ITAR Compliance Crucial for Lower-Tier Suppliers.

• Author: Mcvey, Thomas B.
• Position: Viewpoint

* Companies that supply products and services that are used in the defense sector increasingly are being asked by their customers whether they are "ITAR compliant" and if they can document this. Many mid-sized, second- and third-tier contractors and suppliers do not know how to respond to these requests, which can have important consequences for a company.

By way of background, the International Traffic in Arms Regulations are the State Department rules that apply to the manufacture and transfer of defense products, services and related technical data. There is a major concern within the U.S. government that, while large prime contractors have strong ITAR compliance programs, many mid-sized and small companies in the defense supply chain do not, and that this gap creates significant national security risks.

These issues apply not only to companies with direct contracts on defense projects but also independent upstream suppliers of parts, components, services and software that ultimately flow into the defense sector. A similar problem exists for major companies whose principal customers are commercial but whose products are occasionally purchased by defense manufacturers, as such companies do not have ITARcompliance processes as part of their day-to-day activities.

Federal agencies have taken a number of steps to address this risk. One of them is adopting specialized clauses in defense contracts mandating that contractors comply with ITAR requirements and flow this requirement down to their subcontractors. See for example Defense Federal Acquisition Regulation Supplement [section]225.79 and 252.225.7048.

Another step is to initiate ITAR enforcement cases targeted specifically at small and mid-sized companies.

Many prime contractors are now worried that if their subcontractors commit ITAR violations, the prime contractor can have liability. As a result, primes are establishing requirements that their subcontractors become ITAR-compliant, and asking the subcontractors to impose similar requirements on their suppliers and subcontractors. The primes will often ask for documentation from the subcontractors providing evidence that they have done this.

Companies under ITAR are subject to a number of potential requirements including obtaining export/import licenses and technical assistance agreements, which are restrictions on transfers of controlled technical data and software to foreign nationals in the United States or overseas--including...