Background
The John S. McCain Fiscal Year 2019 National Defense Authorization Act (NDAA) (H.R. 5515) (the 2019 NDAA) was signed into law on August 13, 2018. Although the 2019 NDAA, section 889 (Prohibition on Certain Telecommunications and Video Surveillance Services or Equipment) set forth a number of prohibitions, this alert is focused specifically on section 889 (a)(1)(A), which prohibits federal agencies from procuring, obtaining, extending, or renewing a contract to procure or obtain equipment, systems, or services that use covered telecommunications equipment or services as substantial or essential components of any system, or as critical technology as part of any system. The 2019 NDAA defined covered telecommunications equipment or services to include those produced by Huawei Technologies Company, ZTE Corporation, or any affiliates or subsidiaries of these companies. The 2019 NDAA further included - for purposes 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) as covered telecommunications equipment or services. Finally, the 2019 NDAA's definition of covered telecommunications equipment or services broadly prohibits the U.S. Government's acquisition of any products or services from corporations owned or controlled by the PRC. The 2019 NDAA required the prohibition to take effect exactly one year after enactment.
The interim rule
Accordingly, on August 13, 2019, the Federal Acquisition Regulations (FAR) Council, comprised of representatives from the Department of Defense (DoD), the GSA, and the National Aeronautics and Space Administration (NASA), issued an interim rule to implement section 889(a)(1)(A). This interim rule (which was effective the day it was issued) resulted in a revision of the FAR through the addition of FAR subpart 4.21 (Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment), which requires contracting officers to include FAR 52.204-24 (Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment) and FAR 52.204-25 (Prohibition on Contracting for Certain Telecommunications and Video Contracting for Certain Telecommunications and Video Surveillance Services or Equipment) in all solicitations and contracts issued on or after August 13, 2019. Additionally, prior to placing any future orders, indefinite delivery/indefinite quantity (IDIQ) contracts must be modified to include these FAR clauses; orders placed under IDIQ contracts must also include these clauses. FAR 52.204-24 requires offerors to represent whether they will provide covered telecommunications equipment or services, as defined in the clause, to the U.S. government. FAR 52.204-25 prohibits the contractors from selling certain types of covered telecommunications and video surveillance services or equipment to the U.S. government and requires the contractors to (1) include the text of FAR 52.204-25 in all subcontracts for the acquisition of commercial items and (2) report if they have identified where covered telecommunications equipment or services have been used as substantial or essential components of any system.
GSA mass modification
On August 13, the GSA issued a memorandum regarding a GSA-approved class deviation to FAR 4.2105's requirement with respect to certain lower risk procurements. Under the class deviation, applicable to only identified "medium-" and "low-risk" procurements (where telecommunications equipment or services are unlikely to be acquired), FAR 52.204-24 would only be required at the contract level, and not at each individual order level. The GSA memorandum discussed the proposed implementation timeline for these changes regarding GSA solicitations, awards, and contracts.
On September 9, 2019, GSA, through its Interact website, notified GSA MAS contractors of its intent to issue a mass modification in September 2019 to all GSA MAS contractors. This mass modification, when issued, will bilaterally modify MAS contractors' existing contracts to add FAR 52.204-24, General Services Administration Regulation (GSAR) clause 552.204-70 (GSA's version of the FAR 52.204-24 representation clause), and FAR 52.204-25. Once the mass modification is issued, MAS contractors will have 60 days to accept the modification and provide the required FAR and GSAR representation. The GSA notice advised contractors that the GSA may cancel contracts for contractors who do not accept the modification and provide the required representation. GSA's new consolidated solicitation issued on October 1, 2019, in compliance with law and regulation, also contained the new representation and prohibition clauses.
Contractor impact and action
These new mandatory representation requirements and procurement restrictions will result in compliance risks for contractors, both at the prime and subcontractor level. Contractors will have to be diligent to ensure that these prohibited telecommunication products and services are not being sold or offered for sale to the U.S. government. Contractor failures could lead to False Claims Act claims, investigations, and litigation. Contractors should modify existing subcontracts to include the text of FAR 52.204-24, GSAR 552.204-70, and FAR 52.204-25 in all subcontracts for IT and telecommunications products and services. Contractors should review their supply chain, contract administration, and subcontracting practices to confirm that they are in compliance with requirements contained in both the representation and prohibition clauses discussed in this client alert, and ensure that they have adequate business systems in place to track compliance with these clauses and report instances of noncompliance when such instances arise. Moreover, contractors should thoroughly review their GSA contracts and immediately submit modifications to remove any products or services that violate the prohibitions contained in these FAR and GSAR clauses.
Client Alert 2019-246
