This week, the FAR Council issued an interim rule implementing Section 889(a)(1)(A) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which prohibits contracting for certain telecommunications and video surveillance services or equipment from certain Chinese entities or affiliates (or those found to be connected to China). The interim rule demonstrates that, in connection with the e-commerce initiatives under Section 846 and other agency “pilots,” the market and the risk environment continue to evolve. Although these changes represent challenges for GSA and other agencies, they also present an opportunity for them to take time to address outstanding issues and reconcile their programs with existing law.
Among other things, the rule bars agencies from procuring, obtaining, or extending or renewing a contract to procure or obtain equipment or a system, or service that uses telecommunications equipment or services of certain Chinese entities “as a substantial or essential component of any system, or as critical technology as part of any system… .” Contractors are not barred from providing services connected to third-party facilities, like backhaul, roaming, or interconnections arrangements; nor are they barred from providing 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.”
The interim rule’s restriction is implemented via a new contract clause, and it must be flowed down to subcontractors. Offerors must submit with their proposals representations about whether they will provide covered telecommunications equipment or services, and, if so, they must detail what will be provided. Further, the new rule requires representations both at the contract level and for individual orders under indefinite delivery contracts. This requirement includes orders under pre-existing indefinite delivery contracts where performance will occur on or after August 13th (e.g., orders under the Federal Supply Schedules).
Significantly, the FAR Council and the OFPP Administrator determined that the rule applies to acquisitions of commercial items, including COTS, as well as purchases at or below the Simplified Acquisition Threshold. The interim rule identified “an unacceptable level of risk for the Government” associated with these purchases, and it specifically stated,
[t]his level of risk is not alleviated by the fact that the equipment or service being acquired has been sold or offered for sale to the general public, either in the same form or a modified form as sold to the Government …, nor by the small size of the purchase … .
This week, GSA issued a class deviation addressing Section 889 implementation for GSA contracts. For all existing and new GSA contracts, the representation is required. The deviation takes a “risk-based” approach to applying the representation requirements, with the deviation applicable as the risk of use of covered equipment and services decreases. The deviation does not apply to high risk procurements, meaning representations are required at the contract and order level. (e.g., Networx, Alliant, and certain Schedule contracts). For medium risk procurements, the deviation only requires a representation at the contract level, unless the CO determines the potential for IT or communication technology to be involved requires representation at the order level. (e.g., OASIS). The deviation applies to low risk procurements (i.e. representation only at the contract level), unless, again, the CO determines a potential for the use of IT or communication technology. Low risk contracts include the “vast majority” of FSS contracts that do not involve that technology.1
The deviation does not mention implementation of e-commerce pursuant to Section 846, which may be rooted in the fact that a contract has yet to be awarded. The disconnect between the increasing supply chain and contract issues of that and other e-commerce “pilots,” however, will have to be addressed.
In its Section 846, Market Research and Consultation Report (the Phase II Report), GSA touched on supply chain risk considerations. GSA stated, in part, that, under the proof of concept, orders will be limited to values below the Micro-Purchase Threshold (MPT) because, “[b]y keeping purchases below this threshold, risk is reduced while maximizing the opportunity to modernize the experience.” This approach, however, contradicts the determinations of the FAR Council and the OFPP Administrator set forth in the Section 889 interim rule, and thus, it needs to be addressed in any implementation of Section 846.
The increased security concerns reflected in the interim rule suggest that it is time to reexamine the suitability of IT products offered, as well as the mechanisms used to purchase those products, under the Section 846 and other e-commerce “pilots.” GSA’ s e-Marketplace “Proof of Concept” draft CPI solicitation requires that order click-through text include a statement that order submission through the platform “creates a contract … between the provider of the item being purchased (Seller) and the Federal agency purchaser (Agency).” It is not clear how the representation requirements of the interim rule will be applied in this context, or, for that matter, in the context of other e-commerce portals that are being “piloted” without competition in some agencies.
Further, in its Phase II Report, GSA stated that it anticipates leveraging the supply chain risk practices that “commercial e-commerce portal providers already possess.” It stated that, from its conversations with those providers, it
…learned many already institute supply chain protection practices to address existing issues[,] such as counterfeit items, given such concerns are also important to their commercial business.
