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Taking Care of Business (Systems): DoD Proposes to Change the Definition of a Business System Deficiency

Client Alert | 1 min read | 06.28.24

The Department of Defense (DoD) recently announced that it seeks public comments on a proposed change to the contractor business systems regime.  The proposed rule would amend the Defense Federal Acquisition Regulation Supplement (DFARS) by replacing the phrase “significant deficiency” with the new defined term “material weakness,” to mean “a deficiency or combination of deficiencies in the internal control over information in contractor business systems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis.”  In addition, the term would provide that a “reasonable possibility exists when the likelihood of an event occurring is— (1) Probable; or (2) More than remote but less than likely.” 

Comments are due no later than August 26, 2024.  The full text of the notice is available here

The National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2011 requires that the DFARS business systems clauses implement criteria for contractors’ accounting, cost estimating, material management & accounting, earned value management, purchasing, and property management systems.  The clauses allow the government to temporarily withhold payment on a covered contract if a significant deficiency in a business system is identified.  Currently, the DFARS contractor business systems clauses define “significant deficiency” as “a shortcoming in the system that materially affects the ability of officials of the [DoD] to rely upon information produced by the system that is needed for management purposes.”  

Over the past few years, DoD has increased its focus on reviews of contractor business systems, leading to an uptick in findings of significant deficiencies.  Indeed, DCAA’s FY 2023 Report to Congress identified business systems reviews as one of DCAA’s top three priorities.  The proposed rule change, required by the FY 2021 NDAA, purports to create consistency with generally accepted auditing standards and reduce DoD and contractor confusion about the seriousness of deficiencies. 

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Will the Supreme Court Address Whether the Ninth Circuit’s Server Test Comports With the Display Right Accorded Copyright Owners?

Will the Supreme Court review the Ninth Circuit’s unique Server Test for online copyright infringement? After the Ninth Circuit recently affirmed the Server Test, a photographer and copyright owner has requested certiorari. Petitioner-Plaintiff, Elliot McGucken, is a landscape photographer. Respondent-Defendant, Valnet, Inc., is the owner of a travel website located at “www.thetravel.com.” McGucken sued Valnet for copyright infringement when Valnet embedded on its site a number of links to McGucken’s Instagram posts. The district court, bound by the Ninth Circuit’s en banc decision in Perfect 10, granted Defendant’s motion to dismiss, finding that the Server Test foreclosed McGucken’s direct infringement claim as a matter of law, because Valnet linked to the images and did not store them on its own servers. The Ninth Circuit affirmed in a panel decision. McGucken now requests the Supreme Court to review the validity of the Server Test, which is unique to the Ninth Circuit....