The Impact of Section 889 on Federal Grant Recipients

Blog
August 20, 2020

On August 13, 2020, the Final Guidance added part 2 CFR 200.216 to align regulations for grant recipients with Section 889 of the John S. McCain National Defense Authorization Act (NDAA). What this means is that if your organization is a federal grant recipient, you can no longer use federal funds to procure certain Chinese telecommunication equipment, video surveillance equipment systems, or services that are covered by Section 889, and can no longer extend or renew existing contracts that involve covered technology.

The intent behind Section 889 is a national security measure meant to protect government information and communication technology systems. While federal contractors are prohibited under Part B of Section 889 from even using covered technology, the Final Guidance does not include a “non-use” provision for federal grant recipients.

Section 889 established a general prohibition on telecommunications or video surveillance equipment or services produced or provided by the following companies:

  • Huawei Technologies Company (mobile phones, laptops, tablets, and routers)
  • ZTE Corporation (mobile phones, mobile hotspots, and network equipment) or any subsidiary or affiliate of these entities.

Section 889 also established a prohibition on equipment or services used specifically for national security purposes, such as public safety or security of government facilities provided by the following companies:

  • Hytera Communications Corporation (radio transceivers, radio systems)
  • Hangzhou Hikvision Digital Technology Company (video surveillance products and services)
  • Dahua Technology Company (video surveillance products and services)

The prohibition stands regardless of whether the equipment or services are used directly for the federal grant program or not. In that regard, the OMB added 2 CFR 200.417 Telecommunication and video surveillance costs which clarify that any such covered technology is considered an unallowable cost, meaning it cannot be charged directly or indirectly to a grant program.

The Final Guidance states, “Federal awarding agencies are also required by the law to work with OMB to prioritize available funding and technical support to assist affected businesses, institutions, and organizations. In addition, the funds must be prioritized as reasonably necessary for affected entities to transition from covered communications equipment and services, to procure replacement equipment and services, and to ensure that communications service to users and customers is sustained.”

2CFR 200.216 is effective as of August 13, 2020.

Resources:

https://www.federalregister.gov/documents/2020/07/14/2020-15292/federal-acquisition-regulation-federal-acquisition-circular-2020-08-introduction

https://www.federalregister.gov/documents/2020/07/14/2020-15294/federal-acquisition-regulation-federal-acquisition-circular-2020-08-small-entity-compliance-guide

https://www.federalregister.gov/documents/2020/08/13/2020-17468/guidance-for-grants-and-agreements

For questions on this or other Uniform Guidance issues, please reach out to Carol Barnard, CPA, CFE.