On August 26, 2020, Diz Locaria was quoted in National Defense magazine on Section 889(a)(1)(B) of the fiscal year 2019 National Defense Authorization Act, a new rule prohibiting federal agencies from purchasing telecommunication or video surveillance technologies from certain Chinese companies or contracting with organizations that use such technology.
The interim rule implementing Part B of Section 889 – which became effective August 13 – will have major implications for recipients of federal grants and loans, including nonprofits doing defense-related work, said Locaria. While grant and loan recipients may use prohibited technology, they can no longer charge the government for it.
There are likely many organizations that are unaware of the new rule. This could lead to sticker shock when it comes time for organizations to file expenses, and the rule could be very costly, Locaria noted. For example, if an organization recently refurbished its security systems at a cost of millions of dollars and used prohibited equipment that was previously allowed, the organization may have to eat the cost, he said.
The first hurdle for a grant or loan recipient will be determining whether it has equipment that is manufactured by the prohibited companies, he explained. The next will be figuring out if the recipient can move away from those systems; if it cannot, it won't be able to bill related expenses to the government.
If “their plan is to recover that through their indirect costs over a certain period of time, well, you're not going to be able to recover those costs anymore,” he added.
Click here to access the article.