Yesterday marked a critical date for all government contractors. It is the day that the Interim Rule (IR) implementing Subsection 889(a)(1)(B) of the FY2019 National Defense Authorization Act (NDAA) became effective. Last month, the Coalition alerted you to the release of this IR, and since that time, we held a webinar and engaged in discussions with members to come to a better understanding of its impact and requirements. As a result of this engagement, we identified a significant challenge that vendors may face as the rule goes into effect, and we highlight it for you.
889(a)(1)(B) bars agencies from contracting with any entity that uses any equipment, 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.” “Covered telecommunications equipment or services” encompasses telecommunications products or services from Huawei, ZTE, or their subsidiaries or affiliates, as well as video surveillance or telecommunications products or services from Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company, or their subsidiaries or affiliates. The IR is the second of such rules implementing Section 889. Last August, a rule implementing Subsection 889(a)(1)(A), which bars agencies from procuring those items, was released.
According to the IR, this subsection, which applies at or below the Simplified Acquisition Threshold and for the acquisition of commercial items, calls for offerors, after conducting a “reasonable inquiry” for each offer they submit, to represent whether they use covered equipment or services (provision will be made in the System for Award Management (SAM) to allow annual representations by offerors who find they do not use covered equipment or services). These representations, however, represent a key challenge for offerors.
As we understand the anticipated representations, both per proposal and annual representations, will require an offeror to state that it either does or does not use covered telecommunications equipment of services or “any” system, equipment, or services that use them. Such a representation presents a point of confusion for stakeholders and a potentially significant contradiction, not only with the statute, but also with the overarching rule itself.
Representation Inconsistent with Statute
As mentioned above, the ban on agency contracting is associated specifically with equipment, systems, or services that use covered equipment or services “as a substantial or essential component of any system, or as critical technology as part of any system.” This language reasonably can be viewed as rational qualifying language regarding the contracting ban, mitigating the need for identifying the internal structure of rented facilities or peripheral infrastructure not associated with the critical systems activities of offerors. In this vein, it is consistent with other language of the statute that provides exceptions for the procurement of services that connect to third-party facilities, such as backhaul, roaming, or interconnection arrangements.
By substituting the word “any” for this language in the representation, the government, not even under the guise of a regulatory discussion, but by mere fiat, effectively amends the statute itself by broadening the restriction contained therein. Aside from this apparently ultra vires activity, this expansion of the breadth of the statute prompts practical concerns whether it can be implemented by the government’s industrial base. Specifically, it is not clear how vendors can be expected to run to ground the vast number of attenuated connections to covered equipment or services that could constitute “any” use.
Under these circumstances, given the potential False Claims Act implications of the representation, the government risks having vendors over-report compliance. In addition, for contracts, like the Schedules, it sets up a bureaucratic nightmare. For instance, a vendor might answer the representation in the affirmative, and the Schedules contracting officer might find the effect inconsequential. Notwithstanding this finding, however, the representation, remains in effect, prompting the question whether each order placed against the Schedule by each agency must be assessed, as well. Moreover, in connection with GSA’s eMarketplace, although platform providers clearly will have to provide representation for their platforms and products, it remains unclear how this provision will be implemented in connection with each transaction for each product on those platforms.
Representation Inconsistent with the IR
In addition, the utilization of the word “any” effectively vitiates the carefully crafted, 80-plus pages of the IR, notwithstanding that rule’s request for information regarding the impact of expanding its application. Readers may recall that the IR sets forth a “reasonable inquiry” process designed to uncover any information about the identity of the producer or provider of covered telecommunications equipment or services used by the offeror. It expressly states that the offeror need not conduct an internal or third-party audit. Indeed, the subject of the inquiry is described as “primarily documentation or other records.” Further, the operation of the rule is not flowed down to subcontractors because the prime contractor is the entity with whom the government has contractual privity. The IR, then, ceases to make sense if it culminates in a representation of “any” use.
Unquestionably, the Coalition shares the government’s national security concerns here. Our nation cannot remain vulnerable to the existential threats of near-peer adversaries. The foregoing language issues, however, represent a potential impediment to addressing those threats. Indeed, recognizing the challenge presented by these language issues, the Coalition proactively raised this question with GSA, which, in turn, is consulting with OMB about them. We will address them in our comments on the IR, as well, and we remain ready to assist the government in clarifying this matter. In the meantime, members should forward to the Coalition any other issues concerning the IR if they wish them addressed in the association’s comments filing.
1. Selling covered items to the government
2. Use of covered items by the contractor
Given the deadline of August 13, we have received numerous requests from KOs regarding the 889 Prohibition as MODs against existing contracts. We have requested an extension, but the risk of the FCA raises a fundamental concern. How are other suppliers responding to this requirement?
Manage to the Risk. GSA was sloppy here, but expect swift compliance audits from DOD, DHS and eventually, even GSA.
Hope you are well,