[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Rules and Regulations]
[Pages 3832-3835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00612]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 204, 212, 213, and 252

[Docket DARS-2019-0063]
RIN 0750-AJ84


Defense Federal Acquisition Regulation Supplement: Covered 
Defense Telecommunications Equipment or Services (DFARS Case 2018-D022)

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Final rule.

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SUMMARY: DoD is adopting as final, with changes, an interim rule 
amending the Defense Federal Acquisition Regulation Supplement (DFARS) 
to implement sections of the National Defense Authorization Acts for 
Fiscal Years 2018 and 2019 related to the procurement of covered 
telecommunications equipment or services. Specifically, the rule 
prohibits the use of telecommunications equipment or services from 
certain Chinese entities and from any other entities that the Secretary 
of Defense reasonably believes to be owned or controlled by, or 
otherwise connected to, the government of the People's Republic of 
China or the Russian Federation, as a substantial or essential 
component of any system, or as a critical technology as a part of any 
system.

DATES: Effective January 15, 2021.

FOR FURTHER INFORMATION CONTACT: Ms. Heather Kitchens, telephone 571-
372-6104.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published an interim rule in the Federal Register at 84 FR 
72231 on December 31, 2019, to implement section 1656 of the National 
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018 (Pub. L. 
115-91). This final DFARS rule implements the section 1656 prohibition, 
partially implements section 889(a)(1)(A) of the NDAA for FY 2019 
prohibitions for DoD, and is structured to align with the Federal 
Acquisition Regulation implementation of the section 889(a)(1)(A) 
Governmentwide prohibition. The final rule should increase security of 
systems and critical technology that is part of any system used to 
carry out the nuclear deterrence and homeland defense missions of DoD 
by prohibiting the use of telecommunications equipment or services from 
certain Chinese entities, and from any other entities that the 
Secretary of Defense reasonably believes to be owned or controlled by, 
or otherwise connected to, the government of the People's Republic of 
China or the Russian Federation. Three respondents submitted comments 
on the interim rule.

II. Discussion and Analysis

    DoD reviewed the public comments in the development of the final 
rule. Two changes were made to the rule as a result of those comments. 
A respondent expressed support for the rule. Some respondents expressed 
concern over the underlying intent of the statute and recommended 
changes to the rule text to provide specific examples related to 
definitions. While DoD recognizes the concerns identified by the 
respondents, most of the recommendations are not within the scope of 
the statute. The ability to provide examples within the rule text is 
limited by the statute, which does not provide examples. A discussion 
of the public comments is provided as follows:

A. Summary of Significant Changes From Interim Rule

    There are two changes from the interim rule. The changes amend 
DFARS clause 252.204-7018, Prohibition on the Acquisition of Covered 
Defense Telecommunications Equipment or Services, by extending: (1) The 
reporting timeframe for the discovery of covered defense

[[Page 3833]]

telecommunications equipment or services from one day to three days, 
and (2) the reporting timeframe to submit information about mitigation 
actions undertaken from ten days to thirty days.

