Cybersecurity Client Alert - February 2016

By Nicole J. Harrell, Cybersecurity Response Team, Data Privacy and Security

Updated Cybersecurity Requirements For Government Contractors Under DFARS 252.204-7012

The following is a summary of the presentation given by Christopher T. Page of the Kaufman & Canoles Cybersecurity Team and Heather Engel, EVP for Risk and Compliance at Sera Brynn, addressing the standards, compliance, incident reporting, and potential consequences of non-compliance with Defense Federal Acquisition Regulation Supplement (DFARS) 252.204-7012.

Overview

Recent high-profile attacks on government agencies highlight the risks federal contractors are taking when they arent serious about protecting government information.

For Department of Defense (DoD) contractors, DFARS 252.204-7012 imposes security safeguards and mandatory reporting requirements on DoD contracting companies handling Covered Defense Information (CDI). CDI is provided to the contractor in connection with a contract and includes Controlled Technical Information (CTI), Critical Information (OPSEC), Export Control, or anything marked that requires safeguarding. In order to show compliance with DFARS, companies must implement, document, and validate compliance with National Institute of Standards and Technology (NIST) Special Publication 800-171 (SP 800-171), and validate a process for investigating and reporting cyber incidents.

The most recent revision to DFARS 252.204-7012 mandates compliance with SP 800-171, which builds on the previous standards from SP 800-53. Certain standards set forth in SP 800-53 were deemed inappropriate for privately owned contracts networks, hence the change to SP 800-171. Interestingly, SP 800-171 does not prescribe specific controls, tasks, or system requirements. Instead, it identifies 14 control families drawn from SP 800-53 and Federal Information Processing Standards (FIPS) 200. A contractor may use alternative but equal measures to satisfy the control families.

Compliance

Compliance with SP 800-171 can be distilled into 4 steps: scoping, responding, protecting, and detecting.

Scoping determines where the CDI is located. The requirements apply to components of NFIS that process, store, or transmit CDI. They also apply to devices that provide security protection for components. Such components include workstations, servers, operating systems, virtual machines, applications, and network devices. Scoping considerations include whether it is worth segmenting the network, scope reduction, and cost-effectiveness.

The next step to compliance is developing an incident response plan (IRP) to address cyber incidents and compromises. A cyber incident includes actions taken through use of computer networks that result in actual or potentially adverse effect on an information system and/or the information residing therein. A compromise is the disclosure of information to unauthorized persons, violation of security policy of a system, unauthorized or unintentional disclosure%u2026 DFARS 252.204-7012 requires incidents to be reported within 72 hours of discovery. Subcontractors must report to the government directly and up the chain to the prime contractor. In conjunction with any report, the contractor must maintain an image of all known, affected systems for 90 days. Additionally, the contractor must permit DoD access to the image(s) for forensic investigation. Incidents should be reported to http://dibnet.dod.mil. But beware having the required information (which is detailed) readily available is vital to meeting the rapid reporting requirements of the DFARS clause.

To protect CDI, a contractor should address the following elements:

Access Control
Awareness and Training
Identification and Authentication
Maintenance
Media Protection
Personnel Security
Physical Protection
Systems and Communications Protection
Systems and Information Integrity

Detection of a cyber incident should be addressed with the following controls:

Audit and Accountability
Configuration Management
Identification and Authentication
Risk Assessment
Security Assessment
Systems and Communications Protection
Systems and Information Integrity


Consequences

The scope of responsibility and potential liability for non-compliance with the DFARS clause is uncertain due to the lack of comprehensive requirements with consistent application.

While the clause does not enumerate specific penalties for non-compliance, DFARS 252.204-7009 states that a breach of obligations under DFARS 252.204-7012 may result in: criminal, civil, administrative, and contractual actions (governed by specific contract) in law and equity for penalties, damages, and other appropriate remedies by the United States; and civil actions for damages and other appropriate remedies by the third party that reported the cyber incident, as a third party beneficiary of this clause.

Additionally, DFARS 252.204-7302(d) provides a cyber incident that is reported by a contractor or subcontractor shall not, by itself, be interpreted as evidence that the contractor or subcontractor has failed to provide adequate information safeguards for covered defense information on their unclassified information systems, or has otherwise failed to meet the requirements of the clause at 252.204-7012. Further, contracting officers are directed to consider a cyber incident in the context of an overall assessment of a contractors compliance with the requirements of 252.204-7012.

Other potential consequences for non-compliance include negative contractor past performance ratings (CPARS and PPIRS) and reduced profits resulting from increased costs addressing cybersecurity issues, lower award fee scores and return of progress payments. Contractors could be deemed a supply chain risk under DFARS 252.239-7018, which could result in suspension or debarment. In that same vein, even a delay in compliance could effectively remove a subcontractor from a lucrative supply chain if the prime contractor determines non-compliance a risk it is unwilling to take.

The uncertainty surrounding consequences for non-compliance with DFARS 252.204-7012 means contractors must carefully review contract clauses for indemnification and damage provisions, and consider potential mitigation factors, including cybersecurity insurance.


The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2017.

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