Here’s What NDAA Section 889 Really Means for Federal Grants

New Federal Regulation Answers Key Questions on How Section 889 Applies to Federal Grant Funds

What SIA Members Need to Know:

  • Federal grant recipients are simply prohibited from using grant funds for covered equipment and services.
  • Restrictions only impact use of federal grant funds.
  • New grants prioritize replacing with alternative equipment.
  • OMB revised the regulation following input from SIA and other organizations.
  • No related certifications are required by the government for funding recipients or suppliers.

The Office of Management and Budget (OMB) has finalized its update to rules that apply to all federal grant recipients; the update, among other provisions, implements National Defense Authorization Act (NDAA) Section 889 procurement restrictions on certain Chinese telecommunications and video surveillance equipment that apply to the use of grant funds beginning Aug. 13, 2020.

OMB Makes a Key Change

In a key change to the previously proposed update  the agency posted in January, the new regulation (2 CFR § 200.216) clarifies that federal grant recipients and subrecipients are simply restricted from using the funds to procure or obtain, or enter into a contract for equipment, services and systems prohibited under Section 889. 

This straightforward interpretation of the law’s requirements will help many grant recipients and their suppliers navigate the requirements of Section 889 as they apply to these funds. Under OMB’s initial proposed regulation, recipients would have been prohibited from using the funds to contract with “entities that use covered technology.” Confusingly, this would have mirrored requirements for federal contractors under the separate subsection (a)(1)(B), rather than the subsection (b) that applies to the use of grant and loan funds.

Previously Proposed Regulation:

Prohibition on certain telecommunications and video surveillance services or equipment.

Grant, cooperative agreement and loan recipients are prohibited from using government funds to enter into contracts (or extend or renew contracts) with entities that use covered technology. See Section 889 of Public Law 115-232 (NDAA 2019).

Final Regulation:

Prohibition on certain telecommunications and video surveillance services or equipment.

(a) Recipients and subrecipients are prohibited from obligating or expending loan or grant funds to:

(1) Procure or obtain;

(2) Extend or renew a contract to procure or obtain; or

(3) Enter into a contract (or extend or renew a contract) to procure or obtain equipment, services or systems 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. As described in Public Law 115-232, section 889, covered telecommunications equipment is telecommunications equipment produced by Huawei Technologies Compay or ZTE Corporation (or any subsidiary or affiliate of such entities).

(i) 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).

(ii) Telecommunications or video surveillance services provided by such entities or using such equipment.

(iii) Telecommunications or video surveillance equipment or services produced or provided by an entity that the secretary of defense, in consultation with the director of the 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.

(b) In implementing the prohibition under Public Law 115-232, section 889, subsection (f), paragraph (1), heads of executive agencies administering loan, grant or subsidy programs shall prioritize available funding and technical support to assist affected businesses, institutions and organizations as is reasonably necessary for those 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.

(c) See Public Law 115-232, section 889, for additional information.

(d) See also § 200.471.

Revision Follows Input From SIA and Others

Earlier this year, the Security Industry Association (SIA) and other organizations urged OMB to revise the proposed regulation to align with the statutory language and include the law’s definition of covered equipment within 2 CFR § 200.216 to further aid compliance efforts. Section 200.216 in the final guidance issued Aug. 13 will help security companies and their customers ensure grant funds are spent in compliance with Section 889 by simply making sure equipment that would be covered by Section 889 is excluded from what is purchased with the funds.

Restated in the grant’s guidance is the law’s definition specifically for video surveillance equipment covered by the prohibition:

(i) 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).

Guidance: Prioritize Funding to Transition Away From Covered Equipment

Additionally, the guidance states, as required under Section 889, that agencies should prioritize funding awards for efforts by recipients to transition away from the covered equipment by replacing it with alternatives. 

In implementing the prohibition under Public Law 115-232, section 889, subsection (f), paragraph (1), heads of executive agencies administering loan, grant or subsidy programs shall prioritize available funding and technical support to assist affected businesses, institutions and organizations as is reasonably necessary for those 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.

Unlike Section 889’s subsection (a)(1)(A) [relating to direct federal procurement] and subsection (a)(1)(B) [relating to contractor use], the new regulatory requirements for federal grants do not require any specific certification to the government from grant recipients, contractors or their suppliers. The regulation clarifies that costs associated with the covered equipment and services are “unallowable.”  Recipients are responsible for ensuring funds are only used for allowable costs and would be obligated to refund the government for any costs that are unallowable. 

Many important security projects are funded through federal grants, especially for protecting critical infrastructure. Undoubtedly, these new requirements will present both challenges and new opportunities for the security industry as it provides advanced video surveillance products. Find the full text of the updated OMB guidance here.

Please direct any questions to Jake Parker, SIA’s senior director of government relations, at jparker@securityindustry.org.