Contractors trying to comply with the Pentagon’s Anthropic restrictions are running into an unexpected problem

Terry Gerton Back in March, the Pentagon designated Anthropic a supply chain risk. This seems to be the news item that keeps on giving because a lot of water has flowed under the bridge since then. But let’s start where we are today. What is actually happening inside the defense sector to contractors as the Pentagon begins enforcing these restrictions on Anthropic?

Ryan Frazee Yeah, so it’s been an interesting situation to watch. As you mentioned, it’s fluid and evolving day by day. Where we are now is the Pentagon has issued two separate supply chain designations. One of them has been held up in district court. The other one is still active and is being litigated at the D.C. Circuit Court of Appeals. And where we are, now, since one of the supply chain risk designations is, in fact, active, agencies within the Department of War have begun implementing that and reaching out to contractors and asking them to provide certifications that they’re not using anthropic products in performance of their contracts and to certify that they are removing those from Department of War Systems. What’s been interesting is the implementation of those orders has not been entirely consistent, not only within agencies within the Department of War, but even within offices within the same agency. Contractors have been getting materially different certification requests from the government in terms of what they need to be certified to. You know, some have hewed to the letter of the law, which is, you’re not supposed to be using anthropic in performance of Department of War, Department of Defense contracts. Other certification requests have been broader and have been requesting certifications that contractors are not using Claude at all, kind of going beyond the, you know, where the current state of the law is. So it’s been a challenging issue for contractors to deal with because it’s not a one size fits all situation whenever you get a certification, something you have to look at very closely and respond to precisely.

Terry Gerton Tell me a little bit more about what’s generating those different approaches to the certification requirements. Are there different constraints on different levels of government? What are they trying to get at?

Ryan Frazee That’s a great question. I think there might, I’d be speculating as to what is causing different offices or agencies to issue these different requests. I mean, in fairness to them, it’s a very difficult, fluid and unprecedented situation that the contracting folks are finding themselves in. So they may just be handling it differently. I can also speak to folks further down the supply chain. Subcontractors are receiving requests from the primes and, you know, sometimes primes will just flow down the specific request that they’re getting from the government. Other times they’ll send, you know, broader checklist certifications to subcontractors just as an effort to protect the prime from any sort of liability. And that can have pretty significant consequences to sub-contractor further down the supply chain.

Terry Gerton It’s one thing then for the different requesters of certification to be taking different approaches to this, but a contractor may receive several of those different requests from different higher ups in their chain. How do they make sense of all of the different kinds of requests that they’re getting then and what liabilities might they be facing depending on how they answer those different questions?

Ryan Frazee Well, I think to your to your last point, the most important thing is to respond to them accurately. And, you know, the law only requires contractors to not use anthropic products right now in performance of Department of War contracts. And the government has been very clear in the litigation that they’re not trying to prohibit use for commercial performance of commercial contracts or for other civilian agencies. They’re just focused on Department of War contracts. So, one of the, I think, the most sound approaches that contractors that have been receiving multiple different types of requests from multiple different authorities is to push back politely, but firmly where appropriate to do so and say, we are complying with the specific statutory and regulatory authority that we understand to be in effect. If they’re still using Claude for other reasons to disclose that, so to head off any potential liability for a false claims act or a false statement case later on, but to be very conscientious in terms of what you’re saying and what you are responding to. And I think honesty is usually, honesty is always the best policy when you’re dealing with the federal government. And I think that’s been the approach that’s the most successful for contractors.

Terry Gerton Ryan Frazee is a partner at Mayer Brown. Ryan, you mentioned earlier that the legal picture is still unsettled with some parts of the government’s action tied up in court. How does that uncertainty complicate any sort of compliance decisions that folks are making at this point?

Ryan Frazee Well, it makes it difficult to kind of game out how you’re going to perform work and what you’re gonna bid on and how you gonna perform that work, months or years down the line. Businesses like certainty. So we’ve got one designation that right now is enjoined. You’ve got another one that’s active, but that litigation is pending and it could come out either way. So it’s difficult to make those types of business decisions about, does it make sense for us to, get an enterprise license for Claude because we think that it will help us perform better. Or, some contractors are already, they’ve used Claude and it’s kind of intertwined in their systems, that it’s very difficult to unwind that and just replace it with another frontier model that has similar capabilities. So it’s a difficult time for contractors. I think the hope from everybody is that either the litigation is wrapped up soon and there’s some clarity, or the parties to that litigation are able to come to some sort of workable resolution that allows contractors that want to use Claude and believe that they can use Claude safely to perform their work to allow them to do so or at least have the clarity that Claude is out of the picture for government work.

Terry Gerton Are there any legal tea leaves to read at this point that might give contractors an idea of which way the wind is going to blow?

Ryan Frazee Well, I think for the one designation that’s been enjoined, at least at the district court level, I think it’s safe to say that that one is probably going to remain enjoined. You know, there’s always appeals. And it’s such a novel issue that it’s going to be difficult to predict how an appellate court or, if it would go to the Supreme Court, how that would play out. The D.C. Circuit, which is hearing the high chain risk designation that’s still active, that one’s a little bit more difficult to read. And I think that just going from the questions of the oral argument and the multiple rounds of briefing, and they’ve already had merits briefing. They’ve had additional further supplemental briefing on various issues. It’s very difficult to see how that one is going to play out. And that’s been what’s very different for contractors to kind of handicap how this is going to play out and what is the best approach for their business.

Terry Gerton Given all of the uncertainty then that you’ve just articulated, what is your best advice to contractors right now? How do they navigate this period of such turmoil?

Ryan Frazee Yeah, well, I think one of the first things to do is to inventory, are you using Claude? And if so, how? Are you using it in support of Department of War contracts? And if, so is it possible to unwind that easily or are there going to be significant costs to do so? There’s a waiver process that contractors can apply for to continue using it for specific contracts. So maybe that might make sense, but to kind of build up a good factual record of what you’re using it, for how expensive or costly would it be for you to move on to another system? And then the second piece of advice that I think is kind of universal is to, you know, follow the law and be very transparent in terms of how you’re going to continue to use Claude and you know, put that forward to the contracting officer, let them know, hey, we’re not going to use this for this specific contract because we understand that the supply chain risk designation applies to it. We’ve got all these other contracts over here. We’ve all this other commercial work over here, we’re going to continue to use Claude for those purposes if we’re gonna do so, so that way there’s no misunderstanding down the line about whether and how an individual company is using these products.

Terry Gerton It sounds like this is a time to stay in really close communication with your contracting officer and try to work through all of these things as you go along.

Ryan Frazee Yeah, that’s my advice generally, but especially for a situation like this, it’s important to keep the lines of communication open and well documented.