United States: New Interim FAR Rule Regarding The Prohibition On Certain Chinese Telecommunications Services Or Equipment

On Friday, December 13, the FAR Council issued a second interim rule implementing Section 899(a)(1)(A) of the 2019 National Defense Authorization Act. The interim rule adds annual representations to SAM.gov relating to particular Chinese manufactures of telecommunications services or equipment.

As you may recall from our earlier posts on the topic, Section 899(a)(1)(A) prohibits agencies from "procuring or obtaining, or extending or renewing a contract to procure or obtain, any equipment, system, or service that uses covered telecommunication equipment or services as a substantial or essential component of any system, or as a critical technology as part of any system" unless an exception applies or a waiver has been granted. These prohibitions became effective on August 13, 2019, via the publication of FAR Circular 2019-05, which created FAR subpart 4.21 and the corresponding solicitation provision and contract clause at FAR 52.204-24 and FAR 52.204-25.

To recap, the provision at FAR 52.204-24 requires an offeror to represent, on an offer-by-offer basis, whether it will or will not provide any "covered telecommunications equipment or services to the Government in the performance of any contract, subcontract or other contractual instrument resulting from this solicitation." If an offeror represents that it will provide covered telecommunications equipment or services, the offeror must make certain additional disclosures.

"Covered telecommunications equipment or services" is defined to include:

• (1) Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities);
• (2) For the purpose of public safety, security of Government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities);
• (3) Telecommunications or video surveillance services provided by such entities or using such equipment; or
• (4) Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.

Notably, the definition includes "any subsidiary or affiliate" of the five Chinese entities named, without naming the entities' subsidiaries or affiliates. It also includes yet to be identified entities that the Secretary of Defense, after consultation, reasonably believes to be connected to the Chinese government. This will, of course, require contractors to continuously monitor the Government's identification of new entities and the impact that has on its supply chain.¹

The portion of the initial interim rule memorialized in FAR 52.204-24 that required a new certification in every offer was apparently found to be unduly burdensome. Instead, the new interim rule aims to reduce the burden on the contracting community by allowing an offeror to represent annually, via SAM.gov, whether it provides covered telecommunications equipment or services. The new annual representation, FAR 52.204-26, requires an offeror to represent whether it does or does not "provide covered telecommunications equipment or services as part of its offered products or services to the Government in the performance of any contract, subcontract, or other contractual instrument."

If an offeror represents that it does not provide covered telecommunications equipment or services to the Government in response to FAR 52.204-26, or in the new paragraph (v) added to FAR 52.212-3, then it is not required to complete the representations in FAR 52.204-24. If the offeror represents that it does provide covered telecommunications equipment or services, or has not made any representation in FAR 52.204-26 or FAR 52.212-3(v), it must still complete the representations required by FAR 52.204-24. The purpose of this is to only require those offerors that do provide covered telecommunications equipment or services to the Government to complete FAR 52.204-24.

The interim rule states that the Government will add the banned entities to SAM.gov's excluded parties list, "with an appropriate notation to identify that the prohibition is limited to certain products and services—the entity itself is not excluded." The representation at FAR 52.204-26 requires an offeror to review the list of excluded parties in SAM.gov and confirm whether the equipment or services it is providing the Government come from one of these entities. Notably, the amendment adding paragraph (d) to FAR 4.2102 provides that the government will list the banned entities, "including known subsidiaries or affiliates," in SAM.gov. The definition of "covered telecommunications equipment or services," to include any subsidiary or affiliate of the five Chinese entities named, however, remains unchanged.

The interim rule also sets forth procedures at FAR 4.2103 for contracting officers to follow. The procedures provide that a contracting officer "may rely" on a contractor's representation in response to FAR 52.204-24, FAR 52.204-26, or FAR 52.212-3(v), "unless the contracting officer has a reason to question the representation." Thus, while the definition of "covered telecommunications equipment or services" is not as definitive as it could be, it seems that an offeror's review of the entities listed in SAM.gov (including all known subsidiaries or affiliates), and representation that it is not providing covered equipment or services from these entities, should serve to satisfy the Government's requests.

The interim rule will reduce the burden on offerors that do not provide covered telecommunications equipment or services by eliminating the need to complete FAR 52.204-24 in response to every offer. Comments on the interim rule are due on or before February 11, 2020.

Footnotes

1 It will also be interesting to see if the Government will utilize the process it established and utilize the newly-formed Federal Acquisition Security Council to identify new entities. One of the Council's primary tasks is to identify offerors and products/services that should be removed from the Government's supply chain.

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