Federal Acquisition Regulation: Prohibition on Contracting With Entities Using Certain Telecommunications and Video Surveillance Services or Equipment, 53126-53134 [2020-18772]

Agencies

• DEPARTMENT OF DEFENSE
• General Services Administration
• National Aeronautics and Space Administration

[Federal Register Volume 85, Number 167 (Thursday, August 27, 2020)]
[Rules and Regulations]
[Pages 53126-53134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18772]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 4 and 52

[FAC 2020-09; FAR Case 2019-009; Docket No. FAR-2019-0009, Sequence No. 
2]
RIN 9000-AN92


Federal Acquisition Regulation: Prohibition on Contracting With 
Entities Using Certain Telecommunications and Video Surveillance 
Services or Equipment

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Interim rule.

-----------------------------------------------------------------------

[[Page 53127]]

SUMMARY: DoD, GSA, and NASA are issuing a second interim rule amending 
the Federal Acquisition Regulation (FAR) to require an offeror to 
represent annually, after conducting a reasonable inquiry, whether it 
uses covered telecommunications equipment or services, or any 
equipment, system, or service that uses covered telecommunications 
equipment or services. The new annual representation in the provision 
implements a section of the John S. McCain National Defense 
Authorization Act for Fiscal Year 2019.

DATES: Effective: October 26, 2020.
    Applicability: Contracting officers shall include the provision at 
FAR 52.204-26, Covered Telecommunications Equipment or Services-
Representation--
     In solicitations issued on or after the effective date; 
and
     In solicitations issued before the effective date, 
provided award of the resulting contract(s) occurs on or after the 
effective date.
    Comment date: Interested parties should submit written comments to 
the Regulatory Secretariat Division at one of the addresses shown below 
on or before October 26, 2020 to be considered in the formation of the 
final rule.

ADDRESSES: Submit comments in response to FAR Case 2019-009 via the 
Federal eRulemaking portal at Regulations.gov by searching for ``FAR 
Case 2019-009''. Select the link ``Comment Now'' that corresponds with 
FAR Case 2019-009. Follow the instructions provided at the ``Comment 
Now'' screen. Please include your name, company name (if any), and 
``FAR Case 2019-009'' on your attached document. If your comment cannot 
be submitted using https://www.regulations.gov, call or email the 
points of contact in the FOR FURTHER INFORMATION CONTACT section of 
this document for alternate instructions.
    Instructions: Please submit comments only and cite ``FAR Case 2019-
009'' in all correspondence related to this case. All comments received 
will be posted without change to https://www.regulations.gov, including 
any personal and/or business confidential information provided. To 
confirm receipt of your comment(s), please check www.regulations.gov, 
approximately two to three days after submission to verify posting.
    All filers using the portal should use the name of the person or 
entity submitting comments as the name of their files, in accordance 
with the instructions below. Anyone submitting business confidential 
information should clearly identify the business confidential portion 
at the time of submission, file a statement justifying nondisclosure 
and referencing the specific legal authority claimed, and provide a 
non-confidential version of the submission.
    Any business confidential information should be in an uploaded file 
that has a file name beginning with the characters ``BC.'' Any page 
containing business confidential information must be clearly marked 
``BUSINESS CONFIDENTIAL'' on the top of that page. The corresponding 
non-confidential version of those comments must be clearly marked 
``PUBLIC.'' The file name of the non-confidential version should begin 
with the character ``P.'' The ``BC'' and ``P'' should be followed by 
the name of the person or entity submitting the comments or rebuttal 
comments. All filers should name their files using the name of the 
person or entity submitting the comments. Any submissions with file 
names that do not begin with a ``BC'' or ``P'' will be assumed to be 
public and will be made publicly available through https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: [email protected] or call 202-969-
4075. Please cite FAR Case 2019-009.

SUPPLEMENTARY INFORMATION:

I. Background

    The Federal Acquisition Regulations System codifies and publishes 
uniform policies and procedures for acquisitions by all executive 
agencies. The Federal Acquisition Regulations System consists of the 
Federal Acquisition Regulation (FAR), which is the primary document, 
and agency acquisition regulations, which implement or supplement the 
FAR.
    In order to combat the national security and intellectual property 
threats that face the United States, section 889(a)(1)(B) of the John 
S. McCain National Defense Authorization Act (NDAA) for Fiscal Year 
(FY) 2019 (Pub. L. 115-232) prohibits executive agencies from entering 
into, or extending or renewing, 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. The statute 
goes into effect August 13, 2020.
    ``Covered telecommunications equipment or services,'' as defined in 
the statute, means--
     Telecommunications equipment produced by Huawei 
Technologies Company or ZTE Corporation (or any subsidiary or affiliate 
of such entities);
     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);
     Telecommunications or video surveillance services provided 
by such entities or using such equipment; or
     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.
    To implement section 889(a)(1)(B) of the NDAA for FY 2019, DoD, 
GSA, and NASA published the first interim rule at 85 FR 42665 on July 
14, 2020. The first interim rule added a representation to the 
provision at FAR 52.204-24(d)(2), Representation Regarding Certain 
Telecommunications and Video Surveillance Services or Equipment, which 
required offerors to represent on an offer-by-offer basis if the 
offeror ``does'' or ``does not'' use covered telecommunications 
equipment or services, or use any equipment, system, or service that 
uses covered telecommunications equipment or services, and if it does, 
require the offeror to provide additional disclosures.
    This second interim rule further implements section 889(a)(1)(B). 
It reduces burden on the public by allowing an offeror that represents 
``does not'' in a new annual representation at FAR 52.204-26(c)(2), 
Covered Telecommunications Equipment or Services--Representation, or in 
paragraph (v)(2)(ii) of FAR 52.212-3, Offeror Representations and 
Certifications-Commercial Items, to skip the offer-by-offer 
representation within the provision at FAR 52.204-24(d)(2), 
Representation Regarding Certain Telecommunications and Video 
Surveillance Services or Equipment. Updates to the System for Award 
Management (SAM) were necessary to add this new annual representation 
and require offerors to represent annually, after conducting a 
reasonable inquiry, whether it uses covered telecommunications 
equipment or services, or any equipment, system, or service that uses 
covered telecommunications equipment or services. These updates to SAM 
to

