DoD And GSA Release Guidance On Implementation Of Section 889 Part B

McCarter & English Blog: Government Contracts & Export Controls

As covered recently in this blog, the Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration released on July 14, 2020, an Interim Rule covering prohibitions on contracting with entities that use “covered telecommunications equipment” under Section 889(a)(1)(B) (“Section B”) of the National Defense Authorization Act for Fiscal Year 2019 (“NDAA for FY19”). Effective August 13, 2020, Section B prohibits federal contractors from “entering into, 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.” In addition, “covered telecommunications equipment or services” includes telecommunications or video surveillance equipment and services produced by (1) Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company, or any subsidiary or affiliate thereof, or (2) an entity “owned or controlled by, or otherwise connected to, the government of [The People’s Republic of China].”

The broad prohibitions of Section B go far beyond the immediate contract between the contractor and the Government, and require, inter alia, a contractor—even one that does not specifically provide telecommunications equipment or services or use such equipment or services for Federal contracts—to make a “reasonable inquiry” into the use of covered telecommunications equipment or services in its supply chain and disclose the presence (or lack thereof) of such covered telecommunications equipment or services through a representation to the contracting officer. The onerous internal compliance required to make the representation, coupled with the lack of key guidance in the Interim Rule, has left contractors scrambling blindly to meet the August 13, 2020 deadline for Section B compliance.

In light of these new requirements, both the DoD and the GSA have issued pertinent guidance over the past two weeks. Highlights of the published guidance, along with the key takeaways for contractors, follow below.

The DoD Memorandum

Issued on July 23, 2020, the DoD’s Memorandum is designed to facilitate implementation of the Section B Interim Rule. At the outset, the Memorandum makes clear that Section B is exceedingly broad in scope: its representations and prohibitions apply to contract vehicles for commercial items (including COTS items), purchases below the simplified acquisition threshold, task/delivery orders, and Basic Ordering Agreements and Blanket Purchase Agreements. Key guidance in the Memorandum focuses on:

  • Guidance for DoD Contracting Officers – The Memorandum also provides contract administration guidance for the award, extension, or renewal of acquisitions on or after August 13, 2020. Specifically, the guidance notes that contractors must, after conducting a reasonable inquiry, provide a representation regarding the use of covered telecommunications equipment or services when submitting an offer, and directs contracting officers to not award contracts, issue task/delivery orders, or perform other contracting actions after August 13, 2020 (g., exercising option periods, extending the 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. Further, solicitations (1) issued after August 13, 2020, or (2) issued prior to August 13, 2020, but awarded on or after August 13, 2020, will now 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 Surveillance Services or Equipment.
  • No Guaranteed Notice of Modifications to Existing Agreements – Contracting officers are instructed to modify existing agreements to include FAR 52.204-24 if “executing a modification to extend the period of performance, including exercising an option,” on or after August 13, 2020. However, the Memorandum states that before modifying existing agreements to comply with Section B, contracting officers “should” permit a sufficient amount of time “to both provide notice for exercising the option and to provide contractors with adequate time to comply with the clause and provide the representation [under FAR 52.204-24].” Thus, there are apparently no guarantees that contractors will have adequate notice prior to the incorporation of FAR 52.204-24 into existing agreements or sufficient time to make a reasonable inquiry once the clause has been incorporated. As a result of this unclear guidance, the best course of action remains for contractors to complete their reasonable inquiry by the August 13 deadline. However, in the interim, contractors should not hesitate to open a dialogue with their cognizant contracting officers to get a better idea of when an existing agreement will be modified.
  • Contractor Representation Under FAR 52.204-24 – A contracting officer may rely on a contractor representation that it “does not” use covered telecommunications equipment or services, unless the contracting officer has reason to question the representation’s accuracy. In the event the contracting officer has an independent basis to question a contractor’s representation, the contracting officer must consult with the program office and legal counsel on how to proceed. Contractors must ensure that any representations made to the Government under this clause are accurate and based on a diligent review of their internal processes and supply chains, as the potential fallout from an inaccurate representation is severe (g., False Claims Act allegations, contract termination). If a contractor represents that it does use covered telecommunications equipment or services, it must provide, in accordance with FAR 52.204-24(d)(2), a “detailed disclosure” of information relating to the use. Contractors required to provide such information should take great care in ensuring its accuracy and completeness, as the Memorandum notes that the disclosure will be considered by the contracting officer and program office when determining whether to pursue a waiver.
  • Discovery of Covered Telecommunications Equipment or Services During Contract Performance – In the event a contractor discovers the presence of covered telecommunications equipment or services in its supply chain during performance of a DoD contract, it must report certain information through a DoD website within the time periods prescribed in FAR 52.204-25(d). Once the information is reported, the DoD Cyber Crime Center will notify the contracting officer of the disclosure.
  • Applying For and Processing Waivers – Section 889(d) permits two types of waivers from compliance with Section B obligations. The first type of waiver is granted by the Director of National Intelligence when deemed to be “in the national security interests of the United States.” The second type of waiver permits the head of an executive agency to issue, on a case-by-case basis, a one-time waiver. The Memorandum counsels that when deciding “whether or not to initiate the formal waiver process,” executive agencies should base such decisions on “market research and feedback from Government contractors during the acquisition process, in concert with other internal factors.” Further, the Memorandum makes clear that in most cases, a waiver determination “may not be possible” until offers are received, and representations regarding the use of covered telecommunications equipment or services have been analyzed. The Memorandum notes that in order to potentially expedite this process, offerors may submit information in support of a waiver with an offer “in advance of a contracting officer decision to initiate the formal waiver request.” For contractors seeking a waiver, the takeaway is clear: submit information supporting a waiver request as early as possible.

GSA Multiple Award Schedule Mass Modification

On July 31, 2020, the GSA’s website provided notice that on August 13, 2020, the Federal Acquisition Service will refresh the GSA Multiple Award Schedule (MAS) solicitation to include, among other changes, implementation of Section 889 Part B of the NDAA for FY 2019 through a bilateral modification incorporating FAR 52.204-25 in all existing MAS contracts.

GSA’s notice includes two documents—“Draft Significant Changes” and “FAQs: Section 889 Part B of the FY19 National Defense Authorization Act”—each of which provides general information on the agency’s implementation of Section B. Specifically, information on the timing of the upcoming modification is noteworthy. Critically, MAS contractors will have 90 days to accept the August 13, 2020, modification. In the interim, orders may not be placed under the contract until the contract is modified to incorporate FAR clause 52.204-25. In addition, the GSA may initiate a “contract ending action” for those MAS contractors that fail to accept the modification by the deadline. As such, the clock is ticking for MAS contractors to conduct the reasonable inquiry into whether they provide or use covered telecommunications equipment or services before the deadline of August 13, 2020.

The guidance provided by the DoD and the GSA isn’t a panacea for contractors rushing to meet the upcoming deadline for the Interim Rule. However, the documents do provide helpful information regarding each agency’s timing and execution of the Section B requirements that elucidate the Government’s interpretation of the Interim Rule. With just a few days to go before the August 13 compliance deadline, contractors should place Section B compliance toward the top of the proverbial “to do” list and should ensure that all necessary policies and procedures are in the final development and implementation phase.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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