DOD considers tax incentives to strengthen supply chain security

By Justin Doubleday / January 18, 2018

The Defense Security Service is studying how tax incentives could be used to incentivize companies to better protect their supply chains from foreign intelligence threats.

DSS plans to award a sole-source contract to the Center for Strategic and International Studies (CSIS), a Washington-based think tank, to outline how tax incentives can be used to improve security in the Defense Department's supply chain, according to a Dec. 22 solicitation notice. CSIS "will provide specialized consulting, planning, research and analysis services, and facilitation services to organize and conduct a working group comprised of subject matter experts, who shall draft and deliver a white paper" on the tax incentives, according to a performance work statement attached to the notice.

The white paper will "drive progress on a new policy agenda" to incentivize industry to protect both classified and unclassified information and technology, regardless of whether they are explicitly in the cyber domain or not, the statement continues.

The work should take six months, according to the notice, which also references a plan to propose legislation based on the white paper during this congressional session.

CSIS and DOD did not respond to questions about the contract by press time (Jan. 17).

During an October 2016 conference in Tysons Corner, VA, DSS Director Dan Payne said the Pentagon is "in a knife fight" to protect contractor supply chains. And in an information sheet on its new approach to industrial security released last spring, DSS said adversaries are "attacking cleared industry at an unprecedented rate," "stealing national security information and technology," "using multiple and varying avenues of attack" and "prioritizing targeted information."

Including tax incentives, "previous work" has identified eight ways "for achieving delivery of uncompromised technological and cyber products and services," according to the performance work statement. The seven other ways are litigation reform; supplier readiness; contract warranties and representation; technology and innovation; government procurement; insurance market reform; and international norms, according to the document.

Tax incentives are not at the "top of the wish list" for traditional government contracts, according to Alan Chvotkin, executive vice president of the Professional Services Council. But they may be useful in DOD's push to expand the defense industrial base and work with more non-traditional defense contracts, he said.

"They would not have thought about supply chain security in the DOD context," Chvotkin said of companies who don't typically work with the government.

Besides tax incentives, Chvotkin argued DOD could be less prescriptive with requirements in its clauses and contracts, and instead focus as much on the outcomes it wants companies to achieve with supply chain security.

He also pointed to DOD efforts to speed up acquisition timelines and how supply chain security plays a role in how quickly the military can bring new technologies into the defense marketplace.

"There may be some different contracting methods, there may be some streamlined contracting approaches" DOD could pursue, Chvotkin said.