[[Page 53128]]

reduce the burden of the first interim rule were not available by the 
effective date of the first interim rule; therefore, these updates are 
being made in this interim rule.
    SAM is used by anyone interested in the business of the Federal 
Government, including--
     Entities (contractors, Federal assistance recipients, and 
other potential award recipients) who need to register to do business 
with the Government, look for opportunities or assistance programs, or 
report subcontract information;
     Government contracting and grants officials responsible 
for activities with contracts, grants, past performance reporting and 
suspension and debarment activities;
     Public users searching for Government business 
information.
    Representations and Certifications are FAR requirements that anyone 
wishing to apply for Federal contracts must complete. Representations 
and Certifications require entities to represent or certify to a 
variety of statements ranging from environmental rules compliance to 
entity size representation.
    Agencies use the SAM entity registration information to verify 
recipient compliance with requirements. This reduces the duplicative 
practice of contractors filling out in full all the representations and 
certifications on an offer-by-offer basis. Instead the representations 
and certifications may be filled out annually and electronically.
    Offerors shall consult SAM to validate whether the equipment or 
services they are using are from an entity providing equipment or 
services listed in the definition of ``covered telecommunications 
equipment or services.'' The offerors will conduct a reasonable inquiry 
as to whether they use covered telecommunications equipment or services 
or any equipment, system, or service that uses covered 
telecommunications equipment or services.

II. Discussion and Analysis

    This second interim rule adds an annual representation to the FAR 
at 52.204-26, Covered Telecommunications Equipment or Services--
Representation, paragraph (c)(2), which requires an offeror to 
represent, after conducting a reasonable inquiry, whether it ``does'' 
or ``does not'' use covered telecommunications equipment or services, 
or any equipment, system or service that uses covered 
telecommunications equipment or services. The commercial item 
equivalent is at paragraph (v)(2)(ii) of FAR 52.212-3, Offeror 
Representations and Certifications-Commercial Items. If an offeror 
represents it ``does not,'' the offer-by-offer representation at FAR 
52.204-24(d)(2) is not required. If the offeror represents it ``does,'' 
or has not made any representation in FAR 52.204-26(c)(2) or 52.212-
3(v)(2)(ii), the representation at FAR 52.204-24(d)(2) is required. The 
FAR 52.204-26 representation is prescribed at FAR 4.2105(c) for use in 
all solicitations.
    The purpose of this change is to limit the requirement to represent 
at FAR 52.204-24(d)(2) to only offerors that use covered 
telecommunication equipment or services, or use any equipment, system, 
or service that uses covered telecommunications equipment or services.
    This interim rule provides procedures at FAR 4.2103 for contracting 
officers handling offeror representations in the provisions at FAR 
52.204-24 and 52.204-26. A contracting officer may generally rely on an 
offeror's representation in the provisions at FAR 52.204-24 and 52.204-
26 that the offeror does not use any covered telecommunication 
equipment or services, or use any equipment, system or service that 
uses covered telecommunications equipment or services, unless the 
contracting officer has a reason to question the representation. In 
such cases the contracting officer shall follow agency procedures 
(e.g., consult the requiring activity and legal counsel).

III. Regulatory Impact Analysis Pursuant to Executive Orders 12866 and 
13563

    The costs and transfer impacts of section 889(a)(1)(B) are 
discussed in the analysis below. This analysis was developed by the FAR 
Council in consultation with agency procurement officials and the 
Office of Management and Budget (OMB). We request public comment on the 
costs, benefits, and transfers generated by this rule.

A. Benefits

    This rule provides significant national security benefits to the 
general public. According to the White House article ``A New National 
Security Strategy for a New Era'', the four pillars of the National 
Security Strategy (NSS) are to protect the homeland, promote American 
prosperity, preserve peace through strength, and advance American 
influence.\1\ The purpose of this rule is to align with the NSS pillar 
to protect the homeland, by protecting the homeland from the impact of 
Federal contractors using covered telecommunications equipment or 
services that present a national security concern.
---------------------------------------------------------------------------

    \1\ https://www.whitehouse.gov/articles/new-national-security-strategy-new-era/.
---------------------------------------------------------------------------

    The United States faces an expanding array of foreign intelligence 
threats by adversaries who are using increasingly sophisticated methods 
to harm the Nation.\2\ Threats to the United States posed by foreign 
intelligence entities are becoming more complex and harmful to U.S. 
interests.\3\ Foreign intelligence actors are employing innovative 
combinations of traditional spying, economic espionage, and supply 
chain and cyber operations to gain access to critical infrastructure, 
and steal sensitive information and industrial secrets.\4\ The 
exploitation of key supply chains by foreign adversaries represents a 
complex and growing threat to strategically important U.S. economic 
sectors and critical infrastructure.\5\ The increasing reliance on 
foreign-owned or controlled telecommunications equipment, such as 
hardware or software, and services, as well as the proliferation of 
networking technologies may create vulnerabilities in our nation's 
supply chains.\6\ The evolving technology landscape is likely to 
accelerate these trends, threatening the security and economic well-
being of the American people.\7\
---------------------------------------------------------------------------

    \2\ National Counterintelligence Strategy of the United States 
of America 2020-2022.
    \3\ National Counterintelligence Strategy of the United States 
of America 2020-2022.
    \4\ National Counterintelligence Strategy of the United States 
of America 2020-2022.
    \5\ National Counterintelligence Strategy of the United States 
of America 2020-2022.
    \6\ National Counterintelligence Strategy of the United States 
of America 2020-2022.
    \7\ National Counterintelligence Strategy of the United States 
of America 2020-2022.
---------------------------------------------------------------------------

