Understanding the Impact of Section 889 on Defense Industrial Base

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Section 889, passed as part of the 2019 NDAA, restricts the US government from contracting with entities using certain telecommunications and video surveillance equipment. It aims to strengthen the defense supply chain by prohibiting direct procurement or contracts with entities utilizing covered equipment or services. The regulation targets specific companies like Huawei and ZTE and defines substantial components and critical technology. Compliance involves cybersecurity measures, addressing supply chain vulnerabilities, and potential delays in defense authorization due to bipartisan support considerations.

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Sec. 889 Prohibition on Certain Telecommunications and Video Surveillance Services or Equipment The Impact on the Defense Industrial Base 11/26/2024 1

Sec. 889 Explained Passed in 2018 as part of the 2019 NDAA Prohibits US government from contracting with entities using covered telecommunications and video equipment Ongoing effort to strengthen & protect US defense supply chain Two parts: TheBuyBan- 889(a)(1)(A) prohibits government from procuring or entering contracts to directly acquire systems using covered telecommunications equipment or services as a substantial or essential component, or critical technology. The Use Ban - 889(a)(1)(B) prohibits government from procuring from or entering contracts with entities that use covered telecommunications equipment or services as a substantial or essential component, or critical technology, of any system for any purpose. 11/26/2024 2

Sec. 889 Explained Cont. Covered Telecommunications equipment or services FAR Subpart 4.2101: Telecommunications or video surveillance equipment or services produced by: Huawei Technologies ZTE Corp. Hytera Communications Hangzhou Hikvision Digital Technology Company Dahua Technology Company and all subsidiaries or affiliates SECDEF, in consultation with DNI or FBI, may add to the list 11/26/2024 3

Sec. 889 Explained Cont. Substantial or essential component of any system FAR Subpart 4.2101: any component necessary for the proper function or performance of a piece of equipment, system, or service Critical technology FAR Subpart 4.2101: Defense articles or services included on the U.S. Munitions List set forth in the ITAR Commerce Control List 11/26/2024 4

One link in a chain 889(a)(1)(A) 889(a)(1)(B) Cybersecurity Maturity Model Certification Supply chain (rare earths, circuit boards) IP theft Trade 5

Bipartisan support Will there be a delay in the National Defense Authorization Act? New administration? New Congress? 6

Overview Section 889(a)(1)(A) prohibits the Government from procuring 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. Section 889(a)(1)(B) prohibits contracting 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. 7

Overview Interim Rule takes effect August 13, 2020. Does not flow down below the prime. Exception for telecommunications equipment that cannot route or redirect user data traffic or [cannot] permit visibility into any user data or packets that such equipment transmits or otherwise handles. Applies to any use even if unconnected to a government contract. Must undertake a reasonableinquiry to uncover identity of items or service. Does not apply to affiliates, parents, and subsidiaries For now. One-time waiver available through August 13, 2022 Will be hard to get. 8

What types of services? 889(a)(1)(B) does not flow down because the prime contractor is the only entity that the agency enters into a contract with, and an agency does not directly enter into a contract with any subcontractors, at any tier. Prohibit agencies from contracting 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. The exception does not apply for a contractor s use of a service that connects to the facilities of a third- party, such as backhaul, roaming, or interconnection arrangements. 9

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 Chinese government. 10

1. Aviation Industry Corporation 2. China Aerospace Science and Technology Corporation 3. China Aerospace Science and Industry Corporation 4. China Electronics Technology Group Corporation 5. China South Industries Group Corporation 6. China Shipbuilding Industry Corporation 7. China State Shipbuilding Corporation 8. China North Industries Group Corporation (Norinco Group) 9. Hangzhou Hikvision Digital Technologies Co. 10. Huawei 11. Inspur Group 12. Aero Engine Corporation of China 13. China Railway Construction Corporation 14. CRRC Corp. 15. Panda Electronics Group 16. Dawning Information Industry Co (Sugon) 17. China Mobile Communications Group 18. China General Nuclear Power Corp. 19. China National Nuclear Corp. 20. China Telecommunications Corp. When was this list of Communist Chinese military companies operating in the United States Last Updated? 11

What will happen on August 13? Not all companies are getting ahead of 889 or CMMC. Some companies will have challenges. Non-traditionals Small businesses New requirements may be challenging for Contracting Officers. Where mission needs do not permit time to obtain a waiver, agencies may reasonably choose not to initiate one and to move forward and make award to an offeror that does not require a waiver. 12

Whats Ahead? Making the interim rule final Domestic affiliates, parents, and subsidiaries? Shares services? Clarify use of services? Comments due September 14, 2020 The impact is still unknown. 13

LEGISLATIVE EFFORTS -Since May NDIA has participated in over 40 multi-association, multi-industry calls with Congressional and Committee offices -This group has highlighted issues across government, from auto manufacturers, airlines, banking, trucking associations, and defense contractors -In June, the DoD s Under Secretary of Defense for Acquisition and Sustainment, Ellen Lord, testified before the House Armed Services Committee that the department and contractors need more time to administer the pending regulation -Sec. 889 came from the NDAA which gives the Armed Services Committees jurisdiction. Additional committees of interest include House Oversight and Reform and Senate Homeland Security and Governmental Affairs -Amendments have been offered by Sen Johnson and Reps Foxx and Hartzler to no avail -There was a push for inclusion in the next COVID tranche, but no sponsors -The latest effort is focused on members serving on Appropriations Committees. 11/26/2024 14

NDIA Needs Your Contribution Comment period ends September 14, 2020 NDIA will comment on the interim final rule Please send your comments on the interim rule to NDIA by September 8, 2020 Send your comments to Nick Jones, NDIA s Director of Regulatory Policy via email to njones@ndia.org 11/26/2024 15