B. Analysis of Public Comments

1. Cost to the Public and Government
    Comment: A respondent stated that the representation adds 
administration costs to the public and Government and will make it 
difficult for small businesses to work with the Government.
    Response: The interim rule imposed the least amount of burden 
necessary to implement the statutory requirements by including an 
annual representation that may be relied upon if a negative 
representation (i.e., ``does not'') is provided in lieu of an offer-by-
offer representation.
2. Reporting Timelines
    Comment: Respondents recommended that the reporting timeline for 
the discovery of covered defense telecommunications equipment or 
services be extended beyond one business day and that the reporting 
timeline for the mitigation actions undertaken by the contractor be 
extended beyond ten days.
    Response: Concur. The one-day and ten-day requirements for 
reporting to DIBNet are extended in the final rule to three days and 
thirty days, respectively.
3. Subcontract Reporting
    Comment: Respondents recommended that contractors only report 
subcontractor's discovery of covered defense telecommunications 
equipment or services that have ``credible information''.
    Response: The clause flow down requires that entities at all tiers 
report the discovery of covered defense telecommunications equipment or 
services to the higher tier subcontractor or prime contractor. If the 
higher tier subcontractor or prime contractor does not report lower 
tier notifications of the discovery of covered defense 
telecommunications equipment or services, the higher tier subcontractor 
and prime contractor are at risk of being in violation of the 
prohibition.
4. Flowdown Requirements
    Comment: Respondents recommended that the subcontract flow down to 
``all subcontracts'' instead of ``all subcontracts and other 
contractual instruments''.
    Response: The statutory authority does not provide an exception for 
vendor agreements or suppliers that are not considered subcontractors; 
therefore, the flow down to ``other contractual instruments'' is 
required by the statute.
5. List of Subsidiaries and Affiliates
    Comment: Respondents recommended that DoD provide a publicly 
available list of the subsidiaries and affiliates against which to 
evaluate compliance. A respondent recommended that the list of 
subsidiaries and affiliates be included in DIBNet in coordination with 
the Office of Federal Contract Compliance Programs and recommended this 
list use the Department of Commerce list of affiliates and subsidiaries 
for Huawei. Another respondent recommended DoD provide and update, as 
necessary, a comprehensive list of all of the subsidiaries and 
affiliates on SAM.gov.
    Response: The statute does not give the Secretary of Defense the 
mission to maintain such a list.
6. Definitions
a. ``Covered defense telecommunications equipment or services''
    Comment: Respondents stated that the definition of ``covered 
defense telecommunications equipment or services'' should provide 
examples of what is ``covered defense telecommunications equipment or 
services''.
    Response: The text of the rule aligns with the statutory language. 
These terms are not defined in the statute.
b. ``Defense''
    Comment: A respondent recommended defining the term ``defense''.
    Response: The term ``defense'' is used in the term ``covered 
defense telecommunications equipment or services'' to clarify that the 
covered telecommunications equipment or services prohibited by section 
1656 are only prohibited for DoD, therefore, a definition is not 
necessary.
c. ``Substantial or essential component''
    Comment: A respondent stated that there should be a new definition 
of ``substantial or essential component'' or that examples of what is 
and is not a ``substantial or essential component'' should be provided.
    Response: The text of the rule aligns with the statutory language. 
These terms are not defined in the statute.
d. ``Critical technologies''
    Comment: A respondent stated that the definition of ``critical 
technology'' should include the list of 27 emerging and foundational 
technologies developed pursuant to section 1758 of the Export Control 
Reform Act of 2018.
    Response: To ensure consistency in the event of future changes to 
the list, the technologies are referenced by a citation, within the 
definition, to section 1758 of the Export Control Reform Act of 2018.
e. ``Owned or controlled by''
    Comment: A respondent stated that there should be clarifications or 
definitions provided for ``an entity owned or controlled by, or 
otherwise connected to, the government of a covered foreign country''.
    Response: The text of the rule aligns with the statutory language, 
which does not clarify these terms.
f. ``Covered missions''
    Comment: A respondent stated that the prescription is not limited 
to covered missions and that examples of covered missions should be 
provided.
    Response: The prescription is not limited to covered missions as a 
matter of national security. Covered missions include the examples 
provided in the statutory definition. The statute does not provide 
additional examples of covered missions.
g. ``Equipment'', ``produce'', and ``component''
    Comment: A respondent stated that the terms ``equipment,'' 
``produce,'' and ``component'' should be more clearly defined, 
consistent with definitions existing in current regulations (such as 
export control regulations in ITAR, etc.).
    Response: The text of the rule aligns with the statutory language. 
These terms are not defined in the statute.
7. Waiver Process
    Comment: A respondent stated that there should be clarification for 
the public on the waiver process.
    Response: The waiver process is an internal Government operating 
procedure. By submission of an offer containing the prohibited 
equipment or services, an entity is by default requesting a waiver. 
Waivers are a limited exception to the prohibition, and questions 
regarding the waiver process may be directed to the contracting 
officer. The contracting officer, working with the requiring activity, 
will review the representations and disclosures and make a 
determination to process the formal waiver. At that time, a contracting 
officer will request the additional information required by the statute 
for processing a waiver; this does not preclude an offeror from 
providing this information with its offer. The time to