    Since the People's Republic of China possesses advanced cyber 
capabilities that it actively uses against the United States, a 
proactive cyber approach is needed to degrade or deny these threats 
before they reach our nation's networks, including those of the Federal 
Government and its contractors. China is increasingly asserting itself 
by stealing U.S. technology and intellectual property in an effort to 
erode the United States' economic and military superiority.\8\ Chinese 
companies, including the companies identified in this rule, are legally 
required to cooperate with their intelligence services.\9\ China's 
reputation for

[[Page 53129]]

persistent industrial espionage and close collaboration between its 
government and industry in order to amass technological secrets 
presents additional threats for U.S. Government contractors.\10\ 
Therefore, there is a risk that Government contractors using 5th 
generation wireless communications (5G) and other telecommunications 
technology from the companies covered by this rule could introduce a 
reliance on equipment that may be controlled by the Chinese 
intelligence services and the military in both peacetime and 
crisis.\11\
---------------------------------------------------------------------------

    \8\ National Counterintelligence Strategy of the United States 
of America 2020-2022.
    \9\ NATO Cooperative Cyber Defense Center of Excellence Report 
on Huawei, 5G and China as a Security Threat.
    \10\ NATO Cooperative Cyber Defense Center of Excellence Report 
on Huawei, 5G and China as a Security Threat.
    \11\ NATO Cooperative Cyber Defense Center of Excellence Report 
on Huawei, 5G and China as a Security Threat.
---------------------------------------------------------------------------

    The 2019 Worldwide Threat Assessment of the Intelligence Community 
\12\ highlights additional threats regarding China's cyber espionage 
against the U.S. Government, corporations, and allies. The U.S.-China 
Economic and Security Review Commission Staff Annual Reports \13\ 
provide additional details regarding the United States' national 
security interests in China's extensive engagement in the U.S. 
telecommunications sector. In addition, the U.S. Senate Select 
Committee on Intelligence Open Hearing on Worldwide Threats \14\ 
further elaborates on China's approach to gain access to the United 
States' sensitive technologies and intellectual property. The U.S. 
House of Representatives Investigative Report on the U.S. National 
Security Issues Posed by Chinese Telecommunications Companies Huawei 
and ZTE \15\ further identifies how the risks associated with Huawei's 
and ZTE's provision of equipment to U.S. critical infrastructure could 
undermine core U.S. national security interests.
---------------------------------------------------------------------------

    \12\ https://www.dni.gov/files/ODNI/documents/2019-ATA-SFR_
SSCI.pdf.
    \13\ https://www.uscc.gov/annual-reports/archives.
    \14\ https://www.intelligence.senate.gov/sites/default/files/hearings/CHRG-115shrg28947.pdf.
    \15\ https://intelligence.house.gov/news/documentsingle.aspx?DocumentID=96.
---------------------------------------------------------------------------

    Currently, Government contractors may not consider broad national 
security interests of the general public when they make decisions. This 
rule ensures that Government contractors make decisions in accordance 
with public national security interests, by ensuring that, pursuant to 
statute, they do not use covered telecommunications equipment or 
services that present national security concerns. This rule will also 
assist contractors in mitigating supply chain risks (e.g., potential 
theft of trade secrets and intellectual property) due to the use of 
covered telecommunications equipment or services.

B. Risks to Industry of Not Complying With 889

    As a strictly contractual matter, an organization's failure to 
submit an accurate representation to the Government constitutes a 
breach of contract that can lead to cancellation, termination, and 
financial consequences.
    Therefore, it is important for contractors to develop a compliance 
plan that will allow them to submit accurate representations to the 
Government in the course of their offers.

C. Contractor Actions Needed for Compliance

    The interim rule published at 85 FR 42665 on July 14, 2020, 
provides a 6 step process for compliance. This second interim rule 
updates the requirements for step 1 (regulatory familiarization) and 
step 5 (representation) by requiring familiarization with the new 
representation within the provision at 52.204-26 and submitting this 
new representation.

D. Public Costs and Savings

    During the first year after publication of the rule, contractors 
will need to learn about the new representation in the provision at 
52.204-26 and its requirements. The DOD, GSA, and NASA (collectively 
referred to here as the Signatory Agencies) estimate this cost by 
multiplying the time required to review the regulations and guidance 
implementing the rule by the estimated compensation of a general 
manager.
    To estimate the burden to Federal offerors associated with 
complying with the rule, the percentage of Federal contractors that 
will be impacted was pulled from Federal databases. According to data 
from the System for Award Management (SAM), as of February 2020, there 
were 387,967 unique vendors registered in SAM. As of September 2019, 
about 74% of all SAM entities registered for all awards were awarded to 
entities with the primary NAICS code as small; therefore, it is assumed 
that out of the 387,967 unique vendors registered in SAM in February 
2020, 287,096 entities are unique small entities.
    We estimate that this rule will also affect businesses which become 
Federal contractors in the future. Based on data in SAM for FY16-FY19, 
the Signatory Agencies anticipate there will be an average of 79,319 
\16\ new entities registering annually in SAM, of which 74%, 58,696, 
are anticipated to be small businesses.
---------------------------------------------------------------------------

    \16\ This value is based on data on new registrants in SAM.gov 
on average for FY16, FY17, FY18, and FY19.
---------------------------------------------------------------------------

1. Time To Review the Rule
    Below is a list of compliance activities related to regulatory 
familiarization that the Signatory Agencies anticipate will occur after 
issuance of the rule:

