On August 12, 2020, Director of National Intelligence John Ratcliffe issued a memorandum to the Department of Defense (DOD) that waives DOD’s 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 memorandum delays its policy effects. This waiver allows DOD contractors to continue offering or using such Chinese-based telecommunications equipment in connection with their businesses until September 30, 2020, BUT ONLY for those contractors providing low risk or high volume services such as food, transportation, medical care or services necessary to support DOD’s mission.

As for the basis for DOD’s waiver, the memorandum cites national security concerns as the cause of the waiver. Specifically, DOD Under Secretary of Defense for Acquisition and Sustainment Ellen Lord argued that an extension was needed to enable the DOD to continue providing for the nation’s military forces. The National Defense Industrial Association also noted in a press release that—while they support Section 889 and its implementation—the coronavirus pandemic has damaged the defense industrial base, and an extension is necessary to ensure that defense contractors aren’t overburdened.

At this time, it is unclear if other agencies will be requesting a similar waiver. Director John Ratcliffe noted in the memorandum that, between now and September 30, 2020, the DOD and national intelligence staff will conduct a thorough review of the waiver and determine whether or not it needs to be more broadly extended. Even if it is not, the DOD and defense contractors may receive another waiver through the next coronavirus relief package that Congress passes.

It is also of note that the wavier is not plenary and DOD later clarified that the wavier DOES NOT exempt all supply or service acquisitions, and certainly not procurement dealing with major weapons systems or national security work.  Further, contractors who have non-DOD work must still comply with Part B of Section 889, which prohibits “use” by the contractor in any aspect of their business because no other agencies, to date, have received a similar waiver.  Also, even for DOD procurements where you feel 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.

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. 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 or Anna Wright, the authors of this client alert, or a member of the Firm’s Government Contracts or Cybersecurity & Data Privacy practice groups with your inquiries.  Register here for PilieroMazza’s webinar for a more in-depth analysis of this topic scheduled for August 21, 2020, at 2:00 PM ET.