[[Page 3834]]

process the information for a waiver is prior to award because the 
award is prohibited unless and until a waiver is granted.
8. DIBNet Process
    Comment: A respondent recommended that the DIBNet homepage clarify 
how DIBNet would work and who has access to the reported data such as 
contractors or agencies.
    Response: DIBNet provides information on its website to clarify who 
has access to the data. The data is shared with the contracting officer 
so the contracting officer may work with legal counsel to enforce 
contractual remedies for violating the terms of the contract.
9. Risk Mitigation Process
    Comment: A respondent recommended that DoD provide the steps to 
mitigate supply chain risk related to the requirement for the 
contractor to provide additional information about mitigation actions 
undertaken or recommended after the presence of covered defense 
telecommunications equipment or services is identified.
    Response: The steps to mitigate supply chain risk are unique to the 
contractor, and the contractor is required to provide the mitigation 
actions undertaken.
10. Consistent Application
    Comment: A respondent stated that there should be consistent inter-
department interpretations and that the term ``use'' should be 
clarified and used in the same way in all rules.
    Response: The text of the rule aligns with the statutory language. 
This term is not defined in the statute. The FAR and DFARS rules on the 
section 889 prohibition are intended to be complementary.

III. Applicability to Contracts At or Below the Simplified Acquisition 
Threshold and for Commercial Items, Including Commercially Available 
Off-the-Shelf Items

A. New Solicitation Provisions and Contract Clause

    The interim rule added two new solicitation provisions and a new 
contract clause as follows:
     The provision at DFARS 252.204-7016, Covered Defense 
Telecommunications Equipment or Services--Representation.
     The provision at DFARS 252.204-7017, Prohibition on 
Acquisition of Covered Defense Telecommunications Equipment or 
Services--Representation.
     The clause at DFARS 252.204-7018, Prohibition on the 
Acquisition of Covered Defense Telecommunications Equipment or 
Services.

B. Determinations

    Consistent with the determinations that DoD made on December 19, 
2019, with regard to the application of the requirements of section 
1656 of the NDAA for FY 2018, the two provisions and the clause listed 
above apply to all solicitations and contracts, including solicitations 
and contracts below the simplified acquisition threshold and for the 
acquisition of commercial items (including commercially available off-
the-shelf items). It is important to apply the statutory prohibitions 
to all acquisitions in order to protect the security of nuclear 
command, control, and communications systems and ballistic missile 
defense from commercial dependencies on equipment and services from 
certain companies or certain foreign countries that are considered to 
create a risk to our national security.

IV. 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 harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

V. Executive Order 13771

    This rule is not subject to the requirements of E.O. 13771, because 
the rule is issued with respect to a national security function of the 
United States.

VI. Regulatory Flexibility Act

    This final rule will 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. A final regulatory 
flexibility analysis has been performed and is summarized as follows:
    DoD is converting to a final rule, with two minor changes, an 
interim rule that amended the DFARS to implement section 1656 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018. 
This rule also partially implements section 889(a)(1)(A) of the NDAA 
for FY 2019 prohibitions for DoD, and is structured to align with the 
Federal Acquisition Regulation implementation of the section 
889(a)(1)(A) Governmentwide prohibition. The changes to the interim 
rule do not change the economic impact on the public. The changes 
provide additional time to complete the reporting requirements required 
by the clause at DFARS 252.204-7018, Prohibition on the Acquisition of 
Covered Defense Telecommunications Equipment or Services.
    The objective of this rule is to increase security of systems and 
critical technology which is part of any system used to carry out the 
nuclear deterrence and homeland defense missions of DoD by prohibiting 
the use of telecommunications equipment or services from certain 
Chinese entities, and from any other entities that the Secretary of 
Defense reasonably believes to be owned or controlled by or otherwise 
connected to, the government of the People's Republic of China or the 
Russian Federation. Section 1656 of the NDAA for FY 2018 and section 
889(a)(1)(A) of the NDAA for FY 2019 are the legal basis for the rule.
    There were no public comments in response to the initial regulatory 
flexibility analysis.
    This rule includes a burden for two representations and a reporting 
requirement. Data from the Federal Procurement Data System (FPDS) for 
Fiscal Year (FY) 2016 through FY 2018 and data from the System for 
Award Management (SAM) was used to estimate the number of small 
businesses affected by this rule.
    The provision at DFARS 252.204-7016, Covered Defense 
Telecommunications Equipment or Services--Representation, requires the 
offeror to represent whether it does or does not provide covered 
defense 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. This 
provision is estimated to affect 145,955 unique small businesses, which 
is the estimated number of unique small businesses required to complete 
DoD representations in SAM.
    As of July 15, 2019, there were 424,927 active registrants in SAM 
for contracts. DoD extrapolated the estimated number of SAM registrants 
that are required to fill out DoD

