and June drafts demonstrate that GSA is actively incorporating stakeholder feedback and remains receptive to further industry input. Indeed, GSA is specifically seeking comments on the revised clause, including whether previous concerns about scope, data rights, and contractor responsibilities are adequately addressed.
Contractors that develop, host, integrate, resell, or rely upon LLM-enabled services should carefully review the proposal, assess its potential impact on data governance, subcontracting arrangements, AI supply-chain oversight, and commercial business practices, and consider submitting comments. Comments are due by August 3, 2026, and can be submitted here.
A public listening session is being held at The George Washington University Law School, Room Lerner 201 on July 14, 2026, from 11 AM to 2 PM ET. Registration for in-person or virtual attendance closes on July 3, 2026, and can be found here.
Attorneys in PilieroMazza’s Government Contracts Group are monitoring these developments and advising contractors on how to assess their potential impact and prepare for evolving compliance requirements. If you have concerns or questions, please contact Jackie Unger, Ryan Boonstra, Mel Lewis, Daniel Figuenick, or another member of the Group.
