United States: Landlord Technology Traps: New Prohibitions On Chinese Technology In Government Leases

Last Updated: September 26 2019
Article by Gordon N. Griffin

Potential security threats from technology developed by Chinese companies with alleged connections to the Chinese government continue to generate headlines and garner attention, with the Government scrutinizing the risk from specific Chinese firms' products. These potential security threats have now resulted in substantial new compliance obligations for landlords to the Federal Government, along with mandatory representations, both of which generate risk for the lessor.

Effective August 13, 2019, Section 889 of the Fiscal Year 2019 National Defense Authorization Act (NDAA) prohibits the use of telecommunications or surveillance equipment or services from certain Chinese companies in support of any Government lease or contract. Government Leases frequently require the provision of telecom and surveillance services, and lessors will now have to take this requirement into account when entering into a lease with the Federal Government.

This blog post1  will explore the most recent requirements for General Services Administration (GSA) leases and the compliance exposure for lessors. It will also discuss the risk of noncompliance and potential methods for limiting exposure.

Compliance Requirements

The new requirements governing the provision of telecommunications and surveillance services stem from Section 889 of the Fiscal Year 2019 NDAA. This section prohibits the Federal Government from procuring or obtaining, or extending or renewing a contract to procure or obtain, "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." Part of this requirement became effective on August 13, 2019, one year after the passage of the 2019 NDAA.2

For now, this requirement is being implemented through the interim rule cited as Federal Acquisition Regulation (FAR) Case 2018-017, and by the General Services Administration (GSA), through the addition of a new contract clause and a new representation in GSA leases: FAR 52.204-25 and GSAR 552.204-70. The FAR clause appears only to apply to leases awarded after August 13, 2019.

The FAR Clause

  • FAR 52.204-25 - PROHIBITION ON CONTRACTING FOR CERTAIN TELECOMMUNICATIONS AND VIDEO SURVEILLANCE SERVICES OR EQUIPMENT (AUG 2019)

This new General Clause to GSA leases does four things: (1) Prohibits the provision of certain telecommunications equipment or services (called covered telecommunications equipment or services) to the Government; (2) Defines "covered telecommunications equipment;" (3) Requires the lessor to self-report any violations of this provision; and (4) Requires the lessor to flow these obligations down to all subcontractors.

  1. The Contractor is prohibited from providing to the Government 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, unless an exception at paragraph (c) of this clause applies or the covered telecommunication equipment or services are covered by a waiver described in Federal Acquisition Regulation 4.2X04.

This subsection of the clause actually prohibits two separate actions: (1) Provision of certain telecommunications supplies to the Government; and (2) Provision of services using certain telecommunications equipment to the Government.

This second prohibition will impact most lessors. A standard clause in GSA leases requires the lessor to provide telecommunications access and cabling (with express specifications) as part of the Government buildout. See, e.g., ¶ 3.42 of the GSA lease form template L100. These shell buildout requirements for telecommunications closets will require some level of inquiry into supply chain integrity for any products used.

Additionally, the Government typically reserves the right to install its own telecommunications equipment or contract with others for the same. Any lessor accepting responsibility for the installation of Government equipment will need to carefully screen its supplies prior to their installation or turnover to Government control.

Finally, the Government often requires surveillance services to be provided as part of the lease's security improvements. As explained below, surveillance services will be subject to the prohibition on use of certain equipment, and lessors will need to ensure that their surveillance equipment does not run afoul of that prohibition.

2. "Covered telecommunications equipment or services" means –

(1) Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities);

(2) 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);

(3) Telecommunications or video surveillance services provided by such entities or using such equipment; or

(4) 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 government of a covered foreign country.

This provision details the specific companies the Government intends to preclude from its telecommunications suites. However, the final provision, prohibiting the use or provision of telecommunications equipment from a "covered foreign country," is a catch-all that may apply to any Chinese firm designated by the Secretary of Defense. 48 C.F.R. § 52.204-25 ('Covered foreign country' means The People's Republic of China.).

