What You Need to Know About the Update to Section 889 FAR Rule on Telecommunications and Surveillance

Whether you’re a new GSA Schedule contractor or have been selling to the federal government for years, it’s important for you to be aware of the regulations you must follow so you can remain GSA compliant. As laws and regulations often change in the government, we are constantly informing our clients of important policy changes and helping them understand how they affect their business. One of the most recent changes was the amendment to Section 889 Federal Acquisitions Regulation (FAR) Rule. 

On August 13, 2020, the FAR was amended to implement a Part B to Section 889 of the National Defense Authorization Act (NDAA) that will restrict contractors’ usage of certain telecommunications and video surveillance equipment or services. This new rule will apply to contractors in every sector. Here is a breakdown of section 889 and what the changes in Part B will mean for you as a government contractor.

What is Section 889?

In 2018, Congress passed the John S. McCain NDAA for the Fiscal Year 2019. Included in Section 889 of this act were two prohibitions regarding the procurement and use of certain telecommunications equipment or services by the government. These restrictions were added due to security concerns about certain foreign-owned telecommunications companies.

FAR 52.204-25 identifies five companies posing a security risk: Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, and Dahua Technology Company. 

More generally, any entity that the Secretary of Defense “reasonably believes…to be owned or controlled by…the government of a covered foreign country” (AKA the People’s Republic of China) is also considered to pose a security risk.

The two parts of Section 889, which are referred to as “Part A” and “Part B,” placed certain restrictions on the government procurement and use of telecommunications equipment or services produced by the companies listed above and their affiliates/subsidiaries. Part A of Section 889 went into effect on August 13, 2019 and Part B went into effect on August 13, 2020.

Part A of Section 889 largely affected the contractors in the telecommunications field. Part A reads as follows:

“The head of an executive agency may not— (A) procure or obtain or extend or renew a contract to procure or obtain any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.”

So, what is this saying? Essentially, the federal government cannot obtain those prohibited telecommunications equipment or services in any capacity, including through extending or renewing a contract with any agency that might sell these certain equipment or services. Contractors were already required to accept Part A of Section 889 into their contract’s terms and conditions via Mass Mod A808 this past year.  

Now, it’s time for Part B to go into effect.  

What’s New in Part B of Section 889?

Part B of Section 889 is more expansive than Part A and adds more restrictions regarding the usage of prohibited telecommunication equipment or services. While Part A prevents the federal government from procuring or using the prohibited equipment or services, Part B prevents GSA contractors from using the prohibited equipment or services.

Part B reads as follows:

“The head of an executive agency may not— (B) enter into a contract (or extend or renew a contract) with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.”

This means that as of August 13, 2020, the federal government will not be able to enter into or renew a contract with an entity that uses any of the prohibited telecommunications equipment or services “as a substantial or essential component of any system,” regardless of whether the usage is related to the performance of a federal contract.

So, it doesn’t matter if you are selling something that isn’t related to the telecommunications field. You will not be able to get on a GSA Schedule if your business uses these prohibited telecommunications equipment or services.  

Terms and Conditions: How the Fine Print Impacts You

There are many complicated facets to being a GSA contractor, and this rule has a lot of fine print that could affect how you handle your business. 

As a GSA Schedule contractor, you have likely heard of some GSA requirements regarding subcontractors. If you utilize subcontractors, it’s important for you to understand how this new rule affects your usage, as Parts A and B of section 889 affect subcontractors in different ways.

The specific language regarding subcontractors goes as follows:

“The 52.204-25 prohibition under section 889(a)(1)(A) will continue to flow down to all subcontractors; however, as required by statute the prohibition for section 889(a)(1)(B) will not flow down because the prime contractor is the only “entity” that the agency “enters into a contract” with, and an agency does not directly “enter into a contract” with any subcontractors, at any tier.”

Unlike Part A, Part B does not flow down to subcontractors. However, you will need to determine if the goods and services that your subcontractor provides are prohibited under this rule. 

If the telecommunication goods and services provided to you by your subcontractor are 1) prohibited and 2) constitute “a substantial and essential component of any system,” then you will need to represent that.

Are There Any Exceptions to Section 889?

You might be wondering if there are any exceptions to this rule. GSA has identified some narrow waivers for contractors who might use these prohibited telecommunications equipment or services.

If a company demonstrates a compelling justification for needing additional time to phase out their usage, contractors may, on a one-time basis, be granted a waiver. The implementation of Part A may be delayed until August 13, 2021, and the implementation of Part B may be delayed until August 13, 2022. These waivers still require that contractors phase out their usage. 

So, no matter who you are, you will not be able to use these prohibited equipment or services if you wish to maintain your contract.

What Are the Next Steps?

If you know that your company or subcontractors use the prohibited telecommunications equipment or services, now is the time to begin planning to phase out your usage of the aforementioned telecommunications companies.

The GSA has developed a six step process for you to follow as you conduct an inquiry into your telecommunications usage:

1. Make sure you are familiar with the new rule that is being implemented.
2. Conduct a “reasonable inquiry” into your usage of telecommunications equipment or services. The GSA defines a “reasonable inquiry” as “an inquiry designed to uncover any information in the entity's possession about the identity of the producer or provider of covered telecommunications equipment or services used by the entity.”
   This includes examining your subcontractors or suppliers that you have a federal contract with and whose usage of telecommunications equipment or services constitute an essential component of any system.
3. Make sure that your purchasing/procurement branch is familiar with the new rule and with your compliance plan.
4. If you discover that you or your subcontractors use the prohibited telecommunications equipment or services, develop a plan to replace those prohibited equipment or services with new equipment or services that are compliant with the new rule.
5. Provide representation to your government point of contact to demonstrate if you use prohibited telecommunications equipment or services. If you discover that the prohibited equipment or services were used during the period of contract performance, then you will need to notify your government point of contact within 24 hours.
6. If you are requesting a waiver to get more time to replace your telecommunications equipment or services, then you will need to prepare a phase-out plan to replace your current prohibited equipment or services, and you will also need to prepare to provide the necessary information for a waiver.

Are You Prepared for this Regulation Change of Section 889?

This new rule is very comprehensive and will impact contractors in every sector. Now is the time to start developing a plan to identify your telecommunications usage and prepare yourself to phase out that equipment or services if necessary. 

This new requirement is a substantial one and may take considerable effort to achieve compliance. 

Winvale is here to help guide you through this change. We offer a broad range of Schedule acquisition and compliance services for businesses in every sector, and we’re happy to help walk you through this new rule.