Trump Administration Issues Second Part of Rule Banning Huawei, ZTE, and Other PRC Entities From Federal Systems

Starting in a month, those contracting with the federal government may not have Huawei or ZTE equipment of systems per a directive of Congress enacted in 2018. Lawmakers were concerned about national security and argued PRC equipment and systems are compromised. The first half of this ban took effect one year ago.

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Federal agencies released an interim rule to implement the second half of a government-wide ban on buying or using Huawei, ZTE, and other equipment and systems considered risky or suspect by the United States (US) government. The first half of this ban went into effect late last summer and generally bars US agencies from buying or using so-called “covered telecommunications equipment or services,” and this part of the ban extends the prohibition to entities that would contract with US agencies. Therefore, as a general matter, such contractors would need to certify their services, systems, and equipment are free and clear of “covered telecommunication equipment,” which is largely technology developed and manufactured in the People’s Republic of China (PRC) or the Russian Federation. This rule will take effect on 13 August but may possibly affect contracts entered into before that date. And yet, comments are being accepted on this rule until 14 September, which will likely affect the rule on the margins when a final version is issued but not its substance.

The Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) amended “the Federal Acquisition Regulation (FAR) to implement section 889(a)(1)(B) of the “John S. McCain National Defense Authorization Act (NDAA) for FY 2019” (P.L. 115-232) that “prohibits executive agencies from entering into, or extending or renewing, a contract with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.” The agencies stated

The statute covers certain telecommunications equipment and services produced or provided by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of those entities) and certain video surveillance products or telecommunications equipment and services produced or provided by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of those entities). The statute is not limited to contracting with entities that use end-products produced by those companies; it also covers the use of any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.

The DOD, GSA, and NASA explained “[t]he 889(a)(1)(A) rule does the following:

  • It amends the FAR to include the 889(a)(1)(A) prohibition, which prohibits agencies from procuring or obtaining equipment or services that use covered telecommunications equipment or services as a substantial or essential component or critical technology. (FAR 52.204-25)
  • It requires every offeror to represent prior to award whether or not it will provide covered telecommunications equipment or services and, if so, to furnish additional information about the covered telecommunications equipment or services. (FAR 52.204-24)
  • It mandates that contractors report (within one business day) any covered telecommunications equipment or services discovered during the course of contract performance. (FAR 52.204-25)

The agencies added

The FAR Council will address the public comments received on both previous interim rules in a subsequent rulemaking. In addition, each agency has the opportunity under 889(a)(1)(A) to issue agency-specific procedures (as they do for any acquisition-related requirement). For example, GSA issued a FAR deviation where GSA categorized risk to eliminate the representations for low and medium risk GSA-funded orders placed under GSA indefinite-delivery contracts.

Section 889 of the FY 2019 NDAA was drafted to address the threats posed by the presence of Huawei and ZTE equipment and services throughout the systems and supply chains of the federal government and its contractors. The ultimate goal is the complete phaseout, if possible, of these and any other suspect systems that could possibly be compromised or exploited in the future. Consequently, Russian equipment and systems are also targeted. All federal agencies must inventory and then work to remove this equipment and products within the next few years, and the DOD has already started the required rulemakings to fulfill this policy goal.

As a result, the DOD and other agencies changed the FAR to put into effect a Congressionally-required ban on Huawei and ZTE products detailed in Section 889 of the FY 2019 NDAA. Specifically the August 2019 interim rule bars federal agencies from buying Huawei, ZTE, and related Chinese “equipment, system[s], or service[s] that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system” unless an exception allows the agency to disregard this general ban. This rule has already taken effect, and it is likely the DOD and other agencies will issue a final rule, which may change the interim rule on the margins but will likely maintain the substance of the prohibition. It bears note that this interim rule is applicable to all contracts going forward and some solicitations offered and contracts signed before August 13, 2019. In December 2019, the DOD, GSA, and NASA changed the original requirement that contractors certify for each procurement they do not have any Huawei or ZTE equipment or services and may make this certification annually instead.

In concert with the August 2019 interim final rule that put in place a ban on buying or using Huawei, ZTE, or other related equipment, the DOD issued a memorandum that “provides DOD-specific procedures associated with the interim FAR rule that implements section 889(a)(l)(A) of the National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-232)…[and] [t]hese implementation procedures apply to contracts, task orders, and delivery orders, including basic ordering agreements (BOAs), orders against BOAs, blanket purchase agreements (BPAs), and calls against BPAs.”

Finally, it bears note that Section 889(b) also contains language barring any agency from making a loan or providing a grant to any entity with Huawei or ZTE systems or equipment or to buy Huawei systems or equipment. In June 2019, the Office of Management and Budget (OMB) asked Congress for legislative changes to the grant and loan language, ideally in the FY 2020 NDAA, and to push back the deadline for both of these provisions from August 13, 2020 to August 13, 2022. However, the Armed Services Committees did not include such language in either FY 2020 NDAA, suggesting there is not support in the committees to softening or rolling back the Huawei/ZTE bans.

© Michael Kans, Michael Kans Blog and michaelkans.blog, 2019-2020. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and michaelkans.blog with appropriate and specific direction to the original content.

Photo by Alejandro Luengo on Unsplash

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