    Familiarization with paragraph (c)(2) of FAR 52.204-26, Covered 
Telecommunications Equipment or Services--Representation. The 
Signatory Agencies assume that it will take all vendors who plan to 
submit an offer for a Federal award 8 \17\ hours to familiarize 
themselves with the representation at FAR 52.204-26, Covered 
Telecommunications Equipment or Services--Representation. The 
Signatory Agencies assume that all entities registered in SAM, or 
387,967 \18\ entities will complete the representation as it is 
required in order have a current, accurate, and complete 
registration in SAM. Therefore, the Signatory Agencies calculated 
the total estimated cost for this part of the rule to be $294 
million (= 8 hours x $94.76 \19\ per hour x 387,967). Of the 387,967 
entities impacted by this part of the rule, it is assumed that 74% 
\20\ or 287,096 entities are unique small entities.
---------------------------------------------------------------------------

    \17\ The 8 hours are an assumption based on historical 
familiarization hours and subject matter expert judgment.
    \18\ According to data from the System for Award Management 
(SAM), as of February 2020, there were 387,967 unique vendors 
registered in SAM.
    \19\ The rate of $94.76 assumes an FY19 GS 13 Step 5 salary 
(after applying a 100% adjustment for overhead and benefits to the 
base rate) based on subject matter judgment.
    \20\ As of September 2019, about 74% of all SAM entities 
registered for all awards were awarded to entities with the primary 
NAICS code as small.
---------------------------------------------------------------------------

    In subsequent years, it is estimated that these costs will be 
incurred by 79,319 \21\ new entrants each year. Therefore, the 
Signatory Agencies calculated the total estimated cost for this part 
of the rule to be $60 million (= 8 hours x $94.76 per hour x 79,319) 
per year in subsequent years.
---------------------------------------------------------------------------

    \21\ This value is based on data on new registrants in SAM.gov 
on average for FY16, FY17, FY18, and FY19.

    The total cost estimated to review the amendments to the provision 
and the clause is estimated to be $294 million in the first year after 
publication. In subsequent years, this cost is estimated to be $60 
million annually. The FAR Council acknowledges that there is 
substantial uncertainty underlying these estimates.
2. Time To Complete the Representation
52.204-26
    For the annual representation at FAR 52.204-26(c)(2), we assume 
that all entities registered in SAM will fill out the annual 
representation in order to

[[Page 53130]]

maintain a current, accurate, and complete registration in SAM. It is 
assumed it will take 1 \22\ hour to complete the annual representation. 
Therefore, the Signatory Agencies assumed the cost for this portion of 
the rule to be $36.8 million (= 1 hour x $94.76 \23\ per hour x 387,967 
\24\ entities registered in SAM).
---------------------------------------------------------------------------

    \22\ The hours are an assumption based on subject matter expert 
judgment.
    \23\ The rate of $94.76 assumes an FY19 GS 13 Step 5 salary 
(after applying a 100% adjustment for overhead and benefits to the 
base rate) based on subject matter judgment.
    \24\ According to data from the System for Award Management 
(SAM), as of February 2020, there were 387,967 unique vendors 
registered in SAM.
---------------------------------------------------------------------------

    In subsequent years, we assume that all entities that register in 
SAM will continue to complete the representation to ensure their SAM 
registration is current, accurate, and complete. Therefore, it is 
assumed that these costs will be incurred by the 387,967 \25\ entities 
in SAM that are required to represent at least annually. Therefore, the 
Signatory Agencies calculated the total estimated cost for this part of 
the rule to be $36.8 million (= 1 \26\ hour x $94.76 per hour x 
(387,967 entities)) per year in subsequent years.
---------------------------------------------------------------------------

    \25\ This number assumes that 79,319 both enter and exit as 
registrants in SAM with the average number of entities registered 
each year are 387,967.
    \26\ The hours are an assumption based on subject matter expert 
judgment.
---------------------------------------------------------------------------

    The FAR Council notes that the annual representation will likely 
reduce the burden on the public in cases where offerors represent 
``does not'' in the annual representation at FAR 52.204-26(c)(2), 
Covered Telecommunications Equipment or Services--Representation or in 
paragraph (v)(2)(ii) of FAR 52.212-3, Offeror Representations and 
Certifications-Commercial Items; offerors can skip the offer-by-offer 
representation within the provision at FAR 52.204-24(d)(2), 
Representation Regarding Certain Telecommunications and Video 
Surveillance Services or Equipment.
    There is no way for the FAR Council to know how many of the annual 
representations at FAR 52.204-26(c)(2), Covered Telecommunications 
Equipment or Services--Representation or in paragraph (v)(2)(ii) of FAR 
52.212-3, Offeror Representations and Certifications-Commercial Items, 
will include a response of ``does not'', which would allow offerors to 
skip the offer-by-offer representation within the provision at FAR 
52.204-24(c)(2), Representation Regarding Certain Telecommunications 
and Video Surveillance Services or Equipment.
52.204-24
    In the first interim rule, this provision was required for 100% of 
the offers submitted. For this interim rule, the FAR Council assumes 
that 20% of entities will no longer have to complete the offer-by-offer 
representation in year 1, this would result in a cost savings of $2.2 
billion = (3 \27\ hours x $94.76 per hour x (20% * 102,792 unique 
entities x 378 \28\ responses per entity).
---------------------------------------------------------------------------

    \27\ The hours are an assumption based on subject matter expert 
judgment for an offer-by-offer representation.
    \28\ The responses per entity is calculated by dividing the 
average number of annual awards in FY16-19 by the average number of 
unique entities awarded a contract (38,854,291 awards/102,792 unique 
awardees = 378).
---------------------------------------------------------------------------