Of note, this provision governs both contracts for provision of equipment and contracts (or leases) that include provision of services that entail the use of designated Chinese-manufactured telecommunications and surveillance equipment. This is the provision that may most clearly impact most lessors, as outlined above. What is unclear is exactly where the Government will draw the line with respect to what "services" are being performed under the lease.

This requirement represents a sea-change in the Government's approach to network security. It's unclear from this regulation whether "equipment" will mean finished products on the market, or whether it extends to components. If the Government takes the position that it is the latter, then any compliance review will become significantly more burdensome, time-consuming, and expensive.

3. In the event the Contractor identifies covered telecommunications equipment or services used as a substantial or essential component of any system, or as critical technology as part of any system, during contract performance, or the Contractor is notified of such by a subcontractor at any tier or any other source, the Contractor shall report the information in paragraph (d)(2) of this clause to the Contracting Officer, unless elsewhere in this contract are established procedures for reporting the information.... The Contractor shall report the following information pursuant to paragraph (d)(1) of this clause:

(i) Within one business day from the date of such identification or notification: the contract number; the order number(s), if applicable; supplier name; supplier unique entity identifier (if known); supplier Commercial and Government Entity (CAGE) code (if known); brand; model number (original equipment manufacturer number, manufacturer part number, or wholesaler number); item description; and any readily available information about mitigation actions undertaken or recommended.

(ii) Within 10 business days of submitting the information in paragraph (d)(2)(i) of this clause: any further available information about mitigation actions undertaken or recommended. In addition, the Contractor shall describe the efforts it undertook to prevent use or submission of covered telecommunications equipment or services, and any additional efforts that will be incorporated to prevent future use or submission of covered telecommunications equipment or services.

This is a requirement for self-reporting the use of any prohibited telecommunications or surveillance equipment to the Government. The timeline is extremely aggressive: one business day. In the event that a lessor discovers, after lease award, the existence of any prohibited telecommunications equipment or surveillance equipment used in support of the lease, the lessor could have as little as 24 hours to report the fact to the Contracting Officer.

4. The Contractor shall insert the substance of this clause, including this paragraph (e), in all subcontracts and similar contractual instruments, including subcontracts for the acquisition of commercial items.

In plain English, this clause requires the lessor to "flow down" this requirement to all of its subcontractors, suppliers and vendors.

The GSA Representation

  • GSAR 552.204-70 REPRESENTATION REGARDING CERTAIN TELECOMMUNICATIONS AND VIDEO SURVEILLANCE SERVICES OR EQUIPMENT (AUG 2019)

This clause is actually a representation, which will be incorporated into all GSA leases moving forward. As written, it requires the lessor to confirm whether it does or does not make use of any "covered telecommunications equipment" in support of a Government lease:

The Offeror or Contractor represents that it [ ] will or [ ] will not [Contractor to complete and submit to the Contracting Officer] provide covered telecommunications equipment or services to the Government in the performance of any contract, subcontract, order, or other contractual instrument resulting from this contract. This representation shall be provided as part of the proposal and resubmitted on an annual basis from the date of award.

Additionally, if the lessor responds affirmatively to that representation, it triggers additional reporting obligations and representations:

If the Offeror or Contractor has responded affirmatively to the representation in paragraph (c) of this clause, the Offeror or Contractor shall provide the following additional information to the Contracting Officer--

(1) All covered telecommunications equipment and services offered or provided (include brand; model number, such as original equipment manufacturer (OEM) number, manufacturer part number, or wholesaler number; and item description, as applicable);

(2) Explanation of the proposed use of covered telecommunications equipment and services and any factors relevant to determining if such use would be permissible under the prohibition in paragraph (b) of this provision;

(3) For services, the entity providing the covered telecommunications services (include entity name, unique entity identifier, and Commercial and Government Entity (CAGE) code, if known); and

(4) For equipment, the entity that produced the covered telecommunications equipment (include entity name, unique entity identifier, CAGE code, and whether the entity was the OEM or a distributor, if known).

Changes to Existing Leases

For new leases with the Federal Government, these requirements are mandatory. This is true whether the lease is for existing space or new build. These requirements will even apply for succeeding leases.

