New Year, Same Priorities: DoD Issues Interim Rule Prohibiting Sales of Certain Chinese and Russian Telecommunications Products and Services
Continuing the trend of heightened supply-chain restrictions in federal procurements, the Department of Defense (DoD) issued an interim rule on December 31, 2019 that prohibits DoD from buying certain Chinese and Russian telecommunications products and services for use in support of DoD nuclear deterrence or homeland defense missions. The new rule is effective immediately and parallels similar government-wide Federal Acquisition Regulation (FAR) restrictions issued in August 2019 pursuant to Section 889 of the FY19 National Defense Authorization Act (NDAA). The rule also adds three new provisions to the Defense Federal Acquisition Regulation Supplement (DFARS) that DoD contractors will soon begin to see in covered DoD solicitations and contracts.
What is prohibited under DoD's new rule?
The new DoD rule implements Section 1656 of the FY18 NDAA and Section 889(a)(1)(A) of the FY19 NDAA, which prohibit DoD from buying any equipment, system, or service in support of "covered missions" that uses "covered defense telecommunications equipment or services" as a "substantial or essential component" of any system, or as a "critical technology" as a part of any system. The key terms are defined as follows:
- "Covered missions" means DoD's nuclear deterrence mission, including programs relating to nuclear command, control, and communications; integrated tactical warning and attack assessment; and continuity in government. The definition also includes DoD's homeland security mission, including ballistic missile defense.
- "Covered defense telecommunications equipment or services" means telecommunications equipment and services produced by Huawei Technologies or ZTE Corporation (and their subsidiaries and affiliates) or any entity that the Secretary of Defense reasonably believes is owned, controlled, or related to a "covered foreign country."
- "Covered foreign country" means the People's Republic of China or the Russian Federation.
- "Substantial or essential component" means any component that is necessary for the proper function or performance of a piece of equipment, system, or service.
- "Critical technology" includes: (1) defense articles and services included on the United States Munitions List under the International Traffic in Arms Regulations (ITAR); (2) certain items included on the Commerce Control List under the Export Administration Regulations (EAR); (3) certain specially designed nuclear equipment, parts and components, materials, software, and technology; (4) certain nuclear facilities, equipment, and material; (5) certain select agents and toxins; and (6) emerging and foundational technologies controlled pursuant to Section 1758 of the 2018 EAR.
The deadline to submit comments on the interim rule is March 2, 2020.
How does Section 1656 differ from the government-wide FAR restrictions under Section 889?
DoD's new Section 1656 rule differs from the government-wide FAR restrictions under Section 889 in several ways. Most importantly:
- Unlike the government-wide FAR restrictions, the DoD prohibition applies only to procurements that support DoD's nuclear deterrence or homeland defense missions (i.e., "covered missions").
- The DoD rule applies to "covered defense telecommunications equipment or services," but does not include video surveillance equipment or services. The government-wide FAR restrictions apply more broadly to "covered telecommunications equipment or services," including those for video surveillance.
- The FAR restrictions' coverage is limited to covered equipment or services from China, whereas the new DoD rule includes both China and Russia within the definition of "covered foreign country."
- Unlike the Section 889 regulations, which contain multiple exceptions, the DoD rule contains no exceptions and instead provides contractors an opportunity to seek a limited one-time, one-year waiver from the Secretary of Defense.
- Section 889 is implemented primarily through two FAR clauses: FAR 52.204-24 and FAR 52.204-25. The new DoD rule introduces three DFARS provisions, which will be included in covered solicitations and contracts issued or awarded after December 31, 2019:
- DFARS 252.204-7016 (Covered Defense Telecommunication Equipment or Services-Representation). Requires an offeror to make an annual representation in the System for Award Management (SAM) regarding whether it provides covered defense telecommunications equipment or services to the government.
- DFARS 252.204-7017 (Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services-Representation). Requires an offeror who provides an affirmative response under DFARS 252.204-7016 to represent if it is providing covered defense telecommunications equipment or services in connection with a specific procurement.
- DFARS 252.204-7018 (Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services). Implements Section 1656's prohibition on selling covered defense telecommunications equipment or services to DoD. Also requires contractors to notify DoD through the DIBNet portal within one business day of discovering (or being notified by a subcontractor) that covered defense telecommunications equipment or services are being used as a substantial or essential component of any system, or as a critical technology as part of any system, during contract performance. A follow-on report is due within 10 business days. DoD will soon begin to modify existing indefinite-delivery/indefinite quantity contracts (IDIQs), Blanket Purchase Agreements (BPAs), and Basic Ordering Agreements (BOAs) to include this clause.
- The era of increased supply-chain regulation is here to stay (at least for now). If your company has not already done so, it should initiate a review of its existing supply chains to, among other things, determine if they include either "covered telecommunications equipment or services" (as defined in Section 889) or "covered defense telecommunications equipment or services" (as defined in Section 1656). Companies also should strongly consider conducting a simultaneous review of their internal systems. In August 2020, Section 889's more extensive ban on contracting with entities that use prohibited telecommunications equipment or services is scheduled to go into effect.
- Many contractors and subcontractors will be required to comply with the regulations issued under both Section 1656 and Section 889. For this reason, your company should take immediate steps to update and align internal compliance systems that it uses to track annual and contract-specific representations, subcontractor certifications and flowdowns, identify the need for government waivers, and make reports to cognizant government agencies and officials.
- Like other traditional sanctions regimes, the lists of excluded entities, affiliates, subsidiaries, and technologies covered under Section 1656 and Section 889 can change at a moment's notice. Federal contractors and subcontractors should routinely check the most recent list of excluded parties in SAM, as well as the lists of equipment and services that qualify as "critical technology."
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