Justin A. Chiarodo and Robyn N. Burrows
A very Happy New Year to our GovCon Navigator readers! Further expanding recent supply chain restrictions across federal procurement, the Department of Defense (“DoD”) issued an interim rule prohibiting DoD from procuring equipment or services from certain Chinese entities (and possibly Russian) if used to carry out DoD nuclear deterrence or homeland defense missions. The rule builds on the Section 889 supply chain restrictions we previously covered in a prior blog post.
What should contractors do now given the interim rule is already in effect? Contractors should first evaluate their existing contract portfolios for covered missions and take immediate steps to eliminate all covered products from their supply chain (and find alternate sources of supply). If the rule might impact contract performance, you should be prepared to address this with the appropriate counterparty. And given the requirement for compliance certifications that mirror Section 889, contractors should also harmonize monitoring and compliance with their existing supply chain compliance programs. Among other things, this should address the requirement to obtain compliance certifications from downstream subcontractors and suppliers.
Read on for the specifics.
Section 1656 Prohibition
Under the new rule (implementing Section 1656 of the FY 2018 NDAA), DoD cannot procure any equipment, system, or service to carry out covered missions that uses covered defense telecommunications equipment or services as a substantial or essential component of any system, or as a critical technology as part of any system. “Covered missions” are defined as nuclear deterrence and homeland defense missions, including ballistic missile defense. “Covered” items include telecommunications equipment and services from Huawei Technologies Company and ZTE Corporation (plus affiliates and subsidiaries) and any other entities the Secretary of Defense reasonably believes to be related to the People’s Republic of China or the Russian Federation.
Differences from the Section 889(a)(1)(A) Prohibition
The DoD prohibition under Section 1656 differs from the government-wide prohibition under Section 889(a)(1)(A) in several respects:
- The Defense Federal Acquisition Regulation Supplement (“DFARS”) rule uses the term “covered defense telecommunications equipment or services” instead of the Federal Acquisition Regulations’ (“FAR”) “covered telecommunications equipment or services.” This new definition is limited to equipment, systems, or services used to carry out the nuclear deterrence and homeland defense missions. Unlike Section 889, it does not include video surveillance equipment or services.
- In addition to banning certain Chinese entities, the DFARS rule also includes Russia in the definition of a “covered foreign country.” Thus, the Secretary of Defense has discretion to add Russian-affiliated entities to the Section 1656 ban.
- There are no exceptions to the DoD prohibition. A contractor providing prohibited equipment or services must instead obtain a waiver from the Secretary of Defense. Waivers are made on a case-by-case basis for a single, one-year period if the Secretary determines the waiver to be in the country’s national security interests and certifies to the congressional defense committees that (1) there are sufficient mitigations in place to guarantee the ability of the Secretary to carry out the covered missions; and (2) the Secretary is removing the use of covered defense telecommunications equipment or services in carrying out such missions.
New Solicitation Provisions and Contract Clause for Section 1656 Prohibition, Plus DoD-Specific Procedures for Sections 1656 and 889
The DoD rule adds two new solicitation provisions and a contract clause associated with Section 1656 that mirror the FAR implementation of Section 889(a)(1)(A):
- DFARS 252.204-7016, Covered Defense Telecommunications Equipment or Services-Representation: An offeror must represent whether it provides covered defense telecommunications equipment or services as part of its offered products/services in the performance of a contract, subcontract, or other contractual instrument. This representation must be made annually in the System for Award Management (“SAM”). See also FAR 52.204-26.
- DFARS 252.204-7017, Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services-Representation: If an offeror provides an affirmative representation under DFARS 252.204-7016, it must represent on every solicitation whether it is including covered defense telecommunications equipment or services as part of its offer. If the offeror responds affirmatively, it must disclose further information about the covered equipment or services, including a detailed description and an explanation of the proposed use. See also FAR 52.204-24.
- DFARS 252.204-7018, Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services: Contractors and subcontractors are required to report through dibnet.dod.mil the discovery of covered defense telecommunications equipment or services used as a substantial or essential component of any system, or as critical technology as part of any system, during the course of contract performance. Contracting officers are instructed to modify indefinite-delivery contracts, blanket purchase agreements, and basic ordering agreements to include DFARS 252.204-7018 for future orders or calls. Any contract modification to extend the period of performance must also include this clause. See also FAR 52.204-25.
The interim rule also adds DFARS subpart 204.21, Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment. Subpart 204.21 provides DoD-specific procedures for Sections 1656 and 889(a)(1)(A). For example, under DFARS 204.2103, the contracting officer must consult with the requiring activity and legal counsel if there is any reason to question an offeror’s negative representation (whether made under the FAR or DFARS). If the offeror represents that it will provide covered telecommunications equipment as part of its offer, the contracting officer may not award the contract to the offeror unless a waiver is obtained. In addition, the new DoD procedures require the Defense Cyber Crime Center to notify the contracting officer of any contractor reports made under FAR 52.204-25 or DFARS 252.204-7018.
Comments on the interim rule are due by March 2, 2020.