[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]
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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.
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[[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 http://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 http://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.
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\1\ https://www.whitehouse.gov/articles/new-national-security-strategy-new-era/.
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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\
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\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.
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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\
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\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.
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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.
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\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.
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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.
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\16\ This value is based on data on new registrants in SAM.gov
on average for FY16, FY17, FY18, and FY19.
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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.
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\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.
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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.
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\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).
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\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.
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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.
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\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.
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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).
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\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).
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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:
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Total
Summary (billions) costs
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Present Value (3%)........................................... -$34.3
Annualized Costs (3%)........................................ -1.0
Present Value (7%)........................................... -15.1
Annualized Costs (7%)........................................ -1.1
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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\).
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\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.
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[[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.
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\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).
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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:
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Total
Summary (billions) costs
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Present Value (3%)........................................... -$31.6
Annualized Costs (3%)........................................ -.9
Present Value (7%)........................................... -14.1
Annualized Costs (7%)........................................ -1.0
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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 http://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 http://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]
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