Representation Requirements Reduce Burden, but Contractors Still Must Report Use During Contract Performance
As Venable recently covered, on July 14, 2020 the Federal Acquisition Regulation (FAR) Council issued a long-awaited interim rule implementing Part B of Section 889(a)(1) of the National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-232). Section 889 imposes sweeping limitations on the acquisition or use of "covered telecommunications equipment or services" as a substantial or essential component of any system, or as critical technology as part of any system. Whereas Part A of Section 889 prohibits agencies from procuring covered telecommunications equipment or services, Part B prohibits agencies from contracting with entities that merely use covered telecommunications equipment or services, even if the use has no connection to its performance of a government contract.
The Part B interim rule amended FAR 52.204-24, Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment, to require an offeror to represent, after conducting a reasonable inquiry, whether it "does" or "does not" "use covered telecommunications equipment or services, or use any equipment, system, or service that uses covered telecommunications equipment or services." This representation would need to be made on an offer-by-offer basis. In the interim rule, however, the FAR Council alluded to forthcoming updates to the System for Award Management (SAM) to allow offerors to make the representation annually, after conducting a reasonable inquiry, such that only offerors that have provided an affirmative response to the new Part B annual representation requirement in FAR clause 52.204-26, Covered Telecommunications Equipment or Services—Representation, would be required to make a subsequent offer-by-offer representation in their offers via FAR 52.204-24.
On August 27, 2020, the FAR Council issued a second interim rule amending FAR clause 52.204-24 to remove the requirement to complete the Part B offer-by-offer representation if the offeror has represented that it "does not" use covered telecommunications equipment or services as part of the annual representation requirement in amended FAR clause 52.204-26. This second interim rule was necessary because the appropriate updates to SAM to add the new annual representation were not available when the interim rule became effective on August 13, 2020. This second interim rule prevents contractors from having to complete both the annual representation on SAM (via FAR 52.204-26) and the offer-by-offer representation (via FAR 52.204-24), unless the contractor has represented in FAR 52.204-26 that it does use covered telecommunications equipment or services, in which case the offer-by-offer representation is still required.
A corresponding commercial item equivalent annual representation has been added to FAR 52.212-3, Offeror Representations and Certifications—Commercial Items.
While not having to provide an offer-by-offer representation is convenient and reduces some burden for industry, contractors should be cautious and not simply make the annual representation in FAR 52.204-24 and forget about their ongoing Section 889 requirements. Pursuant to FAR 52.204-25(d), the contractor is still required to report information regarding the possible provision of telecommunications equipment or services by the contractor or its subcontractors (Part A) or the use of covered telecommunications equipment or services by the contractor (Part B). Specifically, the contractor is obligated to immediately report such information "[i]n the event the Contractor identifies telecommunications equipment or services used as a substantial or essential component of any system, or as critical technology as part of any system, during contractor performance, or the Contractor is notified of such by a subcontractor at any tier or by any other source." Thus, even though contractors may only need to represent annually that they do not use covered equipment or services, they remain obligated to continue monitoring their use of such equipment or services during contract performance.
The interim rule becomes effective October 26, 2020. Comments on the interim rule are also due on October 26 in order to be considered in the formation of the final rule.
DoD Receives Temporary Waiver to Section 889 Requirements
On August 12, 2020, the Director of National Intelligence (DNI) issued DoD a temporary waiver pursuant to Section 889(d)(2) "to allow DoD to continue its contracting activities that would otherwise be prohibited under section 889(a)(1)(B)." Section 889(d)(2) permits the DNI to grant a waiver "if the Director determines the waiver is in the national security interests of the United States."
DoD's Under Secretary for Acquisition and Sustainment had requested the Section 889 waiver because "DoD's statutory requirement to provide for the military forces needed to deter war and protect the security of our country is critically important to the national security," and thus DoD sought a waiver that would allow it "to continue to execute procurement actions providing supplies, equipment, services, food, clothing, transportation, care, and support necessary to execute the DoD mission." The DNI determined that the waiver request had a "sufficient nexus to the national security interests of the United States."
