On September 30, 2022, the US Department of Defense’s (“DoD”) two-year waiver expired with respect to contracting prohibitions set forth in Section 889(a)(1)(B) of the Fiscal Year 2019 National Defense Authorization Act.
Since FY 2019, agencies have been precluded by statute from contracting with companies that use certain telecommunications equipment or services from companies—Huawei Technologies being the most frequently discussed example1—that Congress determined presented substantial security risks to the United States and its manufacturing base. Government agencies were allowed to grant waivers from these restrictions for two years, but that potential grace period has ended. On the other hand, the Director of National Intelligence (DNI) has waiver authority that is not tied to an expiration period. All contractors doing business with the government must be in compliance with these substantial restrictions.
Section 889(a)(1)(B) prohibits federal agencies from “enter[ing] into a contract (or extend[ing] or renew[ing] 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” (emphasis added).
On September 29, 2020, the DNI issued a waiver at the request of the Under Secretary of Defense for Acquisition and Sustainment and upon finding that the waiver was in the national security interests of the United States. The DNI based his decision on the information provided by the DoD. The waiver allowed “the DoD to continue to execute procurement actions for specified Product Service Codes (PSC) [that were] deemed to be low risk [and also were] necessary to execute the DoD mission,” including for food, clothing, and transportation.
Section 889(d) granted waiver authority to the heads of federal agencies on a one-time, per-request basis, but that authority expired on August 13, 2022. As a result, going forward, unless the DoD requests and the DNI grants an additional waiver, the DoD must comply with the Section 889(a)(1)(B) prohibition and may no longer procure goods and services from DoD contractors that use covered telecommunications equipment or services. For example, if Contractor X has an office in Thailand using Huawei equipment, federal agencies cannot enter into a contract with Contractor X regardless of whether Contractor X is otherwise in compliance.
Contractors are reminded that they are required to make representations, after conducting a reasonable inquiry, that they do or do not use covered telecommunications equipment or services. These representations are included in solicitations and contracts as parts of FAR Clauses 52.204-24 and 52.204-26.
Importantly, under FAR 52.204-25(d), contractors must accurately report if they subsequently discover use of covered telecommunications equipment or services during contract performance. Specifically, the clause obligates a contractor—within one business day of discovery—to report this information. That FAR Clause makes clear that “[i]n the event the Contractor identifies telecommunications equipment or services used as a substantial or essential component of any system, or as critical technology as part of any system, during contractor performance, or the Contractor is notified of such by a subcontractor at any tier or by any other source,” disclosure must be made within one day. Therefore, contractors remain obligated during contract performance to assess whether they are using the covered equipment or services and make the required report.
The 2020 interim rule2 implementing Part B of Section 889(a)(1) through the FAR clauses warns that failure to submit an accurate representation “constitutes a breach of contract that can lead to cancellation, termination, and financial consequences.” Other risks include potential assertion of false claims for failure to submit an accurate representation. As the interim rule says, contractors should “develop a compliance plan and process that will allow them to determine compliance and submit accurate representations to the Government in the course of their offers.”
1 In addition to Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, and Dahua Technology Company (and all of these companies’ affiliates and subsidiaries) were affected by this restriction.
2 The Federal Acquisition Regulatory Council’s final rule implementing Part B of Section 889(a)(1) is expected by November 2022. See https://www.regulations.gov/docket/FAR-2019-0009/unified-agenda.