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.
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.
As part of a recent wave of supply chain requirements, Section 889 of the 2019 National Defense Authorization Act (“NDAA”) imposed major new limitations on the use of certain Chinese telecommunications products and services in federal procurement, and recent implementing regulations mandate a range of compliance actions relating to the ban. This blog post provides practical guidance on the new rules and five compliance tips.
Ban against Procuring “Covered Telecommunications Equipment or Services”
The Department of Defense (“DoD”), General Services Administration (“GSA”), and National Aeronautics and Space Administration (“NASA”) recently released an interim rule implementing the first part of Section 889. This ban, which became effective August 13, 2019, sweeps broadly by prohibiting agencies from procuring the following “covered telecommunications equipment or services”:
Telecommunications equipment produced by Huawei and ZTE Corporation;
Video surveillance and telecommunications equipment used for public safety, surveillance of “critical infrastructure,” or national security purposes and produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company;
Telecommunications or video surveillance services provided by such entities for any purpose; or
Telecommunications or video surveillance equipment produced or provided by an entity that the Secretary of Defense determines is owned or controlled by, or otherwise connected to, the government of the People’s Republic of China.
Over the past several months, there has been a confluence of congressional and agency actions that will have a significant impact on Federal Supply Schedule (“FSS”) contract holders. These changes are so significant that they will likely cause companies with FSS contracts to question whether having an FSS makes sense. These changes could also cause companies to restructure the segments of their companies that are responsible for selling to the federal government.
Order Level Materials
In late January 2018, the General Services Administration (“GSA”) issued its Order Level Materials (“OLM”) final rule. This rule allows agencies to purchase supplies or services in direct support of a task or delivery order placed against FSS contract or Blanket Purchase Agreement (“BPA”). OLMs are subject to special ordering procedures. SeeGSAR 552.238-82. For example, the OLMs cannot have been known when an FSS contract or BPA was awarded. OLMs (excluding travel) cannot exceed 33.33 percent of the total value of the applicable task or delivery order. Whether an FSS holder is required to obtain competitive quotes for an OLM order depends upon the value of the order and the FSS holder’s purchasing system. Continue reading “Do Federal Supply Schedule Contracts Still Have Value?”