The temporary waiver was granted until September 30, 2020. The DNI requested additional information from DoD, including information demonstrating an understanding of the potential increased risks, mitigation measures in place to address such risks, and a "committed plan to seeking alternatives to contracting with entities that use prohibited goods and services." After receiving and reviewing this information and the waiver request, the DNI will make a further recommendation on whether the waiver should be extended beyond September 30, 2020.
USAID Issues Further Guidance on Section 889's Application to USAID Awards
On August 27, 2020, the United States Agency for International Development (USAID) issued frequently asked questions (FAQs) for contractors and recipients of USAID awards. The FAQs provide answers to general questions and also cover questions specific to the FAR regulations (Section 2.0 Acquisition) and the Uniform Guidance rule (Section 3.0 Assistance). Notably, the FAQs explained the following details:
- For USAID contracts, the prohibition applies only to new awards made on or after August 13, 2020. With respect to indefinite delivery, indefinite quantity (IDIQ) contracts, USAID will be modifying the contracts to include FAR clause 52.204-25, at which point the contractor will have to certify compliance for new task orders issued on or after August 13, 2020. Importantly, this guidance makes clear that current contracts and task orders are not subject to Section 889.
- USAID reaffirms the application of Section 889 to contracts issued on or after August 13, 2020 in a subsequent FAQ, where it provides that a contractor need not go back to vendors to ensure Section 889 compliance on items already procured—"No. The prohibition applies to all new contracts, and any extensions and options."
- For assistance (i.e., federal grants or cooperative agreements), the FAQs similarly make clear that Section 889 applies only to awards issued on or after August 13, 2020. Preexisting awards are not subject to the restrictions.
- The FAQs also confirm for assistance that an awardee can use prohibited supplies and services, but "award funds cannot be used to pay for the covered telecommunications equipment and video surveillance services." Importantly, this also means that neither cost share nor program income can be used to pay for such equipment or services.
- While the FAQs also confirm that costs for prohibited supplies and services should be excluded from allowable cost pools, this will not impact eligible organizations' ability to receive the full 10% de minimis indirect cost rate.
For a more complete understanding of USAID's view on Section 889 compliance, we encourage our readers to review the FAQs in total.
Interim Final Rule on the Federal Acquisition Security Council
The Federal Acquisition Supply Chain Security Act of 2018 (FASCA) (Title II of Pub. L. 115-390) established the Federal Acquisition Security Council (FASC), which is an executive branch interagency council consisting of representatives from the Office of Management and Budget (OMB), General Services Administration (GSA), Department of Homeland Security (DHS), Office of the Director of National Intelligence (ODNI), DoD, and other agencies, that is tasked with addressing supply chain risks and identifying and developing criteria for sharing information among agencies, other federal entities, and non-federal entities with respect to supply chain risk.
On September 1, 2020, OMB/FASC issued an interim final rule, as required by Section 202(d) of the FASCA, "to implement the requirements of the laws that govern the operation of the FASC, the sharing of supply chain risk information, and the exercise of its authorities to recommend issuance of removal and exclusion orders to address supply chain security risks." This FASC interim final rule is important for purposes of Section 889 because the FAR Council's Part B interim rule from July 14, 2020 established Part B waiver requirements involving the FASC. Specifically, the interim rule amended FAR 4.2104 to require that, before the head of an executive agency can grant a waiver of the Part B use prohibition, the agency must (1) have a designated senior agency official for supply chain risk management, (2) establish participation in the information-sharing environment as required by FASC to facilitate interagency sharing of relevant acquisition supply chain risk information, (3) notify and consult with ODNI on the waiver request using ODNI guidance, and (4) notify ODNI and FASC that it intends to grant the waiver 15 days prior to granting the waiver.
Therefore, FASC, through its influence on addressing supply chain risks and developing criteria for information sharing between executive agencies and non-federal entities, will play a part in the granting of Part B waivers.