If such is the case, then it stands to reason that, as a matter of contract performance, an e-commerce solution provider should be required to implement restrictions on its very own platform to assure that non-compliant products are not offered for sale. Alternatively, the “Information technology or communication technology” identified by GSA in its deviation, as well as other sophisticated and/or critical products, like healthcare products, just may not be suitable for inclusion in GSA’s e-marketplace “Proof of Concept” as outlined in the recent draft CPI solicitation.
The Government has an opportunity to assess commercial solutions to the foregoing challenges by expanding its Proof of Concept beyond the e-Marketplace model (consistent with Section 846’s intent) to include e-Commerce and e-Procurement portals and their approach to facilitating cyber and supply chain security. Either way, GSA cannot avoid addressing e-Marketplace compliance with the interim rule, including how such provider networks are monitored; how warehousing and order fulfillment practices will be adjusted to assure that noncompliant products are not offered for sale; and what liabilities will exist for a breach here.
Clearly, as the market and the risk environment continue to evolve, concerns continue to arise. With these concerns, however, comes an opportunity for the Government. It can take the time to address challenges in a meaningful way, and thereby, it can improve the chances for program success. To this end, Coalition members offer their assistance as the Government sees fit.
We are less than one week away from one of my favorite days of the year – the Coalition’s 7th Annual Joseph P. Caggiano Memorial Golf Tournament, taking place at the beautiful Whiskey Creek Golf Club in Ijamsville, MD on August 21st.
The Coalition hosts this charity tournament in honor of our good friend and colleague, Joe Caggiano. Joe’s career in the government marketplace spanned 25 years, including serving seven years as COO of the Washington Management Group/FedSources, eight years of service in the Navy, and prior to his untimely passing, served as a principal at Reznick Government (now CohnReznick).
In addition to remembering and reminiscing about what a wonderful leader, father, and friend Joe was, we are also making a difference in the community with proceeds from his namesake tournament. Tournament proceeds will once again support the Coalition’s endowment for a qualified veteran concentrating their studies in the field of US Government procurement and pursuing the JD/LLM degree or the interdisciplinary Masters degree at The George Washington University. Joe would be very proud to know that, in a little more than three-years, the Coalition has raised over $125,000 for this scholarship.
New this year, we will be splitting the proceeds with Purple Heart Homes, which helps build and modify houses for veterans who are aging or have disabilities. Purple Heart Homes is a 501(c)3 public charity that was founded in 2008 by John Gallina and Dale Beatty, two combat wounded veterans. Both terrific causes!
It sounds like a great cause, but…I don’t really golf!
No problem! It’s a four-person scramble, so everyone can contribute. If that’s not enough to convince you though, register for the Veranda Club and enjoy the day lounging on the deck at the club house overlooking the 18th hole and participate in the excellent BBQ dinner reception when the golfers finish their rounds. Lunch and drinks will be provided throughout the day as well. In a new twist this year, you can also participate in the Coalition’s first annual cornhole tournament!
Is it too late to sponsor a hole or register a foursome?
No! We still have a few hole sponsorships remaining and plenty of room for single golfers and foursomes. For sponsorship commitments or assistance with registration, please contact Matt Cahill at email@example.com or 202-315-1054. Thank you to all our committed sponsors so far, especially our two Title Sponsors, Mazars and CohnReznick!
We cannot thank the procurement community enough for its generosity in helping us support veterans and honor our dear friend’s legacy!
GSA announced this week plans to extend the Transactional Data Reporting (TDR) pilot through FY2020. The TDR pilot was originally launched in August 2016 and applies to 8 GSA Schedules. Contractors under the covered Schedules and SINs may opt into the TDR pilot and submit to GSA certain transactional data on a monthly basis. To compensate for the additional reporting burden, participating contractors are exempt from Commercial Sales Practice (CSP) disclosures and compliance with the Price Reductions Clause (PRC). According to GSA, the TDR pilot is being extended due to the Schedules Consolidation. Extending the pilot another year will allow GSA to focus on the consolidation and gather TDR in the new consolidated environment. At the end of FY2020, GSA plans to decide whether to continue the pilot, cancel it, or expand the TDR option to all Schedule holders.
In the Coalition’s recent comments on the information collection burdens of TDR, we recommended that GSA provide TDR as an option for all Schedule holders, in place of PRC compliance and submission of the CSP. The option would allow each contractor the opportunity to make a business decision about the least burdensome, least costly, and most efficient compliance mechanism under the Schedules program.
To view GSA’s announcement, click here.
