Compliance with Export Controls Can Be Essential to Winning Government Contracts

An August 2016 bid protest decision highlights the importance of government contractors having, and being able to demonstrate, an effective export controls compliance program. As described in the U.S. Government Accountability Office's ("GAO") decision in Microwave Monolithics, Inc., B-413088 (Aug. 11, 2016), the Army eliminated Microwave Monolithics' ("MM") proposal from competition due to MM's failure to meet the solicitation's requirements pertaining to compliance with the International Traffic in Arms Regulations ("ITAR").

The solicitation at issue required that offerors and their subcontractors demonstrate ITAR compliance, or have a viable plan to become ITAR compliant prior to contract award. Specifically, the solicitation required that the contractor show that it had appointed an employee to be responsible for ITAR compliance and had established written policies and procedures for employees performing activities subject to ITAR. Offerors' proposals also had to show that the contractor had established procedures for the receipt, handling, storing, implementation, and testing of ITAR-controlled items and data, procedures for the restriction of access by foreign nationals to ITAR-controlled items or data, an auditing procedure for ITAR compliance, and procedures for actions to be taken if violations were discovered.

In challenging its elimination from the competition, MM argued that its proposal stated that it was ITAR compliant. In addition, MM noted that it was registered with the Directorate of Defense Trade Controls ("DDTC"), and that this registration demonstrated the required compliance. Specifically, MM argued that DDTC registration "by default requires a designated security officer and maintenance of records showing compliance per ITAR Section 122." In response, the Army argued that MM's proposal was insufficient because the Army was not looking merely for ITAR registration with DDTC. Rather, the Army argued, the solicitation made clear that the agency was looking for more detail regarding a contractor's ITAR compliance.

GAO sided with the agency, finding that MM's "brief statements in its proposal with regard to how it would implement ITAR requirements were both conclusory and limited." Because MM's proposal did not provide the level of information regarding ITAR compliance required by the solicitation, GAO concluded that the Army acted reasonably in rating the proposal unacceptable and eliminating it from the competition.

This decision is a significant affirmation of the importance of being able to demonstrate how a contractor will comply with regulatory requirements in performing government contracts. Companies should ensure not only that they are ITAR compliant, but also, as this GAO decision demonstrates, that their proposals provide enough detail to demonstrate full compliance with a solicitation's requirements regarding ITAR compliance.

Read a copy of GAO's decision.