On August 13, 2018, Congress signed the John S. McCain National Defense Authorization Act (NDAA) into law for fiscal year 2019. The intent behind Section 889 of this Act is to reduce the dependency the United States has on foreign-owned/controlled equipment and services that could potentially create vulnerabilities for the country and its supply chains. This comes as a result of China’s growing assertion in the intelligence community to unethically collect intellectual property.
Section 889 (“Prohibition on Certain Telecommunications and Video Surveillance Services or Equipment”) under the NDAA addresses this national security threat and sets forth a two-pronged prohibition structure. Implemented at FAR
Section 889 Part A
Part A of this ruling under the NDAA became active on August 13, 2019, and forbids the Government from obtaining (via contract or other medium) telecommunications (including video surveillance devices) equipment or services from the following entities and their counterparts:
- Huawei Technologies Company
- ZTE Corporation
- Hytera Communications Corporation
- Hangzhou Hikvision Digital Technology Company
- Dahua Technology Company
While the above list is clear and specific, it is not exhaustive, and the Department of Defense may add to this list at any time. Furthermore, Part A of Section 889 applies to commercial items and micro-purchases.
Section 889 Part B
Unlike Part A, Part B of Section 889 went into effect on August 13, 2020. Component B of Section 889 builds upon Part A and bans the Government from contracting with any entity that utilizes telecommunication services/equipment from any of the entities listed in Part A as a substantial or essential component of any system. This prohibition is applicable to all sectors regardless of what is sold.
This portion of Section 889 also determines contractors’ eligibility to obtain contracts with the Government. Contractors must display that they do not operate and perform job responsibilities with the usage of the restricted equipment/services by means of a “reasonable inquiry.”
In this process of reasonable inquiry, prime contractors conduct a discovery to determine whether prohibited telecommunications equipment/services are being utilized. Contractors and offerors must:
- Represent whether they will or will not provide prohibited telecommunications equipment or services to the Government (FAR 52.204-24(d)(1))
- Represent whether they do or do not use prohibited telecommunications equipment or services, regardless of whether the use is in relation to the performance of a Federal contract. (FAR 52.204-24(d)(2))
Annual SAM representation has been made available as of October 26, 2020, for contractors to represent whether they will or will not provide prohibited telecommunications equipment or services to the Government. SAM now requires contractors to represent matters of usage, as well. With both representations now being required, contractors will be required to re-represent annually on their SAM profiles.
Defining “Use” Under Section 889 (Q&A)
Beneath the dense, and often times unclear, information provided by the Government, lay the answers to questions that many contractors may have. Below are some of the most commonly asked questions regarding the term “use” in Part A and B of Section 889:
- Does representation of use apply to affiliates, parents, subsidiaries, subcontractors, and supplies? No, representation is limited to use by the offeror itself.
- Does use cover the use of equipment/systems/services owned and/or provided to the offeror by other companies? Yes.
- Does use apply to all equipment/services? No, it only applies to use of equipment/services that are a substantial or essential element of any system.
Reporting Timeframe & Details of Prohibited Equipment
In the event the banned telecom equipment/services is being used during contract performance, contractors (and subcontractors) must report usage and notify the Government (FAR 52.204-25(d)(1)).
Under Part A of Section 889, the reporting timeframe for the discovery of prohibited equipment/services has been modified from one day to three days, giving contractors more time to report. In terms of submitting mitigation plan information to remove banned devices, contractors have 30 days.
While Part B explains that the Government may not contract with any entity that uses equipment/services from the five named companies as an essential component of any system, it also states that all systems a contractor’s company uses must be checked regardless if equipment/services is essential.
Are There Any Exceptions?
As of the present day, there are a few allowances to Section 889 that contractors should be aware of:
-Equipment/services that cannot route or redirect user data traffic or permit visibility into user data are permissible.
-Prohibitions do not apply to the Government working with an entity to provide a service that connects to the facilities of a third-party, such as backhaul, roaming, or interconnection arrangements.
- Backhaul: Part of a satellite network that serves as an intermediate between the main network and the small networks used for distribution to other smaller channels.
- Interconnection arrangements: Arrangements governing the physical connection of two or more networks to allow the use of another’s network to hand off traffic where it is ultimately delivered or sharing data and other information resources.
- Roaming: Cellular communications services received from a visited network when unable to connect to the home network.
How to Assess Compliance Under Section 889
As much as contractors become familiar with the prohibitions under Section 889, it can be difficult to understand how these regulations apply in real-time. Below is a brief checklist contractors can implement to assess compliance with Section 889:
While waivers are available for entities to apply for more time to implement the requirements under Section 889, they are very limited and only granted in exceptional circumstances. It is critical that contractors and subcontractors enforce and abide by this ruling to avoid termination and other costly consequences.
For further guidance on Section 889, please contact our Government Contracting team.
About Zach Ficklin
Senior Finance Consultant
Zach Ficklin holds the position of Senior Finance Consultant at Ryan & Wetmore, P.C. He primarily works with clients on business consulting, finance, budgeting, scenario modeling, optimization, mergers and acquisitions, federal contracting, and various other analytical industry-specific solutions.
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About Peter Ryan
Partner, Co-founder, & CPA
Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries, including government contracting. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America.
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