Background
On September 28, 2026, the General Services Administration (GSA) issued a new clause for incorporation into government contracts of artificial intelligence systems, 552.239-7001, Basic Safeguarding of Data within Large Language Model Artificial Intelligence Systems, as a GSA Regulation Deviation (the Final Clause). The Final Clause will become effective on October 19, 2026.
GSA’s efforts to regulate contractor handling of government information processed by large language models (LLM) have moved through three phases. An initial draft released in March 2026 drew substantial industry criticism for its breadth, including an outright prohibition on AI components “manufactured, developed, or controlled by non-U.S. entities.” GSA responded with a revised version published for public comment on June 17, 2026 (the June Proposed Clause), which removed the non-U.S. component prohibition, introduced role-based supply-chain definitions, and restructured IP protections.
The Final Clause contains several notable changes over the June Proposed Clause, which are summarized below. Contractors should assess the impact of these provisions on their systems in anticipation of the incorporation of the clause into GSA LLM procurements. The clause is effective October 19; however, GSA contracting officers could exercise discretion to incorporate the clause in advance of that date.
Narrowed Applicability Threshold
The June Proposed Clause applied whenever “Government Data will be processed by a Large Language Model Artificial Intelligence System,” potentially capturing contracts where a contractor’s systems merely incidentally handled Government Data using an LLM.
The Final Clause instead imposes a two-part test for applicability: (1) the Government must be specifically procuring a system where LLM functionality is a “material feature,” and (2) Government Data must be “submitted directly to or produced by the LLM.” The Final Clause does not apply (and is self-deleting) in the event of two conditions: 1
- LLM use is limited to the contractor’s “internal business, back-office, operational, or performance-support systems” that the Government is not buying directly, and thus are not “accessed by the Government,” even if the internal use means the LLMs may “incidentally” process Government Data.
- LLM functionality is “incidental or ancillary” to the commercial products or services the Government is procuring.
Corresponding definitional changes further narrow the applicability of the Final Clause. The Final Clause clarifies and, in some cases, limits the definitions of “Data Inputs” and “Data Outputs,” which are the two types of data that comprise Government Data subject to the clause. The definition of “Data Inputs” is narrowed to cover data submitted “by or on behalf of” the Government rather than the June Proposed Clause’s applicability to data “created for” the Government. Metadata and logs are excluded from the definition of “Data Outputs.” Collectively, these changes materially reduce the scope of “Government Data” and thus the activities and LLM uses regulated by the clause.
Flow-down Framework Restructured
The June Proposed Clause had proposed a mandatory, role-based flow-down structure built around four defined supply-chain roles with obligations flowing through four companion clauses attached to each role: LLM Developer, LLM System Operator, LLM System Integrator, and LLM Service Provider.
The Final Clause replaces this taxonomy with a principles-based approach tied to the National Institute of Standards and Technology (NIST) AI Risk Management Framework 1.0, Appendix A task categories (AI Design, AI Development, AI Deployment, and Operation and Monitoring). The Final Clause now requires flow-down to any subcontractor performing those tasks to the extent it “collects, processes, stores, retains, trains on, fine-tunes on, or otherwise handles Government Data.” Notably, the Final Clause does not require contractors to flow down clause provisions that “impose requirements concerning the origin, ownership, jurisdiction, or foreign control” to a “Fully Open Model” or “Open-LLM Component” (both of which are newly defined in the Final Clause).
Despite pivoting to the NIST-based taxonomy noted above, the Final Clause still references the four supply chain roles from the June Proposed Clause, but the Final Clause no longer defines those roles or includes their associated companion clauses. It is unclear whether GSA will issue revised companion clauses.
Order of Precedence: Final Clause Still Prevails Over Commercial Terms
A major industry concern with the June Proposed Clause was its potential incompatibility with the commercial acquisition framework under FAR Part 12, which seeks to align government procurement with standard commercial terms and practices. By placing its requirements in the schedule of supplies/services tier — the highest position in the FAR 52.212-4 order of precedence — and overriding all contractor commercial agreements, the June Proposed Clause created potential procurement roadblocks for LLM suppliers, many of whom were expecting to rely heavily on their commercial terms in contracting under GSA vehicles.
The Final Clause clarifies that the clause “supplements, and does not replace or modify, FAR 52.212-4 or GSAR 552.212-4” and adds a savings clause for “applicable law, regulation, or mandatory Government contract clauses.” However, the Final Clause leaves unchanged the operative rule that the clause overrides all contractor commercial agreements, and industry concerns regarding the order of precedence will likely persist.
Expanded IP Protections for Contractors
The Final Clause makes three targeted changes to IP-related provisions that should increase IP protections for contractors subject to the clause, on balance.
