Type: Law Bulletins
Date: 12/28/2020

Impact of Section 889's Telecommunications and Video Surveillance Equipment Prohibitions on Federal Grant and Loan Recipients

Much has been written this year about Section 889 of the Fiscal Year (FY) 2019 National Defense Authorization Act (NDAA) (Pub. L. 115-232), commonly referred to as the Huawei ban or anti-Huawei rule. As we have previously written, this rule prohibits the federal government from procuring, and federal contractors from using, “covered telecommunications equipment and services” offered by various Chinese companies, including Huawei Technologies, ZTE Corporation, Hytera Communications, Hangzhou Hikvision Digital Technology, or Dahua Technology Company.

While most of the commentary on Section 889 has focused on federal procurement, similar prohibitions apply to federal grants, loans, cooperative agreements, and other assistance instruments, which are governed by 2 CFR § 200 — commonly referred to as the Uniform Guidance. In January 2020, the Office of Management and Budget (OMB) identified the need to align the Uniform Guidance with the prohibitions contained in Section 889 of the FY19 NDAA. This culminated in OMB issuing final guidance on Aug. 13, 2020 to revise certain provisions of the Uniform Guidance and to add a new provision, 2 CFR § 200.216(a), which states:

Recipients and subrecipients are prohibited from obligating or expending loan or grant funds to:

  1. Procure or obtain;
  2. Extend or renew a contract to procure or obtain; or
  3. Enter into a contract — or extend or renew a contract — to procure or obtain equipment, services, or systems that use covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.

This provision differs from the Section 889 prohibitions imposed on federal contractors in that it does not ban federal grant or loan recipients from “using” covered telecommunications equipment or services. It simply prevents them from procuring such equipment or services with federal grant or loan funds.

To address questions it received in the wake of the Aug. 13, 2020 final guidance, OMB recently published a Frequently Asked Questions (FAQ) document. Highlights of the answers provided by OMB include:

  • The prohibition applies to existing federal awards as of Aug. 13, 2020.
  • Unlike in certain federal procurements, the 2 CFR § 200.216(a) prohibitions cannot be waived.
  • Federal grant and loan recipients are not prohibited from procuring supplies and services from suppliers who “use” the covered telecommunication services or equipment identified in Section 889. They are merely prohibited from procuring such items with federal grant or loan funds.
  • The costs associated with procuring covered telecommunications equipment and services are unallowable under 2 CFR Part 200, Subpart E (Cost Principles).

Based on these changes to the Uniform Guidance, federal grant and loan recipients should immediately implement procedures to ensure they do not procure covered telecommunications equipment and services with federal grant or loan funds. Recipients should also carefully review their cost accounting system to exclude any unallowable costs associated with prohibited equipment and services from their indirect cost pool.

For more information regarding Section 889 as it relates to federal grants and loans, please contact a member of Taft’s Government Contracts team.

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