Last month, we wrote about a proposed amendment to the FY 2023 National Defense Authorization Act (“NDAA”) that would prohibit contractors from selling certain Chinese semiconductor technologies to federal agencies and from using these same covered products and services. This measure was added through Section 5949 of the NDAA.
On December 6, the House passed a compromise version of the NDAA, which appears to scale back the semiconductor ban by applying it only to federal sales of covered products and services, without also banning contractors from using them. However, the explanatory statement accompanying the NDAA suggests contractors (including their affiliates and subsidiaries) may ultimately be prohibited from using covered semiconductor technologies—which would raise a host of compliance and implementation concerns.
Compromise Version of NDAA Limits Semiconductor Ban to Federal Sales
Section 5949 bans semiconductor products and services from Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies, and Yangtze Memory Technologies Corp., plus their subsidiaries and affiliates. This ban was modeled after the supply chain restrictions from Section 889, which prohibit contractors from selling and using covered telecommunications and video surveillance equipment from five Chinese telecom companies.
A Blank Rome team represented KPMG LLP in a successful bid protest before the Government Accountability Office (“GAO”), in which KPMG challenged the award decision of the United States Air Force in a procurement for visible accessible understandable linked trusted (“VAULT”) subject matter expert support.
On October 18, 2022, Senate Majority Leader Chuck Schumer (D-NY) issued a press release signaling a potentially significant expansion of Section 889 through a proposed amendment to the 2023 National Defense Authorization Act (“NDAA”). Schumer’s proposal is aimed at extending the telecommunications supply chain prohibitions in Section 889 to the semiconductor manufacturing industry.
Section 889 currently prohibits contractors from providing the federal government or using any products or services that incorporate “covered telecommunications equipment or services” from five Chinese telecom companies and their affiliates and subsidiaries: (1) Huawei Technologies Company, (2) ZTE Corporation, (3) Hytera Communications Corporation, (4) Hangzhou Hikvision Digital Technology Company, and (5) Dahua Technology Company.
Schumer’s 2023 NDAA amendment would expand Section 889 by banning semiconductor products like microchips from the following three Chinese entities: (1) Semiconductor Manufacturing International Corporation (“SMIC”), (2) ChangXin Memory Technologies (“CXMT”), and (3) Yangtze Memory Technologies Corp. (“YMTC”). Schumer noted that these companies have known links to the Chinese state security and intelligence apparatuses. The amendment is aimed at filling a gap in federal procurement restrictions that currently do not include semiconductor technology and services, creating a vulnerability for cyberattacks and data privacy. The amendment would not take effect until three years after the NDAA’s enactment, or until 2025.
Although we do not yet know whether Schumer’s amendment will be incorporated into the final NDAA bill, contractors should nevertheless begin evaluating their supply chains to identify any semiconductor products from any of the three named Chinese manufacturers. Schumer’s amendment signals a continually expansive interpretation and enforcement of Section 889, which may be reflected in the final rulemaking for Section 889. The current FAR docket anticipates a final rule in December 2022, although these deadlines continue to be moving targets.
On March 21, 2022, Representative Carolyn B. Maloney (D-NY), Chairwoman of the House Oversight and Reform Committee, introduced the “Federal Contracting for Peace and Security Act” (H.R. 7185). In light of Russia’s military invasion of Ukraine, the proposed bill would prohibit federal agencies from contracting with companies operating in Russia. The Committee approved an amended version on April 6, and the bill will be sent to the House of Representatives for further consideration. If passed, the bill would have a significant impact on government contractors that continue to operate in Russia by terminating existing contracts and barring them from further contracting opportunities.
We provide below an overview of the key elements of the bill. We anticipate further clarifications as the bill proceeds through the legislative process. Contractors should closely monitor these developments as this legislation will likely pose challenges to companies seeking to quickly disentangle themselves from any ongoing Russian business.
The Department of Defense (“DoD”) recently issued its final rule amending the Defense Federal Acquisition Regulation Supplement (“DFARS”) to provide offerors enhanced post-award debriefing rights. DoD has provided these enhanced debriefing procedures since 2018 through a FAR Class Deviation, allowing offerors to submit additional questions after receiving the post-award debriefing. Four years later, DoD’s final rule clarifies when the clock for an automatic stay begins in an enhanced debriefing and provides greater transparency by allowing unsuccessful offerors in certain procurements access to the agency’s redacted source selection decision.
