As most government contractors are now aware, Section 889 of the 2019 National Defense Authorization Act (“NDAA”) has been implemented for federal procurement contracts. This post is intended to offer a recap of its key provisions and some practical considerations relevant to implementation.
The text of Section 889, available here, calls for essentially three limitations to be imposed by federal agencies:
- 889(a)(1)(A) directs that agencies may not “procure or obtain . . . any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system.” This limitation was implemented by an amendment to the Federal Acquisition Regulation (“FAR”) published on August 13, 2019.
- 889(a)(1)(B) directs that agencies may not “enter into a contract (or extend or renew a contract) with an entity that uses any equipment, system, or services that uses covered telecommunications equipment or services as a substantial or essential component of any system.” This limitation was implemented by an amendment to the FAR in July 2019, with an effective date of August 13, 2020.
- 889(b) directs that agencies “may not obligate or expend loan or grant funds to procure or obtain [or] extend or renew a contract to procure or obtain . . . the telecommunications equipment, services, or systems described in [889(a)(1)(A)]. In January 2020, a proposed rule was issued by the Office of Management and Budget (“OMB”) to implement this section within the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”), but a final formulation has not yet been issued.
“Covered telecommunications equipment or services” falls into four categories:
- Telecommunications equipment produced by Huawei Technologies Company, ZTE Corporation, or any subsidiary or affiliate of either.
- When to be used for public safety, government facility security, security of critical infrastructure, or other national security purposes, “video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, . . . Dahua Technology Company” or any subsidiary or affiliate of the aforementioned.
- Telecommunications or video surveillance services provided by any of the aforementioned entities.
- “Telecommunications or video surveillance equipment produced or provided by an entity” the Secretary of Defense “reasonably believes” to be an entity connected to the government of the People’s Republic of China.
The FAR Council implemented 889(a)(1)(A) on August 13, 2019, through:
- a representation to be submitted with all federal procurement contract proposals that no equipment, system or services that uses covered telecommunications technology or services as a substantial component will be furnished to the government, and
- a clause in the resulting contract that prohibits the same and requires prompt reporting if the presence of covered telecommunications equipment or services are subsequently identified.
The FAR Council implemented 889(a)(1)(B) through further FAR updates effective August 13, 2020, which amended the representation and clause described above to also prohibit agencies from entering into contracts, or extending contracts, with any entity that uses “any equipment, system, or service that uses covered telecommunication equipment or services as a substantial component . . . of any system,” regardless of whether such use is directly in furtherance of the government contract.
While this limitation contained in 889(a)(1)(B) does not have to be “flowed down” to subcontractors, the breadth of its application may impact the prime contractor’s relationships with its subcontractors or suppliers. As explained in the recent federal register notice, if covered telecommunications equipment or services are present in subcontractor or supplier systems in such a way that the prime contractor is “using” such equipment or services, the prime contractor may well run afoul of the 889(a)(1)(B) prohibition.
The FAR Council seems to recognize that the extent to which such equipment or services may be present within an entity’s supply chain will be difficult to determine, stating in the notice promulgating the rule:
“Data on the extent of the presence of the covered telecommunications equipment and services in the global supply chain is extremely limited, as is information as to the costs of removing and replacing covered equipment or services where it does exist.”
Notwithstanding this acknowledgment, the FAR representation calls for the offeror to affirm that it has conducted a “reasonable inquiry” into whether it uses such equipment or systems prior to furnishing the representation.
The provision also suggests that offerors should search excluded parties within SAM.gov “for entities excluded from receiving federal awards for ‘covered telecommunications equipment or services.’” Yet, the SAM’s exclusion list is presently ill-equipped as a tool for this purpose. First, SAM is designed to search by entity name and the dilemma faced by offerors is not knowing exactly what systems and services may be problematic. Second, the data available through SAM appears to presently include only five entities that are listed in direct relation to this prohibition. By comparison, the Commerce Department has identified over 100 affiliates or subsidiaries of Huawei, adding them to the Export Administration Regulation “Entity List” in May and August of 2019.
The coming year will present challenges as contractors, and industry in general, develop techniques and tools to identify prohibited equipment and systems.
Federal grant recipients are soon to face similar restrictions. When OMB issues a final rule for grantees, we will be sure to provide an additional alert.
For any questions you may have on these requirements or other federal contract matters, please contact Scott S. Sheffler at email@example.com, or Joseph P. Loman at firstname.lastname@example.org.
 It further restricts procurement of covered telecommunications technology as part of “critical technology,” though such limitation seems largely, if not entirely, subsumed by the prohibition of its use as a substantial component of any system.
 The authors predict that we will see a final rule that is similar in scope to the regulatory implementation of 889(a)(1)(B) promulgated in July 2020. We will promptly issue a client alert when the final rule is issued.
 This limitation has been extended to acquisitions of commercial items and commercially available off-the-shelf (“COTS”) items as well as contracts at or below the Simplified Acquisition Threshold (“SAT”).
 FAR 52.204-24.
 FAR 52.204-25. The clause also provided for certain narrow exceptions and waivers not addressed in this client alert.
 85 Fed. Reg. 42665, 42666 (Jul. 14, 2020). Note that as currently promulgated, it also does not apply directly to affiliates, parents, or subsidiaries of an offeror, though expansion to such entities is under consideration for implementation in August 2021. Id.
 Id. at 42671.
 FAR 52.204-24(d)(2).
 Id. 52.204-24(c).
 See Exclusion File 222, available at: https://www.sam.gov/SAM/pages/public/extracts/samPublicAccessData.jsf (containing five entries referencing “FAR (48 CFR) subpart 4.21”) (last visited Aug. 8, 2020).