[[Page 3835]]

representations to be 211,529 unique entities by dividing the average 
number of DoD unique awardees in the Federal Procurement Data System 
(FPDS) by the average number of Federal unique awardees in FPDS for FY 
2016 through FY 2018 to obtain a percentage of 49.78 percent of all 
Federal unique awardees that receive DoD awards. Applying 49.78 percent 
to the total number of active SAM registrants results in 211,529 
estimated respondents. To further calculate the number of estimated 
respondents that are small businesses, this analysis multiplies the 
211,529 estimated respondents for DoD by 69 percent, which is the 
percentage of unique DoD awardees on average for FY 2016 through FY 
2018 in FPDS that are small businesses, to estimate 145,955 unique 
small entities impacted by DFARS 252.204-7016.
    The provision at DFARS 252.204-7017, Prohibition on Acquisition of 
Covered Defense Telecommunications Equipment or Services--
Representation, requires that if an offeror provides an affirmative 
representation under the provision at 252.204-7016, Covered Defense 
Telecommunications Equipment or Services--Representation, that offeror 
is required to represent whether it will or will not provide under the 
contract, covered defense telecommunications equipment or services. If 
the offeror responds affirmatively, the offeror is required to further 
disclose information about the covered defense telecommunications 
equipment or services.
    DFARS provision 252.204-7017 is estimated to affect a total of only 
3,054 unique small business entities. Although DoD has no factual basis 
on which to estimate at this time what percentage of offerors will 
respond affirmatively to this representation, to be conservative DoD 
estimates 10 percent of the 44,277 DoD unique awardees on average in 
FPDS for FY 2016 through FY 2018 (4,428) will respond affirmatively, 
which triggers the disclosure requirement of the representation. 
Applying the estimated 69 percent factor for small businesses to the 
estimate of 4,428 results in 3,054. To calculate the additional 
disclosure impact within 252.204-7017, DoD estimates 10 percent of the 
offerors filling out this representation will have to complete the 
additional disclosure (443 total, of which 306 are small entities).
    The clause at DFARS 252.204-7018, Prohibition on the Acquisition of 
Covered Defense Telecommunications Equipment or Services, requires 
contractors and subcontractors to report through https://dibnet.dod.mil, any discovery of covered telecommunications equipment 
or services during the course of contract performance. Although DoD has 
no factual basis on which to estimate at this time what percentage of 
awardees will be required to submit a report, the clause is estimated 
to affect 443 unique entities, which is 1 percent of the number of 
unique entities that received DoD awards on average for FY 2016 through 
FY 2018 in FPDS (44,277). Of the 443 impacted entities 306 entities (69 
percent) are estimated to be DoD unique small entities.
    Because of the nature of the prohibition enacted by section 1656, 
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 was unable to identify any 
alternatives that would reduce the burden on small entities and still 
meet the objectives of section 1656.

VII. Paperwork Reduction Act

    The rule contains information collection requirements that have 
been approved by the Office of Management and Budget under the 
Paperwork Reduction Act (44 U.S.C. chapter 35). This information 
collection requirement has been assigned OMB Control Number 0750-0002, 
titled: Covered Defense Telecommunications Equipment or Services.

List of Subjects in 48 CFR Parts 204, 212, 213, and 252

    Government procurement.

Jennifer D. Johnson,
Regulatory Control Officer, Defense Acquisition Regulations System.

    Accordingly, the interim rule amending 48 CFR parts 204, 212, 213, 
and 252 published at 84 FR 72231 on December 31, 2019, is adopted as a 
final rule with the following changes.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
1. The authority citation for part 252 continues to read as follows:

    Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.


252.204-7018   [Amended]

0
2. Amend section 252.204-7018 by--
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a. Removing the clause date of ``(DEC 2019)'' and adding ``(JAN 2021)'' 
in its place;
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b. In paragraph (d)(2)(i), removing ``one business day'' and adding ``3 
business days'' in its place; and
0
c. In paragraph (d)(2)(ii), removing ``10 business days'' and adding 
``30 business days'' in its place.

[FR Doc. 2021-00612 Filed 1-14-21; 8:45 am]
BILLING CODE 5001-06-P