August 14, 2015

OMB Issues Guidance on Government Contractors’ Cybersecurity Systems

Holland & Knight Alert
Mary Beth Bosco


  • The Office of Management and Budget (OMB) has prepared sample contract clauses for agencies to include in contracts.
  • Agencies are authorized to use third-party assessments of contractors’ cybersecurity systems.
  • GSA will compile a new database containing information about contractors’ histories of cyber compliance and/or breaches.

The Office of Management and Budget (OMB) released a draft guidance document on Aug. 11, 2015, titled “Improving Cybersecurity Protection in Federal Acquisitions” (the “OMB Guidance”). The OMB Guidance instructs agencies on strengthening cybersecurity protections in acquisitions for products or services that generate, collect, maintain, disseminate, store, or provide access to controlled unclassified information (CUI) on behalf of the government. CUI is information for which federal laws, regulations, or government-wide policies require safeguarding or dissemination controls (excluding classified information). Examples of CUI include:

  • export-controlled information
  • information marked “For Official Use Only”
  • information potentially covered by an exemption to disclosure under the Freedom of Information Act (such as trade secret information)
  • certain technical information

Providing Feedback on the Draft OMB Guidance

Feedback on the Guidance must be submitted by Sept. 10, 2015, with final Guidance expected sometime in the fall of 2015. Instead of the customary practice of soliciting the submission of written comments prepared by interested parties, OMB is using the open source platform GitHub to gather feedback. Commenters can either join or initiate a discussion thread to provide their input, or they can edit the text of the Guidance. This interactive process will provide the unique opportunity for interested parties to support or challenge the feedback submitted by others.

Implementation of the Guidance

Once finalized, OMB has stated that it will instruct agencies to begin implementation “immediately,” even though the Federal Acquisition Regulation (FAR) Council will not have amended the FAR to add contract clauses reflecting the Guidance’s requirements. The FAR Council will need to harmonize the OMB Guidance with the National Archives and Records Administration’s (NARA) promised FAR proposal to incorporate standards from the National Institute of Standards and Technology’s (NIST) recent publication 800-171 (NIST 800-171) setting cybersecurity standards for government contractors. As discussed below, this NIST publication is the genesis of one portion of the Guidance’s requirements, so the NARA proposal and the OMB Guidance are largely consistent. In any event, in order to assist in the rapid implementation of its Guidance, OMB has already drafted sample clauses.

The Guidance’s Requirements

The Guidance covers five basic areas:

  1. Security Control
  2. Cyber Incident Reporting
  3. Information Security Assessments
  4. Information Security Continuous Monitoring (ISCM)
  5. Business Due Diligence

For each area, the OMB Guidance establishes both standards for contractor information security systems and practices for federal agencies to implement in order to ensure that their contractors have adequate systems and controls.

The OMB Guidance distinguishes between contractor systems operated on behalf of the government and contractor internal systems, and imposes different standards on each type of system. A contractor system operated on behalf of the government is one in which the contractor is performing an outsourced service, such as data processing. An internal contractor system is one that is used to provide products or services or to manage the contractor’s business. Generally speaking, contractor systems operated on behalf of the government are subject to the standards set forth in NIST Publication 800-53, “Security and Privacy Controls for Federal Information Systems and Organizations,” which is a catalog of security and privacy controls for federal agencies themselves to follow. Internal contractor systems are subject to the recently finalized NIST Publication 800-171, “Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations.”

The following is a brief explanation of the five basic areas in the Guidance:

1. Security Control

The Guidance’s first topic, Security Control, follows this division: contractor systems operated for the government must meet the moderate baseline standards of NIST 800-53; internal contractor systems are subject to NIST 800-171’s prescriptions.

2. Cyber Incident Reporting

In contrast, the standards for Cyber Incident Reporting are the same for both types of contractor systems, except that they only apply to the CUI in an internal system and not to the other data contained or transmitted by the system. The OMB Guidance provides that all agency information security contract clauses must include all of the following elements:

  • a statement that a reported incident does not automatically equate to a finding that the contractor’s system was inadequate
  • a definition of "cyber incident"
  • the time period within which a report must be submitted
  • requirements for the contents of the report
  • clarification that a contractor need not submit a separate report for each contract it holds with the agency and that a compliant report may be used for multiple agencies
  • identification of the remedies available to the government when a contractor fails to report a cyber incident

3. Information Security Assessments

Agencies must assess the adequacy of their contractors’ information systems. To do this, an agency is to identify the sensitivity level of the information or data residing on the contractor’s system in order to determine the appropriate level of controls and whether an independent assessment of the system is required. In this connection, agencies have the discretion to accept either a government assessment, an assessment by the contractor, or a third-party assessment of cyber protections. (Any assessment of the controls on improper dissemination of information covered by the Privacy Act must be performed by the senior agency official for privacy.) The Guidance does not, however, include a discussion of who would qualify as an independent assessor or the point in the procurement process at which the assessment is to take place.

The assessment process continues throughout the life of the contract, and agencies correspondingly must have access to their contractors’ systems at all times to perform security reviews. At the conclusion of a contract, each contractor must provide a certification attesting to the sanitization of all government files from its systems. Finally, the OMB Guidance obligates agencies to include in their solicitations a provision requiring offerors to demonstrate how they meet the appropriate NIST publications as an element of their proposals.

4. Information Security Continuous Monitoring

The ISCM standards differ for the two types of contractor systems. A system operated on behalf of the government must (i) meet the requirements set forth in Department of Homeland Security Continuous Diagnostics and Mitigation Program's standards, or (ii) meet or exceed OMB’s Memorandum M-14-3 and the contractor must agree to permit the agency to perform its own ISCM on the contractor system if it chooses to do so. Consistent with other provisions of the Guidance, internal contractor systems must comply with the continuous monitoring standards contained in NIST Publication 800-171.

5. Business Due Diligence

Finally, the OMB Guidance directs agencies to perform business due diligence on prospective contractors to assess their information security performance history. GSA is tasked with establishing a shared service that will contain information about contractors’ cybersecurity performance and practices. The system will include information drawn from public records, publicly available information and subscription data to support cyber business diligence determinations. The Guidance does not contain any discussion of whether contractors will have access to the data base or the opportunity to response to any adverse information.

Achieving Uniform Cybersecurity Requirements Is the Goal

The OMB Guidance, once finalized, should go a long way towards providing federal contractors a uniform set of cybersecurity requirements to replace the current system of agency-by-agency standards. The draft Guidance also provides a unique opportunity to comment on and propose edits to it. Instead of submitting comments in a vacuum, interested parties will be able to view and provide input into discussion threads and therefore gain insight into how other parties view the Guidance. Many aspects of the Guidance suggest that feedback on the part of the contractor community is warranted. To name but a few examples, companies may want to provide feedback on or request clarification of the potential for requiring an independent party to assess their information security systems. Will the independent reviewers need to be somehow approved or certified? At what point in the procurement process must the assessment be performed? In addition, contractors may want to request that they be allowed to review and respond to any negative information in the GSA shared service database. Companies doing business with the federal government should consider participating in the feedback process in order to have a part in shaping the final Guidance.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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