Effective Last Month! – DoD’s Implementation of New FAR Prohibitions on Chinese Telecommunications Equipment and Services in Government Contracts
We recently wrote about the FAR Council’s release of an interim rule implementing restrictions on procurements involving certain Chinese telecommunications hardware manufacturers and service providers, such as Huawei and ZTE. The interim rule creates a new FAR Subpart 4.21, as well as two new contract clauses, FAR 52.204-24 and 52.204-25, which were effective August 13, 2019. These restrictions apply not only to prime contractors, but also to all subcontractors and throughout the supply chain. Concurrent with the release of the FAR interim rule, the Department of Defense (“DoD”) issued a memorandum, laying out DoD procedures to implement the prohibitions contained therein. These 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.
As mandated by the interim rule, the new memo requires DoD contracting officers to include the new contract clauses in solicitations issued after August 13, 2019, as well as previous solicitations where the contract award, task order or delivery order occurs after August 13, 2019. DoD makes clear the contracting officer must include the new clauses and requirements in any new orders, modifications, or exercises of options.
As discussed in our prior blog, contractors must submit a representation as to whether any “covered telecommunications equipment or services” will be provided under the contract. If the contractor represents that it will, DoD will determine whether the equipment or services are “a substantial or essential component of any system,” or constitute “critical technology as part of any system.” If the answer to that question is yes, per FAR 4.2102(b), the only option to permit the contractor to move forward is if it is providing a service that “connects to the services of a third party,” or telecommunications equipment that “cannot route or redirect user data traffic or permit visibility into any user data or packets that such equipment transmits or otherwise handles.”
Notably, if the contractor represents that no covered telecommunications equipment or services will be provided, the contracting officer need not look further into that representation. So long as he or she has no reason to doubt the contractor’s representation, it will be accepted.
Finally, the new DoD memo notes that class deviations from these requirements may be requested by departments and agencies where contracts exclusively involve “commodities or services that would never include covered telecommunications equipment (e.g., produce, paper) or services.” However, class deviations will only be granted where implementing the new requirements would “have a significant impact” on DoD’s ability to meet its mission.
Not surprisingly, as it has implemented its restrictions, DoD has been quite faithful to the new FAR requirements relating to companies such as Huawei and ZTE. As such, defense contractors also should remain aware of developments relating to both the new FAR provisions and DoD’s new guidance.