    In subsequent years, it is assumed that more offerors will respond 
``does not'' in the annual representation and will be able to skip the 
offer-by-offer representation, however, the FAR Council lacks data to 
estimate this. The FAR Council believes that many entities will take 
advantage of this flexibility in order to reduce costs, and more will 
take advantage of the flexibility over time. Therefore, in subsequent 
years we believe that there will be more cost savings generated by 
having an annual representation. In the first interim rule, the FAR 
Council estimated 26% of new entrants would need to complete the offer-
by-offer representation. We assume that this rule will reduce this 
fraction by half. This implies that in year 2 and beyond 50% of the 
burden calculated in the first interim rule ($2.2 billion per year) 
will be eliminated due to the entities each year responding ``does 
not'' in the annual representation and skipping the offer-by-offer 
representations. Therefore, the cost savings is estimated to be $1.1 
billion.
    The total cost savings of the above Public Cost Estimate by adding 
the annual representation in Year 1 is at least (Savings - Cost: 
$2,200M - 331M Cost): $1.6 billion.
    The total costs of the above Cost Estimate Savings by adding the 
annual representation in Year 2 is at least (Savings - Cost: $1,100M - 
$97M): $1,003 million.
    The total costs savings estimate per year by adding the annual 
representation in subsequent years is at least (Savings - Cost $1,100M 
- $97M): $1,003 million.
    The following is a summary of the total public cost savings of this 
rule calculated in perpetuity at a 3 and 7-percent discount rate:

------------------------------------------------------------------------
                                                                 Total
                      Summary (billions)                         costs
------------------------------------------------------------------------
Present Value (3%)...........................................     -$34.3
Annualized Costs (3%)........................................       -1.0
Present Value (7%)...........................................      -15.1
Annualized Costs (7%)........................................       -1.1
------------------------------------------------------------------------

    The FAR Council acknowledges that there is substantial uncertainty 
underlying these estimates, including elements for which an estimate is 
unavailable given inadequate information. As more information becomes 
available, including through comment in response to this notice, the 
FAR Council will seek to update these estimates which could increase or 
decrease the estimated net savings.

E. Government Cost and Savings Analysis

    The FAR Council anticipates significant impact to the Government as 
a result of implementation of section 889(a)(1)(B) of the NDAA for FY 
2019. This rule seeks to reduce the overall burden.
    The primary cost to the Government will be to review the new annual 
representation (52.204-26(c)(2)) in SAM. However, there are anticipated 
savings from the reduction in the number of offer-by-offer 
representations (52.204-24(d)(2)).
52.204-26
    For the annual representation at FAR 52.204-26(c)(2), we assume 
that the Government will need to review the annual representation at 
52.204-26(c)(2) when the representation at 52.204-24(d)(2) has not been 
completed by the offeror. It is estimated 80 percent of offers received 
will include a completed offer-by-offer representation; therefore, an 
estimated 20 percent of offers received will rely on the annual 
representation. The average total number of awards per fiscal year is 
38,854,291.\29\ The number of offers received for a solicitation that 
results in an award varies from one to hundreds. A conservative 
estimate is 3 offers per award. Therefore, the Signatory Agencies 
estimate the total number of offers the Government receives in a year 
is 116,562,873. As previously stated, it is estimated that 20 percent 
of offers received will rely on the annual representation, or 
23,312,575 (= 116,562,873*20%). At 5 minutes (.083 hour) per review the 
total cost for year 1 and all subsequent years is estimated to be 
$183.4 million (= 38,854,291 x 3 x 20% x .083 x $94.76 \30\).
---------------------------------------------------------------------------

    \29\ Based on FY16-19 FPDS data.
    \30\ The rate of $95.76 assumes an FY19 GS 13 Step5 salary 
(after applying a 100% adjustment for overhead and benefits to the 
base rate) based on subject matter judgement.

---------------------------------------------------------------------------

[[Page 53131]]

52.204-24
    In the first interim rule, this provision was required for 100% of 
the offers submitted. For this interim rule, the FAR Council assumes 
that 20% of entities will no longer have to complete the offer-by-offer 
representation in year 1, this would result in a cost savings of $2.2 
billion = (20% x 3 \31\ hours x $94.76 per hour x 102,792 unique 
entities x 378 \32\ responses per entity) because the Government would 
have to review less representations for 52.204-24.
---------------------------------------------------------------------------

    \31\ The hours are an assumption based on subject matter expert 
judgment for an offer-by-offer representation.
    \32\ The responses per entity is calculated by dividing the 
average number of annual awards in FY16-19 by the average number of 
unique entities awarded a contract (38,854,291 awards/102,792 unique 
awardees = 378).
---------------------------------------------------------------------------

    In subsequent years, it is assumed that fewer offerors will respond 
``does'' in the annual representation and will be required to complete 
the offer-by-offer representation, however, the FAR Council lacks data 
to estimate this. The FAR Council believes that many entities will take 
advantage of this flexibility in order to reduce costs, and more will 
take advantage of the flexibility over time.
    This implies that in year 2 and beyond 50% of the burden calculated 
in the first interim rule ($2.2 billion per year) will be eliminated 
due to the entities each year responding ``does not'' in the annual 
representation and skipping the offer-by-offer representations. 
Therefore, the cost savings is estimated to be $1.1 billion.
    The total cost savings of the above Government Cost Estimate by 
adding the annual representation in Year 1 is at least (Savings - Cost: 
$2,200M - 183.4M Cost): $2 billion.
    The total cost savings of the above Government Cost Estimate 
Savings by adding the annual representation in Year 2 is at least 
(Savings - Cost: $1,100M - $183.4M): $0.9 billion.
    The total Government cost savings estimate per year by adding the 
annual representation in subsequent years is at least (Savings - Cost 
$1,100M - $183.4M): $0.9 billion.
    The following is a summary of the estimated Government costs 
savings calculated in perpetuity at a 3 and 7-percent discount rate:

------------------------------------------------------------------------
                                                                 Total
                      Summary (billions)                         costs
------------------------------------------------------------------------
Present Value (3%)...........................................     -$31.6
Annualized Costs (3%)........................................        -.9
Present Value (7%)...........................................      -14.1
Annualized Costs (7%)........................................       -1.0
------------------------------------------------------------------------

F. Analysis of Alternatives

    The FAR Council could take no further regulatory action to 
implement this statute. However, this alternative would not provide the 
more efficient implementation and enforcement of the important national 
security measures accomplished by this rule as detailed above in 
section C. As a result, we reject this alternative.