We highlight below several key elements of the final rule:
Access to Redacted Source Selection Decision Document
The final rule requires DoD to provide the source selection decision document in certain circumstances, redacted to remove confidential and proprietary information of other offerors. For awards over $100 million, DoD must automatically provide the source selection decision during the debriefing. Small businesses and nontraditional defense contractors on procurements resulting in awards over $10 million and up to $100 million are also entitled to a copy of the decision but must specifically request it—the agency will not automatically provide it to offerors.
For years, the Government Accountability Office (“GAO”) has been moving towards an increasingly draconian position on offerors’ obligations to notify agencies when the availability of proposed personnel changes after proposal submission. A recent decision by the Court of Federal Claims (“COFC”) in Golden IT, LLC v. United States expressly addressing and departing from the GAO precedent may give hope to offerors struggling with GAO’s requirement.
Golden IT, LLC (“Golden”) protested the Department of Commerce’s award of a single blanket purchase agreement to Spatial Front, Inc. (“SFI”). Among its many protest grounds, Golden claimed that SFI’s quote contained a material misrepresentation regarding key personnel because it proposed an employee who had allegedly left SFI after it submitted its bid and before receiving award. Golden claimed that SFI was obligated to notify the agency of the individual’s unavailability after submitting its proposal.
On October 6, 2021, the U.S. Department of Justice (“DOJ”) announced a new Civil Cyber-Fraud Initiative to pursue cybersecurity fraud matters using the enforcement mechanisms of the False Claims Act (“FCA”).
This initiative follows DOJ’s four-month effort to review its cybersecurity strategy and reflects the government’s increased focus on contractor data security. Led by the Civil Division’s Commercial Litigation Branch, Fraud Section—i.e., the DOJ Section responsible for investigating and litigating FCA matters—the initiative targets government contractors and grant recipients that “put U.S. information or systems at risk” by “knowingly”:
providing deficient cybersecurity products or services;
misrepresenting the company’s cybersecurity practices or protocols; or
violating their obligations to monitor and report cybersecurity incidents and breaches.
We discuss the cybersecurity landscape preceding the new initiative, possible impacts and focus areas of the initiative, and how contractors should prepare for potential enforcement.
To read the full client alert, please visit our website.
The ABA Section of Public Contract Law serves to provide balanced recommendations on procurement policy, provide a forum to engage with colleagues across all segments of the procurement industry, and gain insight into and develop unique perspectives of federal, state, and local public contract law. For more information, please visit the Section’s webpage.
As directed in President Biden’s January 25, 2021, Executive Order we discussed six months ago, last week the FAR Council proposed increases to the Buy American Act (“BAA”) domestic content requirements, and previewed enhanced price preferences and reporting obligations for “critical” domestic products and components under the BAA.
The proposed rule, issued on July 30, 2021, contains three key elements: (1) Phased increases in domestic content thresholds from the current 55% to 75% by 2029, (2) enhanced price preferences for critical products and components, and (3) post-award reporting requirements for critical products and components.
A virtual public meeting to discuss the proposed rule will be held on August 26, 2021, and comments are due by September 28, 2021. The DAR Council also has an open DFARS Case relating to BAA provisions (2019-D045).
We provide an overview of the rule below along with practical takeaways for contractors to consider in light of these potentially significant changes.
Last week, the Government Accountability Office (“GAO”) issued a report on Department of Energy (“DOE”) contracting, Improvements Needed to Ensure DOE Assesses Its Full Range of Contracting Fraud Risks. The thrust of the report is that DOE should do more to prevent and detect fraud, particularly in less-examined areas such as bid-rigging, misrepresentation of eligibility, kickbacks and gratuities, and conflicts of interest.
DOE relies on contractors to carry out its missions at laboratories and other facilities, spending approximately 80 percent of its $41 billion in total obligations on contracts. In March 2017, GAO reviewed DOE’s approach to managing its risk of fraud and found DOE did not use leading practices, resulting in missed opportunities to mitigate the likelihood and impact of fraud.