Wide Reaching FAR Rule Touches Every Government Contractor

In the 2019 National Defense Authorization Act, Congress directed federal agencies to stop using products and services from six Chinese companies in Section 889 of the bill. Those companies include: Huawei, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, and Dahua Technology Company. 

Moving quickly, the FAR Council issued an interim final rule, Prohibition on Certain Telecommunications and Video Surveillance Services or Equipment, which became effective on August 13, 2019, and broadly prohibits federal agencies from using telecommunications or surveillance equipment or services from these six companies. Next year, step two, which prohibits any government contractor from using any components or services from these companies is expected to go into effect. Known as Section 889, this action has the potential of impacting all government contractors, large or small—even micropurchases.  

While no one doubts that these companies pose a threat to the nation’s cybersecurity, any government action that affects 139,730 small entities will have wide reaching effects. That was the theme of my participation on a panel at GSA on Section 889. I joined five other panelists to speak about how Section 889 will affect government contractors, especially small businesses. Think for a minute about complying with this new requirement. For example, do you know who manufacturers your desk phones? Do you know what brand the surveillance equipment in your building? If you travel internationally, do you know the telecom carrier you use in your office or hotel? Replacement of equipment will surely carry a cost, but figuring out usage of any components or services from these six companies will prove to be difficult.

 The new FAR rules will not only impact your employees and your physical facility, it will also extend to your workforce comprised of 1099 contractors. A small business owner shared that this new Section 889 requirement could result in her contractors opting out of federal work because the new requirements will be too tough to comply with.

One of my fellow panelists joked that these new requirements will provide full employment to lawyers and compliance experts for years to come. Small businesses will likely need to hire a compliance specialist as well as a specialist to source equipment to stay in compliance with the new rule. One small business stated that it will cost them $10,000 to conduct an audit and provide governance structure, $10,000 for new equipment, and $10,000 to change all of her contracts and educate her 1099s. An audience participant estimated a cost of $150,000 just for new equipment alone.

My greatest concern is that small businesses will not understand the implications of this new requirement until it smacks them in the face—until they don’t qualify for federal work or a prime contractor demands a certification of compliance.  

So, what can the government do to increase awareness among industry about the potential impact of Section 889? First, the government can use small business offices (OSDBUs) and small business specialists to share information about Section 889. Second, GSA can do informational webinars about the impact of the new rule. Third, the government should involve the Small Business Administration (SBA) and Procurement Technical Assistance Centers (PTACs) network. And finally, the government should engage organizations, like WIPP to spread the word about the new Section 889 rule. 

Staying on top of acquisition policies, like Section 889, directly affects your bottom line. That’s the beauty of WIPP – we are dedicated to keeping you informed and engaged.

Regulatory Rigmarole: Advocacy Comes in All Forms

By: Ann Sullivan 

As a member of WIPP, you already know more than the average person about regulations that impact small business owners – regardless of whether they are proposed, interim-final, or final rules. But, you probably don’t know exactly what that means or how they get to those stages in the first place.

The first thing to know is that proposed regulations are known as “rules” and the rulemaking process is lengthier than you might expect. When Congress passes a law, the agency then gets to work to implement it. The final product is a new regulation. To get from passage of a law to a new regulation involves a number of steps by the agencies. 

An agency’s first step is to develop a draft regulation known as a proposed rule. Then, the agency sends the draft to the Office of Information and Regulatory Affairs (OIRA) for review. OIRA is tasked with circulating this regulation among other government agencies, taking into account this feedback. OIRA is a Federal office that was created by Congress 1980. In 1991, an Executive Order directed that the office would formally review all draft proposed and final rules before they were published in the Federal Register.

OIRA makes suggested changes and sends the proposed rule back to the agency. The agency then issues a proposed rule which it publishes on www.regulations.gov  for public comment. The comment period is usually open for 60 days, although some only accept comments for 30 days. Comments are not limited to organizations like WIPP – anyone or any entity can provide comments on a proposed rule.

The agency reviews the public input to revise a final product which typically takes another 60 –90 days and summarizes its findings and issues a final rule. Done, right? Not quite. The final rule once again goes to OIRA for review – only when this approval process is complete can the new regulation be published as a final rule.

Given this process, you now know why WIPP is very active in the regulatory space. By commenting on proposed rules, we have the ability to shape the outcome of the regulation. The devil is in the details, so this stage of advocacy is, in many cases, as important as passage of the law. WIPP has commented on a number of important proposed rules on a variety of issues. In 2019, WIPP submitted comments to SBA on a number of small business contracting rules ranging from the proposed WOSB/EDWOSB certification rule, to the rule implementing the Small Business Runway Extension Act. WIPP also submitted comments to the Department of Defense (DoD) on its proposed Cybersecurity Maturity Model Certification—a far reaching cyber certification which will affect every federal contractor and subcontractor.

The Federal Acquisition Regulation (FAR) Council recently proposed an interim final rule that will amend the FAR to prohibit the federal government from procuring or obtaining, or extending or renewing 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” in order to combat the national security and intellectual property threats that face the United States. The definition of “covered telecommunications equipment or services” are components from: Huawei, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, and Dahua Technology Company. 

The rule prohibits contractors from providing covered telecommunications equipment or services unless the agency confirms that an exception applies or a waiver is granted; requires every offeror for a contract or order to represent whether or not it will provide covered telecommunications equipment or services as part of its offer and, if so, to furnish additional detail about the covered equipment or services; and mandates that contractors report any covered equipment or services if discovered during the course of contract performance. 

It is important to note that the interim rule impacts ALL contractors — not just those that offer information and communication technology. Each contractor is responsible for determining whether telecommunications equipment and services will be provided under both new and existing contracts and orders. WIPP recognized the wide-reaching importance of this rule and jointly submitted comments in response.

On another note, Lowest Price Technically Acceptable (LPTA) has been a long hated acquisition pricing policy in the small business community. Seen as a “race to the bottom,” the FAR Council has issued a proposed rule to avoid using Lowest Price Technically Acceptable (LPTA) source selection criteria in circumstances that would deny the government the benefits of cost and technical tradeoffs in the source selection process. This rule also states specifically that LPTA source selection criteria should be avoided for procurements for IT services, cyber security, systems engineering services, and others. One part of the regulatory process to note— when the FAR Council issues a proposed rule it is listed with a “FAR Case” number instead of a “Regulatory Identification Number” (RIN).

Advocacy comes in all forms. While our team focuses much of our attention on Congressional action, our work with agencies, especially SBA, is every bit as important. Staying vigilant on all fronts is critical to all businesses, large and small. It’s tough to keep up with everything as a small business – I know – I am one.  That’s why membership in WIPP is critical to your bottom line – we follow and initiate the actions important to women-owned businesses. Your job is to get active.