IV. Specific Questions For Comment

    To understand the exact scope of this impact and how this impact 
could be affected in subsequent rulemaking, DoD, GSA, and NASA welcome 
input on the following questions regarding anticipated impact on 
affected parties.
     What additional information or guidance do you view as 
necessary to effectively comply with this rule?
     What challenges do you anticipate facing in effectively 
complying with this rule?

V. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Items, Including Commercially 
Available Off-the-Shelf (COTS) Items

    In the first interim rule, the FAR Council determined that it would 
not be in the best interest of the Federal Government to exempt 
contracts and subcontracts in amounts not greater than the SAT, 
commercial item contracts, and contracts for the acquisition of COTS 
items, from the provision of law. As the second interim rule makes only 
administrative changes to the process of collecting information, and 
does not affect the scope of applicability of the prohibition, those 
determinations remain applicable. This rule adds a representation to 
the provision at FAR 52.204-26, Covered Telecommunications Equipment or 
Services--Representation, in order to implement section 889(a)(1)(B) of 
the NDAA for FY 2019, which prohibits executive agencies from entering 
into, or extending or renewing, 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 on or after 
August 13, 2020, unless an exception applies or a waiver has been 
granted.

A. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold

    41 U.S.C. 1905 governs the applicability of laws to acquisitions at 
or below the SAT. Section 1905 generally limits the applicability of 
new laws when agencies are making acquisitions at or below the SAT, but 
provides that such acquisitions will not be exempt from a provision of 
law under certain circumstances, including when the FAR Council makes a 
written determination and finding that it would not be in the best 
interest of the Federal Government to exempt contracts and subcontracts 
in amounts not greater than the SAT from the provision of law.

B. Applicability to Contracts for the Acquisition of Commercial Items, 
Including Commercially Available Off-the-Shelf Items

    41 U.S.C. 1906 governs the applicability of laws to contracts for 
the acquisition of commercial items, and is intended to limit the 
applicability of laws to contracts for the acquisition of commercial 
items. Section 1906 provides that if the FAR Council makes a written 
determination that it is not in the best interest of the Federal 
Government to exempt commercial item contracts, the provision of law 
will apply to contracts for the acquisition of commercial items.
    Finally, 41 U.S.C. 1907 states that acquisitions of COTS items will 
be exempt from a provision of law unless certain circumstances apply, 
including if the Administrator for Federal Procurement Policy makes a 
written determination and finding that would not be in the best 
interest of the Federal Government to exempt contracts for the 
procurement of COTS items from the provision of law.

C. Determinations

    In issuing the first interim rule, the FAR Council determined that 
it is in the best interest of the Government to apply the rule to 
contracts at or below the SAT and for the acquisition of commercial 
items, and the Administrator for Federal Procurement Policy determined 
that it is in the best interest of the Government to apply that rule to 
contracts for the acquisition of COTS items. The changes made in this 
rule are administrative changes to the process of collecting required 
information, and do not alter those determinations.

VI. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of

[[Page 53132]]

harmonizing rules, and of promoting flexibility. This rule has been 
designated a ``significant regulatory action'' under E.O. 12866. 
Accordingly, the OMB has reviewed this rule. This second interim rule 
is a major rule under 5 U.S.C. 804.

VII. Executive Order 13771

    This rule is subject to the requirements of E.O. 13771. The final 
rule designation, as regulatory or deregulatory under E.O. 13771, will 
be informed by the comments received from this interim rule. Details of 
estimates of costs or savings can be found in section III of this 
preamble.

VIII. Regulatory Flexibility Act

    For the first interim rule, DoD, GSA, and NASA performed an Initial 
Regulatory Flexibility Analysis (IRFA).
    Although the second interim rule would on aggregate reduce burdens, 
DoD, GSA, and NASA expect that this rule may have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. An 
Initial Regulatory Flexibility Analysis (IRFA) has been performed, and 
is summarized as follows:

    The reason for this second interim rule is to further implement 
section 889(a)(1)(B) of the John S. McCain National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115-232) 
by allowing offerors to represent annually whether they use any 
covered telecommunications equipment or services, or any equipment, 
system, or service that uses covered telecommunications equipment or 
services.
    The objective of the rule is to provide an information 
collection mechanism that relies on an annual representation, 
thereby reducing the burden of providing information, in some cases, 
that is required to enable agencies to determine and ensure that 
they are complying with section 889(a)(1)(B). The legal basis for 
the rule is section 889(a)(1)(B) of the NDAA for FY 2019, which 
prohibits executive agencies from entering into, or extending or 
renewing, 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, on or after August 13, 
2020, unless an exception applies or a waiver has been granted.
    To estimate the burden to Federal offerors associated with 
complying with the rule, the percentage of Federal contractors that 
will be impacted was pulled from Federal databases. According to 
data from the System for Award Management (SAM), as of February 
2020, there were 387,967 unique vendors registered in SAM. As of 
September 2019, about 74 percent of all SAM entities registered for 
all awards were awarded to entities with the primary NAICS code as 
small; therefore, it is assumed that out of the 387,967 unique 
vendors registered in SAM in February 2020, 287,096 entities are 
unique small entities. We assume that all entities registered in SAM 
will fill out the annual representation because they are required to 
fill it out to have a current, accurate, and complete SAM 
registration.
    The solicitation provision at 52.204-26 is prescribed for use in 
all solicitations. The second interim rule adds a representation at 
paragraph (c)(2) which requires each vendor to represent, at least 
annually, that it ``does'' or ``does not'' use covered 
telecommunications equipment or services, or any equipment, system 
or service that uses covered telecommunications equipment or 
services. Offerors shall consult the System for Award Management 
(SAM) to validate whether the equipment or services they are using 
are from an entity providing equipment or services listed in the 
definition of ``covered telecommunications equipment or services.'' 
The offerors will conduct a reasonable inquiry as to whether they 
use covered telecommunications equipment or services or any 
equipment, system, or service that uses covered telecommunications 
equipment or services.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    It is not possible to establish different compliance or 
reporting requirements or timetables that take into account the 
resources available to small entities or to exempt small entities 
from coverage of the rule, or any part thereof. DoD, GSA, and NASA 
were unable to identify any alternatives that would reduce the 
burden on small entities and still meet the objectives of section 
889.

