Government is about to start enforcing a new set of rules for buying AI

Terry Gerton We have some news, a new class deviation went into effect yesterday GSAR 552.239-7001, basic safeguarding of data within large language model artificial intelligence systems. This is been on the street for a while revisions have changed but now it’s effective. There are a lot of differences in this version from where we started. Can you walk us through the history of maybe the last six months of this discussion?

Emily Murphy So as you mentioned, Terry, this started about six months ago, back in March. GSA came out with its first version of this clause. And I think everyone saw it and said, wait a second here, we don’t quite understand what you’ve got in mind here. It was very, very broad. It gave the government a lot of rights. It put a lot requirements on where the AI was developed, on where AI was gonna be used. The government was going to even own the processes that the AI went into. And it had a lot of requirements around the AI being neutral, which is very hard for someone to prove or disprove one or the other. So GSA put out that first version. They heard the comments, they pulled it back. They came out with a second version a few months later. And then they not only took comments on it, but they did a listening session and they invited industry to come in and talk to them about it. And they heard a lot. And then now we have our third version of this. This is the version effective, it said October 19th, which doesn’t mean that it’s actually going, that you’re gonna start seeing it in contracts today. What it means is that it is going to be in the next version of the multiple award schedule refresh, so in refresh 34, means that you’ll then have 30 days at that point and then three months after that you’ll start to see it implemented. Even then, because it’s a deviation, you’ll get a rulemaking. So there will be yet another chance for everyone to come in and comment on it. And I think that makes a lot of sense because we’ve got so much changing with AI or SI, depending on, and I guess it’s SI now, but this clause was signed before the president’s executive order, so it still is an AI clause. So I mean, there’s so much happening so quickly in this space that I think it’s really interesting to see how it’s gonna continue to evolve.

Terry Gerton What do you learn from how GSA approached this, just from a process question? It does seem, as you said, that they really listened, they tried to be responsive, but in a world where this technology is moving so fast, how do they keep up? Where do they find the balance?

Emily Murphy So I think they’ve got a tough challenge because they’ve got an administration that has overall said, we don’t want to regulate superintelligence. We don’t want to, we think that it’s bad when states do it. We think it’s better if we do it at a federal level because we think it going to limit its growth. But then you’ve got the government as a user of SI and they have to say, wait a second, we’ve got to responsibility to taxpayers to make sure that data is being used appropriately and that we are not creating vulnerabilities. And I think that what you’re seeing GSA do is try to come up with something that ties more closely to the NIST standards, it’s trying to point towards more objective measures, it’s starting to put benchmarking in place so that they can have a process. One of the things I think is great in there is they actually have a cap on the, so there’s a 25% cap that says that if you’re required to remove the AI from the system, and it’s from a termination for default, the contractor actually has an extraction liability that’s in there. So they’re starting to think about not just how are we bringing SI in, but how are you gonna take it out? How are we going to demonstrate neutrality? How do we handle things like open source models, which are very different than open weight models? But we still have a lot of questions on how is this going to tie into commercial licensing provisions that the Department of War has. And then how is it going to tie into the evolution of this? We’re certainly not gonna be freezing. And I think the more that we know, the better that an agency’s gonna be able to regulate it. But there’s going to be a question then also, how does this translate across agencies and where do you deal with that tension if the Department of War has one set of clauses, GSA has a second set, and Department of Homeland Security could very well have a third set.

Terry Gerton Emily Murphy, a senior fellow at the George Mason University Baroni Center for Government Contracting and former GSA administrator. So Emily, this class deviation is on the street now. What does that mean for contracting officers? What do they do with it?

Emily Murphy So contracting officers at GSA now have the ability to put it into a contract. It’s probably unlikely you’re going to see it in any sort of mass mod for another 30 to 45 days… But contracting officers may use it now. And if I were a contractor, I would be paying very close attention right now because there’s a material use trigger that goes into effect. And it says that If I’m a contractor, this clause would apply when an LLM is a material feature of a product or service being purchased. So I’d be going through and documenting how SI/AI is being used across any offerings I have. One of the challenges is that prior versions of the clause exempted productivity tools. So, if I had a spreadsheet that had AI sort of baked into it, or zoom, which uses AI to suppress the noise of my dogs barking in the background, that wouldn’t count. That counts now, or it could count, if it’s considered a material use. But the administrative functions that I have in my back office don’t count, so there’s still some ambiguity there, and I’d be wanting, if I were a contractor, to be documenting how I’m using the LLM. When it would be material, when it’s administrative, and I’d be trying to document that. It also, though, gives contractors much better IP protections. So that’s a good thing for them, while still giving the government the information it needs, it streamlines the reporting requirements so that there’s now a 72-hour mandate for reporting if there’s an issue with the LLM. But if you’re already reporting under FedRAMP or CISA, it’s included and it’s wrapped into that. So they’re not belt and suspending it. So those, I think, are all very positive things. There is some concern, though, that it’s overriding the end user licensing agreements, the ULAs, that go on commercial software. And then what is that going to look like? And it does for contractors also raise the issue of if they’re required to flow down these clauses, how they flow down to a supplier where, in an essence, they’d really be flowing it up. Because in many cases, the SI model, the LLM they’re using, isn’t going to be a subcontractor for a specific government contract, and they may not have the leverage to negotiate the way the government wants them to.

Terry Gerton It’s one thing to put these kind of rules into the contract. It’s another to provide the oversight to ensure compliance. So are the rules clear enough and yet also flexible enough so that contractors and contracting officers can tell when they are being followed and when they’re being violated?

Emily Murphy Well, some of these things about what is a material used could come very much down to discretion of the contracting officer or a negotiation between an agency and a contractor. So, I’m not sure that we’re going to see uniform implementation from day one. I think it’s going to take time as people try and figure out how this is being used, what the consequences of the use are, and we’re gonna continue to see refinements in it, but I don’t think you’re going to get the one-size-fits-all answer, and I think it can be very hard for contracting officers who are themselves trying to understand the rule and trying to implement it to understand how it plays out and then if I’m a contracting officer at another agency placing an order against a GSA contract vehicle that has this clause, how does that then adapt to my use at my home agency? And what does that look like? So I think that we’re gonna see a lot of variations in implementation.

Terry Gerton You mentioned that this will ultimately come back in a rulemaking process. What’s the feedback loop between now and then as people learn lessons about applying this clause so that the rulemaking actually reflects those lessons?

Emily Murphy So, I would say working with trade associations and others, GSA has shown in the last six months that it is very open to feedback and it wanted to get this right. I mean, the fact that they did two different sets of comment periods and listening sessions in six months, they really are listening. So I think that they need to have something in place so that they can be protecting the government’s interests. But I don’t think that that closes the door on them taking feedback. And I don’t think that you’re going to see them changing it in the next 30 days or the next 60 days. But I do think that they’re going be collecting the data and using this sort of as a period to have good lessons learned and continue to refine what their ultimate approach is going to be. We saw them do the same thing with the FAR deviations, so that the proposed rules coming out from the FAR Council are not exactly the same as the deviations. We’ve seen, they’ve clearly listened to comments they’ve gotten from industry and from other users within the government and tried to build on that.