What happened
On 17 June 2026, the General Services Administration published a Proposed Rule in the Federal Register (document 2026-12205) seeking public comment on a new GSAR contract clause — 552.239-7001, 'Basic Safeguarding of Data within Large Language Model Artificial Intelligence Systems (LLMs).' This is a substantially revised version of an earlier March 2026 draft that drew heavy industry pushback. Key provisions of the revised clause: (1) applies only when 'Government Data' is processed by an LLM (two carve-outs: LLMs embedded in common commercial products, and incidental LLM use); (2) prohibits LLMs from training on government data and requires IP protections for background contractor data; (3) replaces a blanket prohibition on non-US AI with a requirement to 'maximise' use of LLMs developed, managed, and operated by US-incorporated entities; (4) requires AI to be 'developed and monitored' in accordance with 'unbiased AI principles'; (5) mandates role-based flow-down clauses to four defined supply-chain tiers; (6) includes liability caps, trade-secrets carve-outs from documentation obligations, a cure period before termination for cause, and a cap on decommissioning liability. Written comments are due 3 August 2026. A public listening session is scheduled for 14 July 2026 at George Washington University Law School.
Why it matters
This is the first formal US federal procurement rule specifically governing LLM use in government contracts. If finalised, it will flow through the entire federal IT supply chain — prime contractors, subcontractors, AI developers, and resellers who sell AI-enabled solutions to the US government. The 'maximise US-incorporated LLM' preference signals a sourcing policy with competitive implications for non-US AI vendors. The data-training prohibition directly limits how federal contractors can use government data to improve their models.
Action needed
Submit written comments by 3 August 2026. Register for the 14 July 2026 listening session at GWU Law School (registration closes 3 July 2026). Review existing and pipeline GSA contracts for LLM use and assess the government-data threshold, supply-chain flow-down requirements, and US-incorporated LLM sourcing preference.