Having just presented on data rights issues to a number of government contracting officers and procurement professionals, as well as private sector contract management personnel, during the 2017 National Contract Management Association World Congress, it became clear that many people are confused (and rightly so) about what is happening with regard to the segregation and reintegration rules. Given that it took four years to get the first DFARS rule proposed, and then, in the 2017 National Defense Authorization Act (“NDAA”), Congress effectively abrogated that rule thereby forcing the DAR Council to start from scratch, the confusion is understandable. And the frustration on the part of both industry and government personnel trying to plan for the rules is even more understandable.
By way of background, in the 2012 NDAA, Congress created a whole new data category called “segregation and reintegration” data but left it ill defined. Basically, the idea was that the government wanted to have unlimited rights in any data or information necessary to either remove certain aspects of an item they had purchased and/or to add-on additional aspects or functionality to the item without having to go back to a single source of supply. For instance, if the government purchased an aircraft from one manufacturer, but then wanted to replace the radar system in that aircraft, the government wanted to be able to independently solicit bids for the new radar system. By having unlimited rights in “segregation and reintegration” data, that would allow the government to control the information necessary to remove the old radar system in its entirety (hardware, software, etc.) from the rest of the aircraft, and then replace it, seamlessly, with the rest of the aircraft’s systems. The government could do this itself, or it could hire another contractor to do the work for it. Regardless, the unlimited rights in the “segregation and reintegration” data would allow the government the ability to remove virtually any component and replace it with some other component by contracting with someone other that the original manufacturer (or at least compete it amongst many vendors for the best price).
In 2016, the DFARS proposed rule was released that defined “segregation and reintegration” data as information “necessary for the segregation of an item or process from, or the reintegration of that item or process (or physically or functionally equivalent item or process) with, other items or processes.” This was meant to be different from “form, fit, and function” data which is commonly understood to be the data necessary to allow a third party to repair or maintain something, which necessarily includes the ability to segregate certain parts in order to replace said parts. The difference here is that, under the “segregation and reintegration” rules, instead of simply allowing maintenance or replacement parts be installed by third parties, it would allow third parties to theoretically produce and install alternative parts. As one might expect, industry was upset about the depth and breadth of the definitions used both by Congress and in the proposed DFARS, as well as the impact it could have on companies who invested heavily in research and development of proprietary systems.
Given the outcry, and the fact that the 2012 NDAA language simply created bad policy – disincentivizing innovation or the sale of such innovations to the government, Congress took up the question of “segregation and reintegration” data again in the 2017 NDAA. While effectively destroying all the hard work that went into the 2016 proposed DFARS rules, Congress made some very positive changes. First, Congress limited the scope of “segregation and reintegration” data to only be such data that “pertain[s] to an interface between an item or process and other items or processes.” Thus, instead of possibly providing the government unlimited rights in any and all information that could be necessary to segregate an item or reintegrate an item, now the government takes government purpose rights in data relevant to system interfaces only. Such system interfaces are defined as “a shared boundary between” system platforms and system components “defined by various physical, logical, and functional characteristics, such as electrical, mechanical, fluidic, optical, radio frequency, data, networking, or software elements.” While this definition is still quite expansive, it is far less than the nearly-unlimited scope of the 2012 NDAA. This also provides the DAR Council some much needed guidance as to the boundaries of the definition so that it can get down to the hard work of rewriting the DFARS to give contractors, and the government, a system that is both fair and promotes innovation.
As Sisyphus was forced to push an immense boulder up a hill, only to watch it roll down again, so too did the DAR Council watch as its four-year effort to decipher Congressional intent as to “segregation and reintegration” data evaporate with the stroke of a pen. While it is certainly disheartening to have all that hard work wasted, the new 2017 NDAA guidance should allow the DAR Council to craft a more workable solution for both the government and the contractors upon which it relies to provide the innovation necessary to move the country forward.
About the author: Cy Alba is a partner with PilieroMazza and is a member of the Government Contracts and Small Business Programs Groups. He may be reached at firstname.lastname@example.org.