Join the STARS III Working Group
On August 9, GSA released the Streamlined Technology Acquisition Resource for Services (STARS) III Government Wide Acquisition Contract (GWAC) draft solicitation, seeking feedback from interested parties. STARS III will be restricted to active U.S. Small Business Administration 8(a) participants. STARS III will allow the federal government to access IT services-based provisions from skilled 8(a) program participants. Responses to this RFI are due by September 6, 2019 at 3:00pm central time. The Coalition is establishing a STARS III Working Group to submit comments in response to the draft solicitation. To join the Working Group, contact Aubrey Woolley at firstname.lastname@example.org.
“Long-Term M&A Planning for Small Businesses” Presentation
In case you missed it, the Coalition’s Small Business Committee hosted an outstanding presentation this week on Long-Term M&A Planning for Small Businesses. Guest speakers were Jonathan Wolcott with Holland & Knight, Elizabeth Jochum with Smith Pachter McWhorter, and Cameron Hamilton with The McLean Group. The panel discussed advance planning and positioning of a contractor to increase value with regard to contract vehicles, overall relationship portfolio (agencies, subcontractors, etc.), reliance on small business set-aside programs, and many other topics. The slides from the presentation are available here and are also posted on the Coalition’s Member Portal under the Small Business Committee. If you have any questions accessing the Member Portal, please contact Michael Hanafin at email@example.com.
According to Federal News Network, on Tuesday, August 13, the Defense Department’s inspector general said in a statement that the office was making substantial progress in the investigation of JEDI’s Cloud contract. The IG’s office put together a team including auditors, investigators, and attorneys to conduct the review. Dwrena Allen, a spokeswoman for the IG office, stated that the team is reviewing the DoD’s handling of the JEDI cloud acquisition, including the development of requirements and the request for proposal process. They are also looking at whether current or former DoD officials committed any acts of misconduct pertaining to the JEDI acquisition.
Dana Deasy, the Pentagon’s chief information officer, stated that the department aims to have the IG’s written conclusions on the matter before selecting Amazon Web Services or Microsoft as the awardee of the single-award procurement. Mark Esper, the new Defense secretary is also conducting a review of his own, led by Deasy’s office, which will be completed before the awardee is selected.
The matter was first referred to the IG after potential ethical violations were found during an investigation by Chandra Brooks, the JEDI program’s contracting officer. In a July hearing, a federal judge ruled that the apparent misconduct did not have a meaningful impact on JEDI. In March, the FBI and DoD IG began a preliminary criminal investigation into JEDI. There is no confirmation that the current inspection involves criminal investigators, however, Allen stated that the IG would consider making its findings public at the conclusion of the investigation.
Separately, the Defense Department has also released an Enterprise Cloud Fact Sheet to address what it views as myths about the JEDI cloud acquisition. The memo is posted here.
The Defense Logistics Agency (DLA) hosted its second annual DLA Industry Day on July 31st as part of its efforts to build even stronger industry partnerships. The theme of this year’s event was Taking it to the Next Level—Partnering with Industry to Improve Warfighter Readiness. According to DLA Director, Lieutenant General Darrell K Williams, the top priority for DLA continues to be the Warfighter, and at the same time, they recognize the growing need of their 40 whole of government partners, including the VA.
DLA Acquisition Director, Matthew Beebe, specifically invited Coalition members to take a look at the materials from the event. Slides from the Industry Day sessions are posted here. The presentation from the DLA Medical breakout session is available here.
DLA also shared a calendar of their future industry events—
– DLA Troop Support Association Days
Medical Vendor Day, September 26, 2019
Joint Federal Pharmacy Seminar, Oct 27- 30, 2019
Joint Advanced Planning Brief to Industry, Nov 6-7, 2019 –
– DLA Research and Development Industry Day, November 7, 2019
– DLA Strategic Material Industry Day, November 13, 2019
– DSCO J6 Enterprise Technology Services Industry Day, November 2019
For more details, contact the DLA Industry Engagement Office at IndustryEngagement@dla.mil. More details about the Medical Industry Day will be made available soon through Medical/Surgical Subcommittee.
Deputy Defense Secretary Norquist Orders DoD-wide Review
According to Federal News Network, Deputy Defense Secretary Norquist signed a memo on August 2nd ordering a “comprehensive, zero-based, program and budget review for 2021 to 2025.” The objective of the review is to align all activities to the National Defense Strategy and to evaluate the “division of functions between defense-wide organizations and the military departments.” The review could result in structural reform and is to cover “all defense-wide organizations, appropriations, funds and accounts” at all levels of the Department. Deputy Defense Secretary Norquist is leading the effort with the DoD chief management officer and other Defense leadership.