For existing leases this issue becomes more complicated. It's unclear whether, as a matter of policy, the Government intends to make these requirements retroactive (the statutory requirement is only forward-looking), but there is an avenue for them to do so. Most leases with the Federal Government include a clause similar or identical to the Changes clause in the GSA's form 3517B – General Clauses (Rev. 06/16). This clause expressly allows the Federal Government to "direct changes to the Tenant Improvements within the Space, Building Security Requirements, or the services required under the Lease." However, in the event that such a change drives an increase in costs, which it almost certainly would, then the lessor will be entitled to an equitable adjustment:

If any such change causes an increase or decrease in Lessor's costs or time required for performance of its obligations under this Lease, whether or not changed by the order, the Lessor shall be entitled to an amendment to the Lease providing for one or more of the following:

(1) An adjustment of the delivery date;

(2) An equitable adjustment in the rental rate;

(3) A lump sum equitable adjustment; or

(4) A change to the operating cost base, if applicable.

But regardless of whether the Government decides to retroactively add the FAR clause to existing leases, the representation (GSAR 552.204-70) will be added to the System for Award Management (SAM) registration process, so all lessors will be required to examine whether or not any "Covered Telecommunications Equipment" is used in support of Federal leases.

Compliance Risk

The compliance risk associated with these requirements is substantial. First, falsely certifying that a lessor uses no "Covered Telecommunications Equipment" in the administration of its lease or leases can result in False Claims Act liability. It is unclear how the Government intends to treat this representation, but for another set of representations – the Small Business Size representations – the Department of Justice has taken the position that false certification damages may be up to triple the full value of set-aside contracts.

Next, there is a risk of breach damages. It is unclear how the Government could calculate its damages in the event of noncompliance, but any compromise of Government information could potentially subject the lessor to liability for breach damages.

Finally, there is a risk of suspension and debarment. The Government clearly takes any threats to national security very seriously, and these clauses represent an aggressive approach to that threat. Failure to meet these requirements, or falsely certifying compliance, could result in a suspension and debarment official opening an inquiry into whether a lessor is a responsible partner to the Federal Government. When debarred, no new leases or contracts may be awarded to an entity, with very narrow exceptions. Additionally, affiliated entities can be implicated, with suspension and debarment liability extending up the ownership chain, and even attaching to individuals.

Flow Down Compliance

Lessors should consider flowing these new requirements down to General Contractors and Construction Managers for new build construction, and to property managers for succeeding leases or leases in existing space.

However, lessors should be aware that "flowing it down" by itself will not insulate the landlord from any adverse actions; the lessor still remains the party to the Government lease, and the Government will hold the lessor responsible for noncompliance.

Conclusion

These new obligations represent a dramatic shift in how the Government is approaching security for its networks, and places substantial new burdens on Government lessors. Lessors should carefully consider their approach to compliance with these new obligations.

It is unclear how and when GSA (and other Government agencies) will implement compliance and oversight for these requirements. As of this writing, we are unaware of any funding or structure provided to GSA (or other agencies with leasing authority) to oversee these lease requirements. Furthermore, it is unclear who – if anyone – at GSA possesses the technical expertise to audit compliance with these requirements.

Additionally, these compliance obligations only address Phase I of the 2019 NDAA. Phase II, which will come into effect next summer, expands the existing controls to prohibit "enter[ing] into a contract (or extend[ing] or renew[ing] a contract) 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." Sec. 889(a)(1)(B). In other words, the Government may not only not contract for risky equipment or services, but it may not contract with any entities who use such equipment or services. This will broaden the scope of applicability dramatically, and will require all lessors to perform a new compliance analysis.

Footnotes

1 This post is included in the 2019 edition of Federal Government Real Estate Leasing, available at https://store.lexisnexis.com/products/federal-government-real-estate-leasing-skuSKU04963.

Please see Holland & Knight's previous blog addressing the interim rule is located here: https://www.hklaw.com/en/insights/publications/2019/08/interim-rule-banning-huawei-and-other-chinese-companies-released. As we noted in our previous blog, the interim rule only instituted part of Section 889.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions