In August, we wrote about a memorandum issued by Director of National Intelligence John Ratcliffe that waived the Department of Defense’s (DOD) requirements under Section 889 of the National Defense Authorization Act for Fiscal Year 2019. The Federal Register published an interim rule on July 14, 2020, that implemented Section 889, which prohibits agencies from procuring telecommunications equipment and services from Huawei Technologies Company, Hangzhou Hikvision Digital Technology Company, Hytera Communications Company, Dahua Technology Company, and ZTE Corporation. The DOD originally released a memorandum on July 23, 2020, to begin implementing Section 889, but Director Ratcliffe’s August memorandum delayed its policy effects. Today, Director Ratcliffe issued another memorandum signed September 29, 2020, that extends the DOD’s waiver through September 30, 2022.  Contractors should check their contracts to ensure they meet the requirements for this waiver.

Like the previous memorandum, this one cites national security concerns as the cause of the waiver. This new memorandum does not modify anything from the previous waiver except the expiration date. Additionally, the waiver does not exempt all supply or service acquisitions and is only meant to apply to “low risk” items such as food, transportation, and medical care. Still, for DOD procurements where you believe you are providing “low risk” items that should be subject to the wavier, there is no guarantee the waiver applies to any specific contract.  For this reason, be sure to check your contract for the inclusion of the FAR 52.204-24, 52.204-25, and 52-204-26.  If the clauses are in the contract, you may still be required to comply despite this waiver. And, if you have contracts for non-DOD work, you must continue to comply with Section 889, since no other agency besides the DOD has received a waiver.

Because no guidance currently exists from the DOD or Director Ratcliffe detailing which products have “low risk” potential, contractors should develop a process to categorize their purchases by risk and keep a written record of their methodology. They should also be consistent in their risk determinations and, when possible, determine the sources of all of their items, especially the medium and high-risk ones. Section 889 is likely to have some impact on essentially every government contractor, if only in forcing each to conduct a reasonable inquiry into whether prohibited equipment and services are in its supply chain. Accordingly, tracking all items and categorizing them using a reasonable and consistently-applied method will allow you to defend yourself in an inquiry and demonstrate that you are complying with Section 889 guidance to the best of your abilities.

PilieroMazza stands ready to assist government contractors in navigating these new regulations and developing procedures to ensure compliance with Section 889(a)(1)(B).  Please contact Cy Alba, the author of this client alert, or a member of the Firm’s Government Contracts or Cybersecurity & Data Privacy practice groups with your inquiries.