Prohibitions on Acquisition of Certain Telecommunications and Related Equipment with Federal Funds

By Jeff Wagner, Shareholder
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.

In a little publicized provision of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, Pub. L. No. 115-232, 132 Stat. 1636 (2019), Congress enacted prohibitions on the use of federal funds for the acquisition of certain telecommunications and surveillance equipment of Chinese manufacture due to national security concerns.  In addition to prohibiting federal agencies from directly acquiring any “covered equipment,” the Act also prohibits any federal agency (such as the Federal Aviation Administration) from providing grant funds for the purchase or acquisition or renewal of any agreement for the purchase or acquisition of covered equipment.

The equipment covered under the ban includes telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities).  In addition, the equipment covered under the ban includes, for “public safety, security of government facilities, physical security surveillance of critical infrastructure and other national security purposes,” any video surveillance or telecommunications equipment manufactured by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company or Dahua Technology Company (or any subsidiary or affiliate of such entities) or any telecommunications services provided by or using any of the foregoing.  Finally, the Act authorizes the Secretary of Defense to ban any other equipment or services provided by any entity that the Secretary of Defense determines to be owned or controlled by the government of the People’s Republic of China.

The prohibited companies are significant participants in the telecommunications marketplace.  For example, Huawei is now the largest smartphone manufacturer in the world, having surpassed both Apple and Samsung, and is a significant participant in the move to 5G networks, while Hytera is a major producer of two-way radio equipment.

Thus far, attempts by Huawei and ZTE to have the prohibitions set aside in court have failed, and the bans have been incorporated into the Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (2 CFR Part 200) governing grants from, among others, the FAA under 2 CFR §200.216.  The bans have also been incorporated into the federal Acquisition Regulations covering direct federal procurements.  Any airport anticipating acquiring (including leasing) equipment or telecommunications or surveillance equipment or services using federal funds should ensure that its procurement complies with the Act and Uniform Administrative Requirements by excluding any of the covered entities.

Jeff Wagner is a shareholder in the Jackson, Mississippi, office of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., and may be reached at 601-973-3610 or by email at [email protected]