CONTRACTORS.

Starting August 13, 2020, Section 889(a)(1)(B) of the 2019 National Defense Authorization Act comes into effect.  It prohibits businesses with federal contracts from using telecommunication and video surveillance equipment or services provided by certain Chinese companies[1] as an essential or substantial part of any system (“Prohibited Technology”).  Notably, use of the Prohibited Technology does not need to relate to the services or equipment that the contractor is providing to the government.

Section 889(a)(1)(B) also requires a business to represent in its federal contract that it does not use Prohibited Technology.  Specifically, government contracts entered into or renewing on and after August 13, 2020 must contain the following clause:

(2) After conducting a reasonable inquiry, for purposes of this representation, the Offeror represents that—

It [ ] does, [ ] does not use covered telecommunications equipment or services, or use any equipment, system, or service that uses covered telecommunications equipment or services. The Offeror shall provide the additional disclosure information required at paragraph (e)(2) if the Offeror responds “does” in paragraph (d)(2).

On July 14, 2020, certain provisions of the Federal Acquisition Regulations (FAR) were amended to provide guidance on how to implement the prohibition (the “Interim Rule”).[2]

This article is designed to introduce businesses to the requirements of Section 889(a)(1)(B) and to provide a starting point for compliance.

A Reasonable Inquiry

First, the representation requires a reasonable inquiry.  The Interim Rule defines a reasonable inquiry as “an inquiry designed to uncover any information in the entity’s possession about the identity of the producer or provider of covered telecommunications equipment or services used by the entity.”[3] A reasonable inquiry does not require “an internal or third‑party audit.”[4]

After conducting a reasonable inquiry, does the business use Prohibited Technology?

If yes, does the Prohibited Technology constitute an essential or substantial part of its system?   “Substantial or essential component” to  mean “any component necessary for the proper function or performance of a piece of equipment, system, or service.”[5]

  • If it does not, then the business can represent that it does not use the Prohibited Technology within the meaning of Section 889(a)(1)(B).
  • If it is a substantial or essential component, then does the Prohibited Technology fall within one of the exceptions to its use?

There are two exceptions to the use of the Prohibited Technology.  A business may use Prohibited Technology as an essential or substantial component if it is

(1)  A service that connects to the facilities of a third-party, such as backhaul,[6] roaming, or interconnection arrangements; or

(2)  Telecommunications equipment that cannot route or redirect user data traffic or permit visibility into any user data or packets that such equipment transmits or otherwise handles.[7]

If an exception does not apply, then the party to the contract (the “Offeror”)[8] must represent that it does use the Prohibited Technology and disclose specific information for the equipment or services that it does use.  See CFR 52.204-24(e)(2) for a list of specific disclosures.

Consequences of Non-Compliance

Presently, there are no statutory fees or fines for noncompliance.  Instead, the Interim Rule states that “failure to submit an accurate representation to the Government constitutes a breach of contract that can lead to cancellation, termination, and financial consequences. Therefore, it is important for contractors to develop a compliance plan that will allow them to submit accurate representations to the Government in the course of their offers.”[9]

Adopting a Compliance Plan

The Interim Rule includes steps contractors will need to take to comply with the prohibition, including:

  • Becoming familiar with the new rule;
  • Establishing tracking practices, including internal tracking of equipment, systems, and services;
  • Training employees on the company’s compliance plan; and
  • Assessing the cost of replacing covered telecommunications equipment or services and creating a phase-out plan, if necessary.

Section 889(a)(1)(B) does impose an ongoing obligation on contractors with the Federal Government to assess the use of telecommunication and surveillance equipment and services.  If any covered equipment is discovered during contract performance, there are specific reporting requirements set forth in CFR 52.204-25(d)(2) that must be followed.  More detailed information can be found on the General Services Administration website here (https://www.acquisition.gov/gsa-deviation/supply-chain-aug13), including a link to register for a webinar on August 12, 2020 at 1 p.m. Eastern.

[1] These companies are  Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company, and their subsidiaries or affiliates.

[2] See Federal Register /Vol. 85, No. 135 /Tuesday, July 14, 2020 /Rules and Regulations 42665-42679 (the “Interim Rule”).

[3] See Interim Rule at 42667

[4] Id.

[5] See 48 CFR 52.204-25

[6] Backhaul means “intermediate links between the core network, or backbone network, and the small subnetworks at the edge of the network (e.g., connecting cell phones/towers to the core telephone network). Backhaul can be wireless (e.g., microwave) or wired (e.g., fiber optic, coaxial cable, Ethernet).”  CFR 52.204-25(a).

[7] 48 CFR 52.204-25(c).

[8] The representation of the Offeror does not extend to what its subcontractors and suppliers may use, however, a prime contractor is expected to examine its relationships with any subcontractor or supplier if it uses the supplier or subcontractor’s ‘covered telecommunications’ equipment or services as a substantial or essential component of any system.

[9] See Interim Rule at 42669