Anthropic’s Supply Chain Risk Designation: Practical Considerations for Government Contractors

Anthropic was notified by the United States Department of War (“DoW”) through a series of letters that it had been designated as presenting a supply chain risk in early March and that Anthropic products could no longer be used in certain defense-related work as a result. The federal government later clarified that the designation would become effective within 180 days to provide contractors time to transition away from covered Anthropic products and services. In response, Anthropic has since filed two different lawsuits challenging the designation. This article provides an overview of the latest developments regarding the Anthropic designation as the implementation deadline approaches.

Statutory Basis for the Designation

The federal government used two different sources of US law, 10 U.S.C. § 3252 and the Federal Acquisition Supply Chain Security Act (“FASCSA”), to support their decision. It is important to note that each of these laws have different implications for Anthropic and government contract work.

10 U.S.C. § 3252 applies to certain covered defense procurements and focuses on mitigating supply chain risk in contract performance. Under this section, a covered defense agency may exclude a vendor or technology from certain procurements and limit disclosures of the basis for its decision when necessary to reduce national security supply chain risk. Practically, 10 U.S.C. § 3252 authorizes the DoW to designate Anthropic as posing a supply chain risk and prohibit its use for defense contracts and other government work within the scope of the statute.

FASCSA created a government-wide framework for identifying and addressing supply chain risks posed by information technology, telecommunications, software, cloud services, and other covered articles used by federal agencies. Unlike 10 U.S.C. § 3252, FASCSA establishes a government-wide framework under which federal agencies may issue directives addressing covered supply chain risks. As a result, agencies beyond the DoW may issue similar directives where appropriate. So far, only the DoW has issued such directives, but other agencies could choose to adopt similar restrictions in the future.

Pending Litigation and Current Posture

Anthropic has two pending lawsuits in response to the supply chain risk designation, one filed in the Northern District of California (the “SF Case”) and the second filed in the D.C. Circuit Court of Appeals (the “DC Case”).

The SF Case focused primarily on the constitutionality of the designation under 10 U.S.C. § 3252, and Anthropic obtained a preliminary injunction enjoining enforcement of the designation under that statute. The federal government has appealed the decision to the Ninth Circuit but did not request a stay of the preliminary injunction. Accordingly, although the designation remains in place, enforcement under 10 U.S.C. § 3252 is currently enjoined pending further proceedings.

The DC Case focused on the government-wide exclusion that Anthropic is potentially facing under FASCSA. Anthropic requested an emergency stay of the supply chain risk designation under FASCSA, but the stay request was denied and the litigation remains pending. Because the FASCSA designation remains in effect while that litigation is pending, government contractors, particularly defense contractors, should continue to refrain from using Anthropic products where required to satisfy applicable government contract obligations.

Compliance Considerations for Contractors

If you receive a notice from the government, it is important to review the notice carefully with the assistance of legal counsel. The notices issued by the government regarding the removal of Anthropic products vary in scope and requirements, meaning different responses may be necessary. Accordingly, contractors should avoid taking a “one-size-fits-all” approach.

To help mitigate the impact of government directives, contractors should:

1. identify the source and scope of the request;

2. review the applicable government contracts;

3. maintain an inventory of where Anthropic products are being used;

4. avoid making certifications that extend beyond what has been verified;

5. document any cost or schedule impacts associated with removal of Anthropic products; and

6. seek clarification from the contracting officer where a directive appears broader than the applicable contractual requirements.

As the legal challenges to the Anthropic designation continue and additional agency guidance emerges, government contractors should closely monitor developments and evaluate their compliance obligations on an ongoing basis. Because the scope and application of government directives may evolve, contractors should consult experienced counsel before making significant changes to their operations or certifying compliance. For more information about the issues discussed in this article, please contact John Cifelli at Fonss & Estigarribia LLP at jac@fellplaw.com or (858) 746-6483.

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