The Coalition for Government Procurement is pleased to announce that nominations are open for the 2019 Excellence in Partnership (EIP) Awards.
The EIP Awards honor individuals and organizations in the acquisition community who have made significant contributions to the procurement system that deliver best value and meet agency missions. Historically, these awards have recognized individuals, organizations, and contractors involved in procurement with GSA, VA, DOD, DHS, and other government agencies.
We are seeking nominations from qualified candidates in the award categories from the Department of Defense, Federal Civilian agencies, and industry.
Lifetime Acquisition Excellence Award
Presented to an individual in the contracting community (government or industry) for demonstrating a life-long commitment to advancing “common sense in government procurement.”
Acquisition Excellence Award
Presented to an organization or individual (government or contractor) for outstanding performance over the year in meeting the mission-critical needs of a Federal agency through a government contract.
Excellence in Innovation Award
Presented to an organization or individual (government or contractor) for creating innovative solutions and/or an innovative process for a Federal agency that improves and facilitates mission performance.
Advocating for Veterans Award
Presented to an organization or individual (government or contractor) for promoting and executing a successful program that supports veterans.
VA and DoD Establish Strategic Partnership
On August 12, the U.S. Department of Veterans Affairs (VA) and the Department of Defense (DoD) Defense Logistics Agency (DLA) joined in a strategic partnership to further improve VA’s supply chain management modernization efforts. This agreement improves productivity and efficiency by giving VA networks across the country access to DLA’s extensive supply catalog. VA gains access to DLA’s worldwide procurement system to acquire many different items including medical and surgical items, cleaning supplies and equipment, and construction materials and equipment. The agreement creates a centralized ordering system for VA by combining resources between the two departments, leading to reduced risks, waste, fraud, and abuse in the purchasing process. VA Secretary, Robert Wilkie, commented that this is a big step towards VA’s efforts of modernization. To read the VA’s press release on this topic, click here.
The Department of Defense (DoD) Office of Inspector General (OIG) released an audit this week of the DLA Troop Support Negotiation of Prices for the Pharmaceutical Prime Vendor-Global Program. DLA’s Pharmaceutical Prime Vendor program provides global distribution of pharmaceuticals directly to customers in the DoD and other Federal agencies. In its audit, the OIG compared the pricing available through the prime vendor program to pricing data available through the Defense Health Agency (DHA). DHA’s data was from the Military Health System Data Repository which “includes the amounts paid to retail pharmacies and quantities dispensed from both the DoD health care facilities and non-DoD sources, such as retail pharmacies, that are not subject to the Buy American or Trade Agreements Acts.”
The OIG found that use of the DHA’s data could have been used to negotiate lower prices for some pharmaceuticals. Specifically, the OIG found that “DHA’s median amounts paid for the same quantity of pharmaceuticals were $137.1 million less than DLA Troop Support’s prices for 6,615 National Drug Codes.”
DLA Troop Support states in the audit that their ability to obtain pricing similar to DHA is affected by the Buy American and Trade Agreements Act, which do not apply to retail pharmacies. DLA currently references government prices for its negotiations, such as the Federal Supply Schedule, or pricing agreements with prime vendors.
The OIG recommended that DLA Troop Support coordinate with DHA to obtain pricing data from the Military Health System Data Repository. Their recommendation is to remain open until DLA and DHA have signed a memorandum of agreement to establish this coordination. To read the full audit report, click here.
The Legal Corner provides the legal community with an opportunity to share insights and comments on legal issues of the day. The comments herein do not necessarily reflect the views of the Coalition for Government Procurement.
By: Joy Sturm, Partner, Hogan Lovells; Allison Pugsley, Partner, Hogan Lovells; David Burgett, Senior Counsel, Hogan Lovells; Annie Vanselow, Senior Associate, Hogan Lovells; and Ryan Harrigan, Associate, Hogan Lovells
On Thursday, August 8, 2019, the Department of Justice (“DoJ”) announced that Danish medical device company Ambu, Inc. (“Ambu”) will pay $3.3 million to settle False Claims Act (“FCA”) allegations that it violated the Trade Agreements Act (“TAA”) (19 U.S.C. § 2518) by selling products to the Defense Logistics Agency (“DLA”) and the Department of Veterans Affairs (“VA”) that were made in China and Malaysia. The TAA restricts the Federal government’s purchase of “end products” to only those (1) manufactured in the United States or wholly manufactured in a “designated country,” or (2) ‘‘substantially transformed’’ in the United States or a designated country. China and Malaysia are not designated countries.
