Reed Smith Client Alerts

Effective August 13, 2020, United States federal agencies will no longer be able to contract with companies that use certain Chinese-made telecommunications products or services. On July 14, 2020 the Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) published an interim rule amending the Federal Acquisition Regulation (FAR) in order to implement section 889(a)(1)(B) of the 2019 National Defense Authorization Act (NDAA). The interim rule is effective August 13, 2020 and applies to all solicitations issued after (or resulting in contracts that will be awarded after) the effective date. Specifically, section 889(a)(1)(B) will require an offeror to represent, after conducting a reasonable inquiry, whether covered telecommunications equipment or services are used by the offeror. The prohibition applies whether or not such equipment or services are actually used in performance of the federal contract.

Authors: Leigh T. Hansson Karim Al-Hassan

On July 23, 2020, the Office of the Under Secretary of Defense for Acquisition and Sustainment issued a memorandum designed to assist military departments with implementation of the interim rule. This memorandum restricts contracting officers from awarding contracts, issuing task or delivery orders, and exercising an option period or extending a period of performance with any contractor 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, unless an exception applies or a waiver is granted. This memorandum provides critical guidance for contracting officers within the DoD and to members of the Defense Industrial Base who do business with the DoD.

New restrictions

Section 889(a)(1)(B) forbids executive agencies from working with contractors that use “covered telecommunications equipment or services,” even if that use is unrelated to the contractor’s federal business. The term “covered telecommunications equipment and services” includes all telecommunications equipment or services manufactured by specific Chinese companies or their subsidiaries or affiliates. The restrictions are extremely broad, and do not exclude internal company uses unrelated to federal contracting. The interim rule covers telecommunications and video surveillance equipment and services produced or provided by a number of Chinese-owned companies and any subsidiary or affiliate of those companies. (The companies are listed by name in the interim rule.) The statute’s use requirement is not limited to end products produced by these companies; it covers the use of 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. 

The interim rule will require contractors to submit an additional representation with each offer, stating whether, after a “reasonable inquiry,” the offeror uses covered telecommunications equipment or services. The interim rule defines a reasonable inquiry as one “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.” Notably, a reasonable inquiry need not include an internal or third-party audit. To mitigate the administrative burden on offerors, the System for Award Management (SAM.GOV) will be updated to allow for these representations to be made annually. 

Scope and flow down

For now, these restrictions will only apply at the prime contractor level, with no required flow down to the subcontractor level, but that may change in the future. The FAR Council is considering, as part of finalizing the rule, expanding the scope to require that these restrictions, which are set forth within FAR 52.204-24(b)(2), to apply to an offeror and any affiliates, parents, and subsidiaries of the offeror that are domestic concerns. The associated representations set forth within FAR 52.204-24(d)(2) would be expanded so that the offeror would represent on behalf of itself and any affiliates, parents, and subsidiaries that are domestic concerns, whether they use covered telecommunications equipment or services. 

The FAR Council is requesting specific feedback regarding the impact of this potential change, as well as other pertinent policy questions of interest, in order to inform finalization of this and potential future subsequent rulemakings.