    The Regulatory Secretariat Division has submitted a copy of this 
IRFA to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy may be obtained from the Regulatory Secretariat 
Division upon request. DoD, GSA, and NASA invite comments from small 
business concerns and other interested parties on the expected impact 
of this rule on small entities.
    DoD, GSA, and NASA will also consider comments from small entities 
concerning the existing regulations in subparts affected by the rule in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 610 (FAR Case 2019-009) in 
correspondence.

IX. Paperwork Reduction Act

    As part of the first interim rule, the FAR Council was granted 
emergency processing of a collection currently approved under OMB 
control number 9000-0201, Prohibition on Contracting with Entities 
Using Certain Telecommunications and Video Surveillance Services or 
Equipment.
    In the first interim rule, the burden consisted of an offer-by-
offer representation at FAR 52.204-24(d)(2) to identify whether an 
offeror does or does not use covered telecommunications equipment or 
services, or any equipment, system, or service that uses covered 
telecommunications equipment or services, and a report of identified 
covered telecommunications equipment and services during contract 
performance, as required by FAR 52.204-25. In this second interim rule, 
the burden consists of a representation at FAR 52.204-26(c)(2) to 
identify whether an offeror does or does not use covered 
telecommunications equipment or services, or any equipment, system, or 
service that uses covered telecommunications equipment or services, and 
a representation at FAR 52.204-24(d)(2) to identify whether an offeror 
uses any equipment, system, or service that uses covered 
telecommunications equipment or services for each offer, unless the 
offeror selects ``does not'' in response to the provision at FAR 
52.204-26(c)(2) (or its commercial item equivalent at paragraph 
(v)(2)(ii) of FAR 52.212-3).
    With this second interim rule, this existing collection is being 
revised to reflect a reduction in burden.
    With this change in who must complete a representation at FAR 
52.204-24(d)(2), the FAR Council has estimated the number of responses 
required by this provision will drop from 38,854,291 to 31,083,433. 
With this decrease in responses needed, the burden for 52.204-24(d)(2) 
is expected to decrease from $11,045,497,845 to $8,836,398,333.
    The representation added by this rule at 52.204-26(c)(2) is 
estimated to average 1 hour (the average of the time for both positive 
and negative representations) per response to review the prohibitions, 
conduct a reasonable inquiry, and complete the representation. The 
representation at FAR 52.204-24(d)(2) is estimated to average 3 hours 
(the average of the time for both positive and negative 
representations) per response to review the prohibitions, conduct a 
reasonably inquiry, and either provide a response of ``does not'' or 
provide a response of ``does'' and complete the additional detailed 
disclosure.
    As part of this interim rule, the FAR Council is soliciting 
comments from the public in order to:
     Evaluate whether the proposed revisions to this collection 
of information are necessary for the proper performance of the 
functions of the FAR Council, including whether the information will 
have practical utility;

[[Page 53133]]

     Evaluate the accuracy of the FAR Council's estimate of the 
burden of the revised collection of information, including the validity 
of the methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond including through the use of appropriate 
collection techniques.
    Organizations and individuals desiring to submit comments on the 
information collection requirements associated with this rulemaking 
should submit comments to the Regulatory Secretariat Division (MVCB) 
not later than October 26, 2020 through https://www.regulations.gov and 
follow the instructions on the site. This website provides the ability 
to type short comments directly into the comment field or attach a file 
for lengthier comments. If there are difficulties submitting comments, 
contact the GSA Regulatory Secretariat Division at 202-501-4755 or 
[email protected].
    Instructions: All items submitted must cite Information Collection 
9000-0201, Prohibition on Contracting with Entities Using Certain 
Telecommunications and Video Surveillance Services or Equipment. 
Comments received generally will be posted without change to https://www.regulations.gov, including any personal and/or business 
confidential information provided. To confirm receipt of your 
comment(s), please check www.regulations.gov, approximately two to 
three days after submission to verify posting.

X. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DoD), Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that notice and public procedure thereon is unnecessary.
    This rule is meant to mitigate risks across the supply chains that 
provide hardware, software, and services to the U.S. Government and 
further integrate national security considerations into the acquisition 
process. Since section 889 of the NDAA for FY 2019 was signed on August 
13, 2018, the FAR Council has been working diligently to implement the 
statute, which has multiple effective dates embedded in section 889. 
Like many countries, the United States has increasingly relied on a 
global industrial supply chain. As threats have increased, so has the 
Government's scrutiny of its contractors and their suppliers. 
Underlying these efforts is the concern a foreign government will be 
able to expropriate valuable technologies, engage in espionage with 
regard to sensitive U.S. Government information, and/or exploit 
vulnerabilities in products or services. It is worth noting this rule 
follows a succession of other FAR and DOD rules dealing with supply 
chain and cybersecurity that were further described within section VI 
of the first interim rule published on July 14, 2020, at 85 FR 42665.
    Changes necessary to the System for Award Management (SAM) to 
reduce the burden of the first interim rule were not available by the 
effective date of the rule, so in order to decrease the burden on 
contractors from the first rule and increase the effectiveness of the 
rule, the FAR Council is publishing this second interim rule on section 
889(a)(1)(B).
    Implementing this rule as soon as the SAM representation is 
available will reduce the burden on the public and the Government to 
comply with the critical national security regulation. Publication of a 
proposed rule would delay the reduction of burden and the achievement 
of the national security benefits that are expected from this second 
interim rule.
    For the foregoing reasons, pursuant to 41 U.S.C. 1707(d), the FAR 
Council finds that urgent and compelling circumstances make compliance 
with the notice and comment and delayed effective date requirements of 
41 U.S.C. 1707(a) and (b) impracticable, and invokes the exception to 
those requirements under 1707(d).
    While a public comment process will not be completed prior to the 
rule's effective date, the FAR Council has taken into account feedback 
solicited through extensive outreach already undertaken, the feedback 
received through the two rulemakings associated with section 
889(a)(1)(A), and the feedback received so far from the first interim 
rule published on July 14, 2020, at 85 FR 42665. The FAR Council will 
also consider comments submitted in response to this interim rule in 
issuing a subsequent rulemaking.

