Construction Bills: Recent Changes to Construction Laws

AuthorBy Brian R. Zimmerman and Rowan T. Mason
Published in The Construction Lawyer, Volume 41, Number 1, Winter 2021. © 2021 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Federal Funds Blacklist:
Implementation of National
Defense Authorization Act
Rule on Prohibited Foreign
On August 1, 2018, Congress
approved the National Defense
Authorization Act for Fiscal Year
2019, which was signed into law
by President Trump on August 19,
2018.1 As has been the case every
year since 1961, the Act primarily
authorizes budgetary allocations
for the U.S. military, but also
includes other provisions.
One signicant provision, Sec-
tion 889, prohibits federal agencies
from committing federal funds to
procurement of certain “telecom-
munications equipment or services.” The two primary Section
889 prohibitions provide that federal agencies cannot:
(a)(1)(A) procure or obtain or extend or renew a con-
tract to procure or obtain any equipment, system, or
service that uses covered telecommunications equip-
ment or services as a substantial or essential component
of any system, or as critical technology as part of any
system; or
(a)(1)(B) enter into a contract (or extend or renew a
contract) with an entity that uses any equipment, sys-
tem, or service that uses covered telecommunications
equipment or services as a substantial or essential com-
ponent of any system, or as critical technology as part
of any system.2
While subsection (A) went into effect one year later, subsection
(B) did not become effective until two years after enactment,
which was August 19, 2020.3
In short, the proscription covers equipment or services pro-
vided by entities that the Secretary of Defense “reasonably
believes to be an entity owned or controlled by” the Peoples’
Republic of China, including Huawei Technologies Com-
pany, ZTE Corp., Hytera Communications Corp., Hangzhou
Hikvision Digital Technology Co., and Dahua Technology
Company, and their afliates.4
The Federal Acquisition Regulation—the federal
contracting guidelines governing federal contracting and pro-
curement—recently incorporated interim changes to account
for both subsections.5 The comment periods are now closed;
nal rule making is underway.
Notably, Section 889 extends beyond prohibiting federal
agencies from allowing such contracts on their own projects.
Rather, they also “may not obligate or expend loan or grant
funds” to do the same. The extent of this prohibition has
not been fully tested yet, but it appears that it would pass
through to any recipient of federal grants or loans, includ-
ing, for example, state-run projects receiving federal funds.
Similarly, such obligations may ow down not only to state
agencies receiving federal funds but also to their contractors
and subcontractors.
On August 13, 2020, the federal Ofce of Management
and Budget (OMB) claried by adopting a nal rule, codied
at 2 C.F.R. § 200.216. Under the OMB’s guidance, the Section
889 prohibition extends to “recipients and subrecipients” of
federal funds and applies “even if the contract is not intended
to procure or obtain, any equipment, system, or service that
uses covered telecommunications equipment or services.”6
The effect of this law on public works procurement and
construction is apparent already. Proposed contracts for state
infrastructure projects that receive federal funds have begun
to include provisions prohibiting construction contractors
from utilizing, or subcontracting to utilize, any products or
services from the prohibited entities.
Barring a change in federal law or agency rules, contrac
tors and subcontractors bidding for public works that receive
any federal funding can expect provisions owing down the
requirements of Section 889. As a result, contractors and
subcontractors should watch for such provisions in any fed
erally funded work and, if encountered, (a) implement any
needed internal procedures to ensure compliance and (b) ow
down the same requirements to any downstream subcontrac-
tors and suppliers.
Brian R. Zimmerman is a shareholder at Hurtado Zimmerman S.C.
in Milwaukee, Wisconsin. Rowan T. Mason is a San Francisco-based
partner with Jones Day.
1. National Defense Authorization Act for Fiscal Year 2019,
Pub. L. No. 115-232, 132 Stat. 1636 (2018).
2. Id. § 889(a).
3.. Id. § 889(c).
4. Id. § 889(f).
5. Federal Acquisition Regulation: Prohibition on Con-
tracting with Entities Using Certain Telecommunications and
Video Surveillance Services or Equipment (FAR Case 2019-
6. Off. of Mgmt. & Budget, Guidance for Grants and
Agreements, 85 Fed. Reg. 49506 (Aug. 13, 2020), https://
Brian R. Zimmerman
Rowan T. Maso n
By Brian R. Zimmerman and
Rowan T. Mason

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