The FAR Council’s Second Interim Rule Implementing NDAA Section 889(a)(1)(B): And The Hits Keep Coming!

McCarter & English Blog: Government Contracts & Export Controls

Like the hits produced by DJ Khaled, the FAR Council offers “another one.” Federal contractors have been—or should have been (you have been working toward compliance, haven’t you?)—spending the closing days of summer ensuring compliance with the July 14, 2020 Interim Rule implementing Section 889(a)(1)(B) (“Section B”) of the National Defense Authorization Act for fiscal year 2019. Section B prohibits the government from entering into a contract with an entity 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, and requires, among other affirmative obligations, for contractors to represent—after conducting a “reasonable inquiry”—that they do/do not use covered telecommunications equipment or services in their respective business operations. In light of the Interim Rule’s broad scope and mandatory accounting of a contractor’s operations, Section B’s compliance mandate presents another significant regulatory burden for contractors to shoulder. But contractors should fear not, because the FAR Council has heard their plaintive wails and responded on August 27, 2020, with a Second Interim Rule implementing new requirements for Section B compliance.

In an effort to “reduce[ ] the information collection burden imposed on the public,” the Second Interim Rule, effective October 26, 2020, is set to update the System for Award Management (“SAM”) to permit each registrant to represent annually—rather than on an offer-by-offer basis—whether it uses covered telecommunications equipment or services or any equipment, system, or service that uses covered telecommunications equipment or services. Although not a panacea for the reporting and compliance burdens created by the initial implementation of Section B, eliminating the redundancy of contractors making the Section B representations and certifications on an offer-by-offer basis is a step in the right direction. What are the Second Interim Rule’s specifics, and what does the Rule mean for contractors? Find out below.

What’s Going On—What Does the Second Interim Rule Entail? Specifically, the Second Interim Rule updates SAM to add an annual representation in new paragraph (c)(2) of FAR 52.204-26 and paragraph (v)(2)(ii) of FAR 52.212-3. This new paragraph now requires an offeror to represent, after conducting a reasonable inquiry, whether it “does” or “does not” use covered telecommunications equipment or services or any equipment, system, or service that uses covered telecommunications equipment or services:

  • If an offeror represents it “does not” use covered telecommunications equipment or services, this annual representation is sufficient, and the offer-by-offer representation at FAR 52.204-24(d)(2) (e., that the contractor, after a reasonable inquiry, represents it does/does not use covered telecommunications equipment or services) is not required.
  • On the other hand, if the offeror represents it “does” use covered telecommunications or services, or has not made any representation in response to FAR 52.204-26(c)(2) or 52.212-3(v)(2)(ii), then the offer-by-offer representation at FAR 52.204-24(d)(2) is required.

The new language in FAR 52.204-26(c)(2) tracks the current representation under FAR 52.204-24(d)(2). In effect, the Second Interim Rule limits the FAR 52.204-24(d)(2) representation requirement to offerors that use covered telecommunication equipment or services or use any equipment, system, or service that uses covered telecommunications equipment or services, as offerors representing such use must still provide “additional disclosure information” under 52.204-24(e)(2). But a contractor that represents it “does not” use covered telecommunications equipment or services under FAR 52.204-26(c)(2) will no longer have to or be able to make the representation under FAR 52.204-24(d)(2). What’s not clear, however, is whether the representations required under FAR 52.204-26 will remain in solicitations after October 26, 2020, or whether they will need to be made solely through SAM.

Call Me—Is a “Reasonable Inquiry” Required Before Making the New Annual Representation? Yes. In accordance with the Second Interim Rule, offerors must consult SAM to validate whether the equipment or services in use are from an entity providing covered telecommunications equipment or services. In addition, “offerors will conduct a reasonable inquiry as to whether they use covered telecommunications equipment or services or any equipment, system, or service that uses covered telecommunications equipment or services.” Although clear guidance on what measures fulfill the “reasonable inquiry” standard remain notably absent, the breadth and depth of this inquiry will vary among entities. Larger entities with an international presence will require a more searching inquiry throughout their IT and facility security offices, while smaller contractors should adopt a risk-based approach.

Ch-ch-ch-ch-changes—Should Contractors Expect More Revisions to the Section B Implementation? Yes. Because implementation of the broad prohibition is an iterative process, the Second Interim Rule is not the only interim revision expected before the final rule. Among other possible revisions, the most noteworthy is the potential expansion of the Section B prohibition to affiliates, parents, and subsidiaries of offerors. But if it’s any solace to contractors, the FAR Council appears to be listening to industry feedback on implementation of Section B. Comments on the Interim Rule are due on or before September 14, 2020, and comments on the Second Interim Rule are due on or before October 26, 2020.

I Won’t Back Down – SomeBut Not CompleteRelief At bottom, the Second Interim Rule provides some administrative relief for contractors, but the tune remains the same when it comes to the burdensome process of validating compliance with Section B. And it does not answer any of the notable informational deficiencies in the July 2020 Interim Rule (i.e., defining “use” of covered telecom equipment and services and what meets the reasonable inquiry standard). One hopes these issues will be addressed in future revisions. In the meantime, however, federal contractors must still meet the obligation to conduct a reasonable inquiry into whether covered telecommunications equipment or services are being used in their lines of business. Accordingly, to execute the required representations and certifications in good faith, all federal contractors should be working diligently with their internal resources to determine whether covered telecommunications equipment or services and prohibited surveillance cameras are being used by their respective organizations.

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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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