- New preexisting materials acknowledgment. The Final Clause addresses concerns about contractors’ pre-existing IP by adding a new provision expressly acknowledging that the Government does not acquire ownership in the contractor’s preexisting commercial products, proprietary technology, or materials developed for use across multiple customers when such items are used or enhanced in performance of the contract. The Final Clause specifically lists “software, tools, configurations, workflows, documentation, knowledge base articles, models, scripts, service-generated data, derivative data, analytics, technical methods, know-how, and other materials” as the type of materials that could be used or enhanced without transfer of rights.
- IP assignment carve-out for general capability gains. The June Proposed Clause broadly required assignment to the Government of any IP rights in “improvements, enhancements, feedback, or derivative works” derived from Government Data. The Final Clause adds an express carveout: the assignment does not apply to “general capability gains or generalized improvements that do not incorporate, derive from, reveal, or disclose Government Data.”
- Expanded Background Data ownership. The June Proposed Clause allowed contractors to retain ownership of Background Data “in its original form.” The Final Clause deletes the phrase “in its original form” from its text, meaning contractors should retain ownership of Background Data even if modified or enhanced during performance. The Final Clause also expands the Background Data definition to cover data licensed by the contractor (adding to “owned or controlled”) and expressly includes information used to “develop or improve” the LLM.
Incident Reporting Narrowed; Duplicative Reporting Reduced
The June Proposed Clause proposed mandatory notification to the Government within 72 hours of “any incident … affecting any contractors, including Third-party entities, handling Government Data,” potentially requiring notice of supply-chain incidents with no direct impact on Government Data. The Final Clause narrows the trigger to incidents “affecting an LLM used in the performance of the contract … that may affect the confidentiality, integrity, or availability of Government Data” (emphasis added).
Additionally, for FedRAMP-authorized systems, incident reports, continuous monitoring submissions, and related reports submitted pursuant to FedRAMP, CISA, or other applicable federal cybersecurity reporting requirements now satisfy the clause’s notification obligation to the extent they contain substantially the same required information and are concurrently provided to the contracting officer. This safe harbor was entirely absent from the June Proposed Clause.
“Unbiased AI Principles” Standard Substantially Relaxed
The June Proposed Clause proposed detailed mandatory obligations requiring contractors to ensure the LLM was “truthful,” was a “neutral, nonpartisan tool” free of “ideological dogmas,” and contained an express prohibition on introducing partisan or ideological bias through training data, fine-tuning, retrieval augmented generation references, system prompts, or other configuration methods.
The Final Clause replaces this entire framework with a single obligation: Contractors must “use reasonable efforts to design, train, and configure the LLM to respond to user prompts seeking factual information or analysis, prioritize accuracy, scientific inquiry, and objectivity.” The Final Clause removes the express prohibition on embedding partisan or ideological judgments and the continuous improvement/monitoring requirement.
Non-Compliance Remedies: Suspension Right Expanded, Liability Cap Fixed
The Final Clause gives the Government the right to suspend use of the LLM “at any time” without qualification, whereas the June Proposed Clause would have allowed suspension “until performance issues are satisfactorily addressed.”
The June Proposed Clause proposed to make the contractor responsible for decommissioning costs if the contractor failed to comply with the Unbiased AI Principles. The Final Clause broadens this decommissioning liability to make the contractor liable for decommissioning costs based on termination for any notice of noncompliance with the clause. However, the Final Clause caps contractor liability for decommissioning costs at 25% of the value of the affected task or delivery order, with re-procurement costs and replacement-system development expressly excluded from that calculation.
Key Considerations for Contractors
In light of the Final Clause, contractors with existing or anticipated GSA LLM procurements should consider whether:
- Current LLM deployments meet the narrowed applicability threshold, and whether the self-deletion provisions apply to any tools currently within scope.
- Existing Background Data definitions or equivalent definitions in commercial agreements align with the Final Clause’s expanded definition, including the “licensed by” formulation and the coverage of materials used to develop or improve the LLM.
- Existing commercial and government-facing LLM terms and procurement strategy can accommodate the Final Clause’s order of precedence directive.
- Internal governance frameworks require updating to address the practical implications of the relaxed Unbiased AI Principles and reflect a reasonable-efforts rather than zero-tolerance approach.
- Incident reporting workflows, particularly for FedRAMP-authorized systems, should be updated to take advantage of the new FedRAMP/CISA safe harbor and eliminate duplicative reporting.
[1] The Final Clause does not separate these conditions with an “and” or an “or,” leaving it unclear whether they both must be satisfied for the clause to be self-deleting or if either condition, if met, suffices to treat the clause as self-deleting.