According to the DoJ press release, Ambu executives certified that its products came from TAA compliant countries despite allegedly knowing that most of the products were manufactured in noncompliant locations. Between December 2011 and March 2015, more than 80% of the product sold by Ambu to the Federal government came from noncompliant countries.
FCA settlements are not new to the healthcare industry. Nearly 90% of recoveries during 2017 and 2018 under the FCA came from the healthcare industry, according to an analysis by Bloomberg Law. The TAA focus of the allegations, however, is notable.
In recent years, there have been policy changes that have arguably increased the ability of the government to purchase products that do not meet the TAA standard. In 2016, the VA adopted a blanket non-availability determination for its Federal Supply Schedule contract that applies to innovator pharmaceutical products that are considered “covered drugs” under the Veterans Health Care Act of 1992. In addition, a 2018 decision by the Court of Federal Claims broadened the definition of “U.S.-made end product,” under the Federal Acquisition Regulation TAA clause to include products subject to partial manufacture in the U.S. that do not otherwise meet the TAA “substantial transformation” test. See Acetris Health, LLC v. United States, No. 18-433C (Fed. Cl. July 10, 2018). However, this interpretation is pending appeal and may not survive.
Despite these changes, the Ambu settlement demonstrates that the government is still focused on and enforcing TAA compliance. In addition, private whistleblowers can initiate FCA complaints. (It is unclear whether or not a whistleblower was involved in the Ambu case.) To avoid FCA liability, it is important for companies to understand the evolving landscape and ensure that all certifications under Federal contracts are current and accurate.
Should you have any questions about this alert or otherwise, please do not hesitate to contact our Federal contracts team.
+1 (202) 637 5990
+1 (202) 637 6817
+1 (202) 637 6597
+1 (202) 637 5592
+1 (202) 637 3586
This article has been reprinted with permission from Hogan Lovells US LLP.
Healthcare Spotlight: Landmark Supreme Court Ruling Favors Business – Allowing FOIA Protection of Confidential Information Without Showing Competitive Harm
The Healthcare Spotlight provides the healthcare community with an opportunity to share insights and comments on leading issues of the day. The comments herein do not necessarily reflect the views of the Coalition for Government Procurement.
By: Joy Sturm, Partner, Hogan Lovells; and Allison Pugsley, Partner, Hogan Lovells
On Monday, June 24, 2019, the Supreme Court issued a landmark decision, Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct. 915 (2019), that overturns a half-century of precedent and significantly expands the ability of businesses to block Federal agencies from releasing their confidential information to the public under the Freedom of Information Act (FOIA). The decision eliminates a requirement established in National Parks & Conservation Assn. v. Morton, 498 F.2d 765 (D.C. Cir. 1974) and generally followed by the Federal courts that the party objecting to disclosure show “substantial competitive harm” to support withholding of information under FOIA Exemption 4. This is a significant change for Federal contractors who share confidential and proprietary information with the government to compete for government awards, and for other reasons.
FOIA generally gives the public, including reporters and competitors, the right to access Federal agency records except to the extent the records are protected from disclosure by specific exemptions. These records may include documents received from businesses or documents created by civil servants that contain information received from businesses. FOIA Exemption 4 allows Federal officials to withhold “confidential” “commercial or financial information” in the government’s possession that has been obtained from third parties, such as businesses. Since the National Parks decision, lower courts have interpreted this exemption as allowing the withholding of confidential business records under FOIA only in cases where the private entity was required to provide the information to the government and disclosure would result in “substantial competitive harm.”
Writing for a six-member majority, Justice Gorsuch opined that National Parks relied too heavily on the legislative history of FOIA, rather than focusing on the plain text of the law. Gorsuch explained that “the Court cannot arbitrarily constrict Exemption 4 by adding limitations found nowhere in its terms,” and concluded that “at least where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, the information is ‘confidential’ within the meaning of Exemption 4.” In so doing, the Court overturned longstanding precedent, and ruled in favor of retailers seeking to prevent a South Dakota newspaper from obtaining store-level data on the redemption of food stamp benefits under the Supplemental Nutrition Assistance Program. There may be debate in subsequent cases as to what constitutes an “assurance of privacy.” It is unclear whether the agency must make an affirmative statement that it will treat the data as confidential or whether it will be sufficient that the submitter claims confidentiality and the agency does not object.