List of Subjects in 48 CFR Parts 1, 4, and 52

    Government procurement.

William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 1, 4, and 52 as 
set forth below:

0
1. The authority citation for 48 CFR parts 1, 4, and 52 continues to 
read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM

0
2. In section 1.106 amend the table by adding in numerical order FAR 
segment entry ``52.204-26'' and its OMB control numbers to read as 
follows:


1.106  OMB approval under the Paperwork Reduction Act.

* * * * *

------------------------------------------------------------------------
                FAR segment                        OMB control No.
------------------------------------------------------------------------
 
                                * * * * *
52.204-26.................................  9000-0199 and 9000-0201
 
                                * * * * *
------------------------------------------------------------------------

PART 4--ADMINISTRATIVE AND INFORMATION MATTERS

0
3. Amend section 4.2103 by revising paragraph (a)(1) to read as 
follows:


4.2103   Procedures.

    (a) * * *
    (1)(i) If the offeror selects ``does not'' in paragraphs (c)(1) 
and/or (c)(2) of the provision at 52.204-26 or in paragraphs (v)(2)(i) 
and/or (v)(2)(ii) of the provision at 52.212-3, the contracting officer 
may rely on the ``does not'' representation(s), unless the contracting 
officer has reason to question the representation. If the contracting 
officer has a reason to question the representation, the contracting 
officer shall follow agency procedures.
    (ii) If the offeror selects ``does'' in paragraph (c)(1) of the 
provision at 52.204-26 or paragraph (v)(2)(i) of the provision at 
52.212-3, the offeror will be required to complete the representation 
in paragraph (d)(1) of the provision at 52.204-24.
    (iii) If the offeror selects ``does'' in paragraph (c)(2) of the 
provision at 52.204-26 or paragraph (v)(2)(ii) of the provision at 
52.212-3, the offeror will be required to complete the representation 
in paragraph (d)(2) of the provision at 52.204-24.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Amend section 52.204-24 by revising the date of provision and the 
introductory text to read as follows:

[[Page 53134]]

52.204-24  Representation Regarding Certain Telecommunications and 
Video Surveillance Services or Equipment.

* * * * *

Representation Regarding Certain Telecommunications and Video 
Surveillance Services or Equipment (Oct 2020)

    The Offeror shall not complete the representation at paragraph 
(d)(1) of this provision if the Offeror has represented that it ``does 
not provide covered telecommunications equipment or services as a part 
of its offered products or services to the Government in the 
performance of any contract, subcontract, or other contractual 
instrument'' in paragraph (c)(1) in the provision at 52.204-26, Covered 
Telecommunications Equipment or Services--Representation, or in 
paragraph (v)(2)(i) of the provision at 52.212-3, Offeror 
Representations and Certifications-Commercial Items. The Offeror shall 
not complete the representation in paragraph (d)(2) of this provision 
if the Offeror has represented that it ``does not use covered 
telecommunications equipment or services, or any equipment, system, or 
service that uses covered telecommunications equipment or services'' in 
paragraph (c)(2) of the provision at 52.204-26, or in paragraph 
(v)(2)(ii) of the provision at 52.212-3.
* * * * *

0
5. Amend section 52.204-26 by--
0
a. Revising the date of the provision;
0
b. In paragraph (a), removing ``has'' and adding ``and ``reasonable 
inquiry'' have'' in its place; and
0
c. Revising paragraph (c).
    The revisions read as follows:


52.204-26   Covered Telecommunications Equipment or Services--
Representation.

* * * * *

Covered Telecommunications Equipment or Services--Representation (OCT 
2020)

* * * * *
    (c) Representations. (1) The Offeror represents that it [ ] does, [ 
] does not provide covered telecommunications equipment or services as 
a part of its offered products or services to the Government in the 
performance of any contract, subcontract, or other contractual 
instrument.
    (2) After conducting a reasonable inquiry for purposes of this 
representation, the offeror represents that it [ ] does, [ ] does not 
use covered telecommunications equipment or services, or any equipment, 
system, or service that uses covered telecommunications equipment or 
services.
* * * * *

0
6. Amend section 52.212-3 by--
0
a. Revising the date of the provision;
0
b. In paragraph (a) adding the definition ``Reasonable inquiry'' in 
alphabetical order;
0
c. Removing from paragraph (v) introductory text ``of Public'' and 
adding ``and section 889 (a)(1)(B) of Public'' in its place; and
0
d. Revising paragraph (v)(2).
    The revisions and addition read as follows:


52.212-3   Offeror Representations and Certifications--Commercial 
Items.

* * * * *

Offeror Representations and Certifications--Commercial Items (Oct 2020)

* * * * *
    (a) * * *
    Reasonable inquiry has the meaning provided in the clause 52.204-
25, Prohibition on Contracting for Certain Telecommunications and Video 
Surveillance Services or Equipment.
* * * * *
    (v) * * *
    (2) The Offeror represents that--
    (i) It [ ] does, [ ] does not provide covered telecommunications 
equipment or services as a part of its offered products or services to 
the Government in the performance of any contract, subcontract, or 
other contractual instrument.
    (ii) After conducting a reasonable inquiry for purposes of this 
representation, that it [ ] does, [ ] does not use covered 
telecommunications equipment or services, or any equipment, system, or 
service that uses covered telecommunications equipment or services.
* * * * *
[FR Doc. 2020-18772 Filed 8-26-20; 8:45 am]
BILLING CODE P