To curb the threat of U.S. foreign adversaries gaining access to critical infrastructure and stealing sensitive information, Congress passed Section 889 (“Prohibition on Certain Telecommunications and Video Surveillance Services or Equipment”) as part of the Fiscal Year 2019 National Defense Authorization Act (“NDAA”).
There are two prohibitions in the statute, Part A and Part B. Part A, which became effective on August 13, 2019, prohibits the government from “buying” certain “covered telecommunications equipment or services.” (NDAA Section 889(a)(1)(A)). Part B, which is slated to go into effect on August 13, 2020, prohibits the government from “entering into a contract with” an entity that “uses” “covered telecommunications equipment or services.” (NDAA Section 889(a)(1)(B)).
“Covered telecommunications equipment or services” generally include telecommunications or video surveillance equipment and services produced by Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, and Dahua Technology Company, or any subsidiary or affiliate or such entities, or by an entity “owned or controlled by, or otherwise connected to, the government of The People’s Republic of China.
On July 10, 2020, approximately one month before Section 889 Part B goes into effect, the Federal Acquisition Regulatory (FAR) Council released the long-awaited Interim Rule, which makes revisions to FAR parts 1, 4, 13, 39, and 52, to implement Part B of Section 889. Despite requests from industry to make the rule narrower, as well as significant concerns voiced a month earlier by DoD acquisition head Ellen Lord, the Interim Rule closely follows the statute, leaves the definitions of critical words like “use” and “covered” technology unchanged, and continues to apply to all federal contracts and contractors no matter their size.
On July 23, 2020, DoD issued a Memorandum to facilitate implementation of the interim rule. The DoD Memo mostly reorganizes and presents the information from the Interim Rule in a form targeted toward Contracting Officers (“COs”) and requires COs to take specific actions prior to awarding, or extending or renewing, contracts, task orders, or delivery orders. While the DoD Memo instructs COs to provide “contractors with adequate time to comply with the clause and provide the representation,” this applies only if the CO is “executing a modification to extend the period of performance, including exercising an option.” In total, the DoD Memo falls short of providing government contractors with much needed guidance and relief from the onerous compliance requirements of Section 889 Part B.
Although public comments to the Interim Rule will be accepted until September 14, 2020, the Interim Rule will nonetheless go into effect on August 13, 2020. As a result, many government contractors are scrambling to figure out what they can and should do in the next three weeks. While the Interim Rule does not offer any guaranteed relief from its requirements, it does recognize that full compliance will not be achieved by August 13, 2020 and contemplates a “ramp-up” period where contractors determine through a “reasonable inquiry” whether they use covered equipment, and adopt a “robust, risk-based compliance approach,” focused on phasing-out covered equipment, starting with those that present the highest risk.
Additionally, the Interim Rule does contemplate a waiver process, which allows the head of an executive agency to grant a one-time waiver from Section 889 Part B on a case-by-case basis that will expire no later than August 13, 2022. The Interim Rule notes that obtaining a waiver may take at least a few weeks, it would be agency-specific since it is based on the agency’s judgment concerning particular uses of covered equipment, and a waiver granted for one agency will not necessarily indicate whether a waiver is warranted in a different procurement with a separate agency. So, while a waiver is certainly an option, there is no guarantee that one will be granted, or that there will be sufficient time to obtain one.
Moreover, notwithstanding publication of the Interim Rule and the current effective date of August 13, 2020, there remains at least a possibility that the compliance date may be extended. Amendments have been proposed to the 2021 NDAA, which would delay the implementation deadline of Section 889 Part B to August 13, 2021 (and materially limit what constitutes a prohibited “use”) (see Senate Amendment 2193), or extend the implementation date even further, to January 1, 2022 (see the House Rules Committee Amendment 445). However, while contactors may eventually obtain some relief if Congress acts to extend the date of compliance, any such amendment, if passed, may not be enacted before the August 13, 2020 compliance date for Section 889 Part B.
Accordingly, government contractors should begin (if they have not already) scrubbing their enterprise to identify all “covered” equipment. Meanwhile, a compliance plan should be put into place in anticipation of seeking a waiver of compliance which would allow contractors to enter into new contracts or orders, and extend existing contracts, after August 13, 2020, even in the absence of full compliance. Finally, government contractors are reminded to take care to ensure that any representations they make to the Government regarding their compliance with Section 889 Part B (including under FAR 52.204-24) are accurate. Failure to submit an accurate representation constitutes a breach of contract that can lead to cancellation, termination, and financial consequences, as well as False Claims Act liability.
Follow our Government Contracts blog for periodic updates on this evolving topic. In the interim, we note that GSA’s Office of Small Business Utilization is hosting a webinar on Section 889 on July 30, 2020 at 2:00 p.m. ET, which might provide additional information, and GSA is hosting a live and recorded virtual webinar on August 12, 2020 1:00 p.m. ET. Questions can be submitted in advance by COB Eastern on August 5, 2020 to firstname.lastname@example.org. See https://www.acquisition.gov/gsa-deviation/supply-chain-aug13 for more information and registration instructions.