This decision is important to Federal contractors, as it increases the scope of exempt records and reduces the uncertainty as to whether particular withholdings would be upheld if challenged. Should you have any questions about this ruling or how it specifically impacts your business, please do not hesitate to contact our Federal contracts team.
Joy Sturm & Allison Pugsley
+1 (202) 637 5990
+1 (202) 637 6817
Joy and Allison are partners in the Hogan Lovells Life Sciences Procurement Practice.
This article has been reprinted with permission from Hogan Lovells US LLP.
GSA Transitioning FBO to beta.SAM.gov
The General Services Administration published a blog post on GSA Interact this week providing an update on the transition for FedBizOpps (FBO) to beta.SAM.gov. The transition is expected to take place in the beginning of fiscal year 2020, and FBO will be moved to the new domain name of “Contract Opportunities.” GSA has prepared an FBO Transition Fact Sheet to help stakeholder with the transition.
Beta.SAM.gov will combine ten existing legacy systems, including FBO, System for Award Management (SAM), and Federal Procurement Data System (FPDS), into a single portal.
Update on GSA’s Contract Acquisition Life-Cycle Management System
Earlier this week, Federal News Network reported on updates on GSA’s Contract Acquisition Life-Cycle Management (CALM) formerly called the contract writing system project. According to FAS Commissioner Alan Thomas, the acquisition strategy for CALM should be completed within the next week and GSA plans to use the COMET blanket purchase agreement on IT Schedule 70.
Thomas also announced that if the CALM is successful it could be expanded to other agencies. GSA is expected to award COMET in October and possibly award CALM by the winter of 2020. Slides from a GSA webinar on CALM with additional information can be found here.
This week on Off the Shelf, David Dowd, partner at Mayer Brown LLP, takes a look at the General Service Administration’s draft solicitation seeking e-marketplace solutions, Section 846’s key provisions and GSA’s market research efforts.
As a threshold matter, GSA identified three types of e-portal solutions within the scope of the Section 846: E-marketplace, e-commerce, and e-procurement. Dowd discusses GSA’s decision to limit competition for the draft solicitation’s proof of concept (POC) to e-marketplace solutions. He further outlines the legal, policy and market implications of only including e-marketplaces in the POC, excluding the e-procurement and e-commerce solutions.
Dowd also analyzes key features and aspects of the draft solicitation, including the inherent organizational conflict of interest associated with e-marketplace solutions, the “no-cost” structure of the contract and the treatment of each order under the POC as a separate contract.
Finally Dowd shares his thoughts on the impact of certain provisions and requirements that were not included in the draft solicitation —especially the lack of information/guidance regarding commercial terms and conditions.
To listen to the show, click here.
DOL Launches Online Help Desk for Contractors
Last week, the Office of Federal Contract Compliance Programs (OFCCP) in the Department of Labor (DOL) released the Contractor Assistance Portal, an online help desk to provide compliance resources to contractors. Through the Portal, OFCCP can host live group chats and discussions with contractors, gather stakeholder input, and answer contractor questions, which will be archived for future reference.
On August 8, 2019, the FAR Council issued an interim rule concerning, “Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment.” The rule implements the prohibition of section 889(a)(1)(A) of the John S. McCain National Defense Authorization Act (NDAA) for FY2019 as it relates to a “covered foreign country,” defined in statute and the interim rule as China, and the equipment and services of certain Chinese entities. The interim rule states that the prohibition in section 889(a)(1)(B) is not effective until August 13, 2020 and will be implemented through separate rulemaking.
By way of background, under section 889(a)(1)(A), an executive agency head is prohibited from procuring, obtaining, or extending or renewing a contract to procure or obtain equipment or a system, or service that uses telecommunications equipment or services of certain Chinese entities “as a substantial or essential component of any system, or as critical technology as part of any system… .” Section 889(a)(1)(B) prohibits an executive agency head from entering into or extending or renewing a contract “with an entity that uses any equipment, system, or service that uses telecommunications equipment or services of certain Chinese (covered entities “as a substantial or essential component of any system, or as critical technology as part of any system.”
