Huawei Ban's Scope Spares Few Contractors from Headaches
A new rule banning federal contractors' use of certain Chinese technologies contains few exemptions, and its broad scope affects even low-value and commercial deals that are typically only lightly regulated, experts say.
In the 2019 National Defense Authorization Act, Congress barred federal contractors from using telecommunications and video surveillance equipment made by five manufacturers with links to the Chinese military as a "substantial or essential component of any system, or as critical technology as part of any system." Those manufacturers are Huawei Technologies Co., ZTE Corp., Hytera Communications Corp., Hangzhou Hikvision Digital Technology Co. and Dahua Technology Co.
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The FAR Council has estimated that the "initial public cost" of complying with the rule in its first year will be at least $12 billion, with tens of billions of dollars more in compliance costs over time. That cost burden is likely unprecedented for an acquisition rule, Blank Rome LLP government contracts practice group co-chair Justin Chiarodo said.
"The expense of this is hard to put into words," Chiarodo said. "The numbers kind of tell the story."
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While contractors will have a chance to help shape a final version of the rule by weighing in on the interim rule, it will take the FAR Council months longer to consider and potentially react to those comments. In the meantime, a risk-based approach to compliance is the most prudent way for contractors to proceed, Chiarodo said.
"As a practical reality, industry is not going to be fully compliant on day one. As I read the rule, it acknowledges that, in as much as it contemplates … the analysis is going to take time, so focus on the systems that are the highest risk," he said.
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“Huawei Ban's Scope Spares Few Contractors from Headaches,” by Daniel Wilson was published in Law360 on July 13, 2020.