Regulation implementing NDAA procurement ban announced

On Tuesday, Aug. 13, the Federal Acquisition Regulation (FAR) rule implementing the first subsection of the procurement prohibition on certain Chinese telecommunications and video surveillance equipment was announced.

Notably, the rule covers only the provision of the fiscal year 2019 National Defense Authorization Act (NDAA) Section 889 set to go into effect one year following enactment — subsection (a)(1)(A) relating to direct government procurement of covered equipment and services. The remaining provisions of Section 889 (including applicability to the use of federal grant funds) are scheduled to go into effect in August 2020.

While the Security Industry Association (SIA) is working to provide members with a preliminary analysis of the rule as quickly as possible, these rules and contract clauses added to the FAR should be carefully reviewed by suppliers of video surveillance equipment to the government.

The rule prohibits federal agencies from buying “covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system” from designated Chinese entities, including:

• Telecommunications equipment produced by Huawei or ZTE and their affiliates;
• Video surveillance and telecommunications equipment produced by Hytera Communications Corporation (Hytera), Hangzhou Hikvision Digital Technology Company (Hikvision), Zhejiang Dahua Technology Co., Ltd. (Dahua) or their affiliates for the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure and other national security purposes;
• Telecommunications or video surveillance services provided by any of these entities or using any such equipment; and
• Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the Chinese government.

In a comprehensive analysis of the interim rule, Morrison & Foerster said, “DoD, GSA and NASA are working to update the online System for Award Management (SAM) to allow contractors to represent annually whether they sell covered equipment or services. Only contractors that provide an affirmative representation in SAM will be required to provide offer-by-offer disclosures in their proposals for contracts or task orders. This option is not available yet, so contractors should expect to see the representation incorporated into solicitations starting August 13.

“The second clause — FAR 52.204-25 — incorporates Section 889's prohibitions and definitions into the contract and also imposes a significant reporting requirement on the contractor. The reporting requirement obligates the contractor to report through DIBNet if it identifies any activity prohibited by the rule during contract performance. Contractors must do so within one business day of identifying the activity, and then follow up within 10 business days with any additional information about mitigation actions undertaken or recommended.”

Morrison & Foerster also pointed out that by October 14, 2019, the Secretary of Commerce “must issue new restrictions implementing the May Executive Order declaring a national emergency over the influx of telecommunications technology developed by 'foreign adversaries' and entities controlled by them. Implementing regulations will identify covered entities and transactions, almost certainly targeting entities like Huawei and ZTE,” Morrison & Foerster analysts opined.

Stay tuned for more on this topic.