An analysis of GSA's proposed AI clause

In this episode of Off the Shelf, host Roger Waldron interviews Jonathan Arney, a partner at Shepard Mullen and a long-time advocate for government procurement reform, about two major developments in federal contracting: the GSA's proposed AI clause and a new executive order on DEI enforcement. Arney discusses the GSA's draft clause requiring contractors to disclose all AI systems used in contract performance and to use only American AI systems, highlighting significant ambiguities around definitions like 'use' and 'American,' which could stifle innovation and burden commercial firms. He draws parallels to the recent court ruling in the Anthropic litigation, where a preliminary injunction blocked broad government restrictions on using Anthropic's AI, emphasizing the need for clear, workable rules that don't deter cutting-edge technology providers. Arney also details the new DEI executive order, which mandates contractors to report subcontractor conduct that may violate DEI clauses, submit to audits, and face contract cancellation or debarment for noncompliance. He stresses that the clause explicitly treats DEI compliance as material to payment decisions under the False Claims Act, significantly increasing legal risk. Both topics underscore the tension between national security, innovation, and regulatory compliance in federal contracting. Key takeaways include: 1) The GSA’s AI clause must clarify ambiguous terms like 'use' and 'American' to avoid deterring commercial innovation; 2) Contractors should submit comments on the GSA AI clause before the deadline, as the extension signals serious consideration of feedback; 3) The new DEI executive order introduces unprecedented reporting and audit obligations, raising both likelihood and consequence of enforcement; 4) Companies must integrate DEI compliance into cross-functional risk management, involving HR, legal, finance, and contracts teams; 5) The False Claims Act linkage makes DEI compliance a material contract term, potentially eliminating the defense of 'non-materiality' in fraud cases. The overall tone is cautiously urgent, emphasizing proactive compliance and stakeholder engagement.