The latest updates and analysis from Morrison Foerster
July 15, 2020 - National Security

Interim Rule Issued to Implement 2019 NDAA Prohibition on the Use of Covered Telecommunication and Video Surveillance Equipment or Services Produced by Certain Chinese Companies

Five Peculiarities of Protests of Federal Supply Schedule Orders

On July 14, 2020, the Federal Acquisition Regulation (“FAR”) Council published a long-awaited interim rule (the “Interim Rule”) implementing the second prong of Section 889 of the 2019 National Defense Authorization Act (“NDAA”). The Interim Rule prohibits federal agencies from awarding contracts to or renewing contracts with companies that use telecommunications or surveillance equipment or services from five Chinese companies specified in the NDAA, including Huawei and ZTE. The rule will take effect on August 13, 2020.

Section 889’s prohibition on contractors’ use of covered Chinese telecommunications equipment and services has been the subject of much apprehension and speculation since August 2018 when the provision passed as part of the 2019 NDAA. The anxiety of the procurement community reached a fever pitch as months passed and the statutory deadline for implementation approached without proposed implementing regulations. Industry and the Department of Defense recognized that, without a thoughtful rulemaking process, Section 889 could have, in the words of Under Secretary of Defense for Acquisition and Sustainment Ellen Lord, “unintended consequences.” Absent further clarification, a plain reading of Section 889 could cause contractors large and small, defense-focused or not, to be excluded from the Government’s industrial base because they are unable or unwilling to assume the potentially limitless compliance burden a broad but plain reading of Section 889 imposes.

As discussed in this alert, although contractors now have less than a month to digest and implement the Interim Rule, it does include helpful definitions, provisions, and guidance to address some (but not all) of the concerns about the scope of Section 889. Further, the rule is not yet final, and the FAR Council has indicated that it will seriously consider all comments in developing the final rule.

Read our client alert for more.