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New Federal Ban on Chinese Telecom and Video Surveillance Equipment New Federal Ban on Chinese Telecom and Video Surveillance Equipment

New Federal Ban on Chinese Telecom and Video Surveillance Equipment

National security concerns over the long-term risks to the integrity and security of the U.S. telecommunications and internet infrastructure underpin a number of efforts by the federal government to limit the access of foreign equipment and service providers. These regulatory initiatives, which are likely to continue to expand as fifth-generation mobile technologies begin to deploy more widely, will increasingly place a higher burden on private sector companies to police their supply chains more carefully.

One of the major first steps in this direction entered into force on August 13, with a new interim rule that bans federal agencies from purchasing or obtaining telecommunications and video surveillance services or equipment from five Chinese companies, including Huawei. Companies contracting with the federal government, directly or indirectly, will need to move toward a more robust understanding of their supply chains to effectively track the origin of their equipment and services.

Pursuant to the National Defense Authorization Act for Fiscal Year 2019[1], the Federal Acquisition Regulatory Council implemented this interim rule “as a national security measure to protect Government information, and Government information and communication technology systems.”

For any solicitation issued or contract awarded after August 13, federal contracting officers must include new FAR clauses such as FAR 52.204-24 “Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment” and FAR 52.204-25 “Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment.”

Impacts on Government Contractors

For companies contracting with the federal government, this interim rule imposes several new restrictions and requirements. Primarily, it prohibits contractors from providing 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, unless certain exceptions apply. The rule defines “covered telecommunications equipment or services” as follows:
 
  1. Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation, (or any subsidiary or affiliate of such entities);
  2. For the purpose of public safety, security of Government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities);
  3. Telecommunications or video surveillance services provided by such entities or using such equipment; or
  4. Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.[2]
Among other things, the interim rule places the following additional requirements on contractors:
 
  • Contractors submitting offers in response to solicitations who intend to use or provide covered telecommunications equipment or services must provide certain explanations in “substantial detail” about the basis of their use.[3]
  • Contractors who discover that undisclosed “covered” services or equipment were used must report certain information to the government within one day of discovery and other information within ten days.[4]
  • Because the interim rule ban and reporting requirements flow down to subcontractors, prime contractors must include clauses such as FAR 52.204-24 in their subcontracts.[5]
Takeaways

This interim rule highlights the importance of contractors managing their supply chains. In many cases, tracing the provenance of particular equipment may require a difficult back tracing of the supply chain, which is often best done with advance planning. Similarly, in situations where the contractor is uncertain about whether they may be in compliance with the requirements of the new rule, it may be advisable to undertake an internal review. Finally, we strongly recommend that companies more closely integrate supply chain management with their compliance functions to ensure that these regulatory risks are being handled and mitigated at the appropriate level within the organization and with all the necessary stakeholders involved.

For additional information, please contact Guillermo Christensen or Christian Robertson. Guillermo, a former CIA intelligence officer and a diplomat with the U.S. Department of State, is a partner in Ice Miller’s Data Security and Privacy and White Collar Defense Practices. Christian is an associate in Ice Miller’s Government Contracts and Litigation Practices.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
 
[1] John S. McCain National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115–232), § 889(a)(1)(A).
[2] 48 CFR § 4.2101; FAR 52.204-25(a).
[3] FAR 52.204-24(d)(1)-(4).
[4] FAR 52.204-25(d)(2)(i)-(ii).
[5] FAR 52.204-25(e).
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