Since the enactment of the FY2019 National Defense Authorization Act (NDAA), stakeholders have awaited implementing guidance for Section 889, the restriction on use of certain Chinese telecommunications and video surveillance equipment and services. An Interim Rule for Subsection 889(a)(1)(A), which bars agencies from procuring those items, was released in August of 2019. This week, the Interim Rule implementing Subsection 889(a)(1)(B) was released, finally providing stakeholders the implementation path they must follow. This rule is effective on August 13, 2020.
Subsection 889(a)(1)(B) bars agencies from contracting or extending or renewing a contract with an 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 equipment or services includes:
- Telecommunications equipment and services made or provided by Huawei Technologies Company, ZTE Corporation or their subsidiaries or affiliates.
- Video surveillance products and/or telecommunications equipment and services made or provided by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company, or their subsidiaries or affiliates.
The Subsection 889(a)(1)(B) Interim Rule applies at or below the Simplified Acquisition Threshold and for the acquisition of commercial items. It calls for offerors, after conducting a “reasonable inquiry,” for each offer they submit, to represent whether they use covered equipment or services. The rule defines “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 that excludes the need to include an internal or third-party audit. [Emphasis added.]
In this regard, it is envisioned that the System for Award Management will be amended to allow annual representations by offerors who find they do not use covered equipment or services.
It is important to note that the Section 889(a)(1)(B) prohibition
will not flow down because the prime contractor is the only ‘entity’ that the agency ‘enters into a contract’ with, and an agency does not directly ‘enter into a contract’ with any subcontractors, at any tier. [Emphasis added.]
Offerors seeking a waiver must develop a compelling justification, and, if the agency head agrees with it, then not later than 30-days thereafter, s/he must submit it to the appropriate committees on the Hill, along with “a full and complete laydown of the presences of covered [equipment or services] services in the entity’s supply chain and a phase-out plan to eliminate such covered [equipment or services] from the entity’s systems.” Note that the Director of National Intelligence otherwise may determine that a waiver is in the nation’s interest.
An offer representing the use of covered equipment or services will be taken as a waiver request, and, where needed, the CO will require the offeror to provide the compelling justification; the “laydown” of the presence of covered equipment or services in the offeror’s supply chain; and a “phase-out plan” to eliminate that covered equipment or services. An offeror may submit this information with its offer, which likely would expedite matters, but recognize that
Given the extent of information necessary for requesting a waiver, the FAR Council anticipates that any waiver would likely take at least a few weeks to obtain. Where mission needs do not permit time to obtain a waiver, agencies may reasonably choose not to initiate one and to move forward and make award to an offeror that does not require a waiver.
The FAR Council’s discussion of “Contractor Actions Needed for Compliance,” states that “a robust, risk-based compliance approach will help reduce the likelihood of noncompliance,” and recognizes that, during the first year under Section 889(a)(1)(B), contractors will need to learn about the law and develop a compliance plan. The following are steps that the “FAR Council assumes…would most likely be part of the compliance plan developed by any entity.”
- Regulatory Familiarization. Read and understand the rule and necessary actions for compliance.
- Corporate Enterprise Tracking. The entity must determine through a reasonable inquiry whether the entity itself uses “covered telecommunications” equipment or services as a substantial or essential component of any system, or as critical technology as part of any system. This includes examining relationships with any subcontractor or supplier for which the prime contractor has a Federal contract and uses the supplier or subcontractor’s “covered telecommunications” equipment or services as a substantial or essential component of any system. A reasonable inquiry is an inquiry designed to uncover any information in the entity’s possession – primarily documentation or other records – about the identity of the producer or provider of covered telecommunications equipment or services used by the entity. A reasonable inquiry need not include an internal or third-party audit.
- Education. Educate the entity’s purchasing/procurement, and materials management professionals to ensure they are familiar with the entity’s compliance plan.
- Cost of Removal (if the entity independently decides to). Once use of covered equipment and services is identified, implement procedures if the entity decides to replace existing covered telecommunications equipment or services and ensure new equipment and services acquired for use by the entity are compliant.
- Representation. Provide representation to the Government regarding whether the entity uses covered telecommunications equipment and services and alert the Government if use is discovered during contract performance.
- Cost to Develop a Phase-out Plan and Submit Waiver Information. For entities for which a waiver will be requested, 1) develop a phase-out plan to phase-out existing covered telecommunications equipment or services, and 2) provide waiver information to the Government to include the phase-out plan and the complete laydown of the presence of the covered telecommunications equipment or services.
The Interim Rule contains details in addition to the foregoing, all of which will be addressed in the Coalition’s webinar on Thursday, July 23, at 2:00 PM. In the meantime, comments on the Interim Rule are due by September 14, 2020. We have also added two new legal corners this week to help members prepare for Section 889 compliance. More information on the Coalition’s comment efforts will be forwarded shortly.