Under the interim rule, consistent with the statute, “Covered telecommunications equipment or services” is defined as:
– Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation, (or any subsidiary or affiliate of such entities);
– For the purpose of public safety, security of Government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities);
– Telecommunications or video surveillance services provided by such entities or using such equipment; or
– Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.
“Critical technology” is defined generally as defense articles or services included on the United States Munitions List; items included on the Commerce Control List; specially designed and prepared nuclear equipment, parts and components, materials, software, and technology; nuclear facilities, equipment, and material; select agents and toxins; and emerging and foundational technologies controlled pursuant to the Export Control Reform Act of 2018.
The interim rule restates the statutory restriction on executive agency heads barring them from procuring, obtaining, or extending or renewing a contract to procure or obtain equipment or a system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system. It adds a new subpart, 4.21, to FAR part 4, addressing this prohibition, along with associated text in FAR part 12 (commercial items), FAR part 13 (actions at or below the Micro-Purchase Threshold), and FAR 52.204-25 (contract clause).
Offerors will have to report whether they intend to provide covered telecommunications equipment or services. If the are providing such equipment or services, they must provide, as part of their offer, details about the equipment and services offered (e.g., OEM number, wholesaler number); an explanation of the proposed use; for services, the entity performing; and, for equipment, the entity that produced the equipment (including identifier information. Contractors must report (within specified time periods) any covered “equipment, systems, or services” discovered during the performance of the contract. Further, they must flow down this requirement flows down to their subcontractors.
An exception is provider under the interim rule. Agencies may procure, and contractors may provide,
…[a] service that connects to the facilities of a third-party, such as backhaul, roaming, or interconnection arrangements; or  [t]elecommunications 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.
Further, the interim rule provides for a waiver under limited circumstances. On a one-time basis, not to extend beyond August 13, 2021, the agency head may waive the prohibition at the request of a Government entity where the entity submits a justification for additional time that the agency head finds compelling, along with,
… [a] full and complete laydown or description of the presences of covered telecommunications or video surveillance equipment or services in the relevant supply chain and a phase-out plan to eliminate such covered telecommunications or video surveillance equipment or services from the relevant systems,
which the agency head must report to Congress. In addition, the Director of National Intelligence may provide a waiver if the Director determines the waiver is in the national security interests of the United States.
It is important to note that the FAR Council and the OFPP Administrator, pursuant to their respective authorities under Title 41, determined that application of the rule at or below the Simplified Acquisition Threshold, to the acquisition of commercial items, and to the acquisition of COTS items is in the best interests of the Government based on the following:
While the law does not specifically address acquisitions of commercial items, including COTS items, there is an unacceptable level of risk for the Government in buying equipment, systems, or services that use covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system. This level of risk is not alleviated by the fact that the equipment or service being acquired has been sold or offered for sale to the general public, either in the same form or a modified form as sold to the Government (i.e., that it is a commercial item or COTS item), nor by the small size of the purchase (i.e., at or below the SAT). As a result, agencies may face increased exposure for violating the law and unknowingly acquiring covered telecommunication equipment or services absent coverage of these types of acquisitions by this rule.
The effective date of the rule is August 13, 2019. The clause addressing the rule will appear in solicitations issued on or after August 13, 2019, and contracts awarded pursuant to those solicitations. Likewise, such clauses will appear in solicitations issued before August 13, 2019, where contracts awarded pursuant to those solicitations occurs on or after August 13, 2019. Regarding existing indefinite delivery contracts, they must be modified to include the FAR clause for future orders, prior to the placing of such orders.
Proposed Rule to Clarify Applicability of Small Business Rules to Overseas Contracts
The FAR Council published a proposed a rule on August 12th that would clarify the application of overseas contracts to small business rules and contracting goals. The proposal more plainly states that government contractors may use small business set-asides and provisions for contracts performed overseas. Contractors are already required to do so for contracts within the United States.
This proposal is being considered as contractors had differing interpretations of the current FAR rule on the subject (in FAR part 19) which led to inconsistent application of small business contracting rules overseas. The proposal reflects the Small Business Administration’s (SBA) 2016 policy change to include overseas contractors within their small business contracting goals. Written comments from interested parties must be submitted on or before October 11th, 2019. Comments may be submitted to https://www.regulations.gov/ or by mail to the General Services Administration’s Regulatory Secretariat Division (MVCB).
For the full proposed rule, including further instructions on commenting, click here.