Type: Law Bulletins
Date: 07/22/2020

Updated Rule Bans Federal Contractor Use of Huawei and Other Chinese Telecommunication Technology

The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published an interim rule on July 14, 2020 amending the Federal Acquisition Regulation (FAR) to implement Section 889(a)(1)(B) of the National Defense Authorization Act (NDAA) for fiscal year 2019, which is designed to address national security threats posed by telecommunications and surveillance technology. Starting Aug. 13, 2020, these executive agencies will be prohibited from entering into a contract, 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.” Covered telecommunications equipment includes equipment, systems, or services produced or provided by Huawei, ZTE, their affiliates, and other Chinese surveillance and telecommunications firms. This prohibition applies regardless of whether the covered equipment or services are used in performance of work under a federal contract, a commercial contract, or general business operations.

The interim rule requires contracting officers to begin including a revised version of FAR 52.204-24 in new solicitations when contract award is anticipated on or after the Aug. 13 effective date. It applies broadly to all FAR-based contracts, including those at or below the simplified acquisition threshold ($250,000), and those for commercial items, including Commercially Available Off-the-Shelf (COTS) items. It applies not only to solicitations for new contracts and new delivery or task orders under existing Indefinite Delivery Indefinite Quantity contracts, but also to option exercises and contract extensions that would carry performance past the Aug. 13 effective date.

The rule also adds a new representation in the System for Award Management (SAM.beta.gov) which pertains to whether a contractor uses or has covered telecommunications equipment or services, and a new requirement for offerors to represent, in each offer, whether they use covered telecommunications equipment or services in any aspect of their business. Contractors should make these representations only after conducting a “reasonable inquiry” into the matter.” The rule describes a reasonable inquiry as an inquiry “designed to uncover any information in the entity’s possession… about the identity of the producer or provider of covered telecommunications equipment or services used by the entity.” As a result, contractors, at all tiers, should establish and implement a well-documented process for identifying whether and to what extent they have or use covered equipment or services. There is also a mandate for contractors to report any covered equipment or services discovered during the course of contract performance.

Lastly, the interim rule creates an expectation that contractors develop “a robust, risk-based compliance approach.” Fortunately, to aid contractors the rule outlines what it would expect in a six-step compliance plan. These steps include: (1) regulatory familiarization, (2) corporate enterprise tracking, (3) education, (4) cost of removal, (5) representation, and (6) cost to develop a phase-out plan and submit waiver information, if requested.

Government contractors should pay close attention to the requirements of this rule as non-compliance could be ruinous. Not only would failure to comply with the rule be grounds for breach of contract and potential suspension or debarment, a false representation could lead to a False Claims Act violation.

For more information about the rule and establishing a robust compliance program, contact a member of Taft’s Government Contracts team.

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