About two months have passed since the August 13, 2020, effective date of Part B of Section 889 of the FY 2019 National Defense Authorization Act. Part B, sometimes referred to as the Chinese telecommunications equipment ban, broadly prohibits the federal government from contracting with entities that use certain Chinese telecommunications (including video surveillance) equipment and services.
After the FAR Council published its July 10, 2020, Interim Rule, contractors, large and small, spent countless hours working to be able to certify compliance by August 13. This deadline was critical because the Interim Rule said that absent such a certification, a contractor was ineligible for future contract awards. That is, government agencies were prohibited from renewing or extending existing contracts with contractors unable to certify Part B compliance. Indeed, agencies were prohibited from issuing an order under an existing contract to a contractor that failed to certify compliance.
Yet, despite the Rule’s laudable policy goals, the government’s piecemeal and inconsistent implementation has placed government contractors in an untenable position.
First, while some agencies, like the Defense Logistics Agency, diligently sought contract modifications with signed certifications, others, including the Department of Veterans Affairs, have not. And yet these agencies have continued to place orders with “non-certifying” contractors. This has created uncertainty among contractors as to when compliance will be expected (and what non-compliance really means).
Second, while the General Services Administration (“GSA”) has done yeoman’s work in attempting to help the industry, it simply has not been given the necessary guidance to pass on. For example, during a July 2020 GSA-held webinar, GSA could not provide guidance regarding a basic and important question: whether the ban applies to telecommunications equipment used by contractor employees working remotely. GSA also could not answer how the ban would apply to cloud services or applications like “Zoom,” or what overseas contractors are to do if no alternatives to prohibited technology exist. And, during GSA’s next webinar in September, some GSA offices conceded that their contractors were not in compliance (for instance, the GSA Office of Technology Transformation Services, which oversees the FedRAMP program for approved cloud service providers, conceded that it was still in the process of reviewing the regulation and determining how it would require its contractors to comply).
Third, notwithstanding that most contractors were required to certify compliance with Part B as of August 13, GSA’s rulemaking is far from complete. GSA received comments from 71 entities relating to the interim rule—from individual companies to associations representing government contractors to other government agencies. The comments request clarity on the basics of a contractor’s compliance obligations. For example, multiple commenters requested that the FAR Council provide guidance on the definition of “use,” including whether it would apply to employees’ home telework equipment. Other comments raise concerns that the rule is too broad, because it extends to commercial activities unrelated to government contracts. Comments also pointed out that overseas contractors cannot possibly comply with Part B in countries where the entire telecommunications infrastructure is built with Huawei or other banned equipment (with no commercial alternatives available). Industry also sought clarification on the extent of the required “reasonable inquiry,” including what it means to “examine relationships” with subcontractors and suppliers and how to construe the requirement to review information in the entity’s “possession,” which could conceivably include news reports in the public domain. Many commenters objected to the FAR Council’s potential expansion of the rule to affiliates and subsidiaries, which could be implemented as early as August 13, 2021.
Fourth, the Office of the Director of National Intelligence (“ODNI”) has granted waivers to the Department of Defense (“DoD”) and the United States Agency for International Development (“USAID”). At first, DoD was granted a limited, temporary waiver until September 30, 2020, for certain low-risk procurements. On September 29, ODNI extended DoD’s waiver two years—until September 2022. This longer waiver is again limited to companies that manufacture “low-risk, high-volume items” like food, clothing, construction materials, and transportation.
Beyond DoD, ODNI also has granted a two-year waiver to USAID. USAID received a telecommunications waiver for internet and phone services, which was originally scheduled to expire on September 30, 2020. The Agency received approval to extend this waiver through September 30, 2022. USAID should be applauded for obtaining the extended waiver. However, if USAID qualifies to receive a waiver for internet and phone services, it would seem that the Department of Veterans Affairs and the Department of Health and Human Services—which contract for critical, life-saving supplies and services—should also qualify for two-year waivers.
Bottom line, the government needs to take a consistent approach to Part B implementation and it needs to do so now. Contractors should not be required to certify compliance and risk defending such certifications in response to an agency or whistleblower’s second-guessing. The need for a more consistent approach is clear given that only some contractors have been required to make such certifications and some government agencies are not requiring compliance.
What Should Contractors Do?
- Prepare to Reevaluate Compliance after the Final Rule Is Published. When the government eventually publishes the final rule, contractors should promptly review and reevaluate their prior compliance efforts to the extent the rule clarifies or changes the contractor’s prior assumptions or scope of review.
- For Department of Defense Contracts, Determine Whether the Limited Waiver Applies. For contractors with DoD contracts supplying only food, clothing, materials, etc., confirm with the contracting officer whether the recent waiver extension applies to your procurement (note, however, that you may still be covered through other covered contracts).
- If the Contracting Officer Has Not Yet Issued a Modification, Prepare for Compliance Now. If you have not yet received a contract modification adding Part B to an existing contract, do not wait until you receive the modification to begin evaluating your compliance with Part B. Begin your evaluation now, so you are prepared to certify compliance.
- Document Compliance Efforts. Given the uncertainty and confusion regarding compliance with Part B, it is paramount for contractors to document what they have done to comply or attempt to comply. You need to be able to demonstrate the efforts your company has taken and that you have not simply ignored compliance. Create and maintain contemporaneous records of the “reasonable inquiry” performed, meetings conducted, compliance materials developed, and employee education provided.