Construction Bills: Recent Changes to Construction Laws

• Author: By Brian R. Zimmerman and Rowan T. Mason
• Pages: 46-47

THE CONSTRUCTION LAWYER46 Winter 2021

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.

CONSTRUCTION BILLS: RECENT CHANGES

TO CONSTRUCTION LAWS

Federal Funds Blacklist:

Implementation of National

Defense Authorization Act

Rule on Prohibited Foreign

Contractors

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.

Endnotes

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-

009), https://www.regulations.gov/docket?D=FAR-2019-00090.

6. Off. of Mgmt. & Budget, Guidance for Grants and

Agreements, 85 Fed. Reg. 49506 (Aug. 13, 2020), https://

www.federalregister.gov/documents/2020/08/13/2020-17468/

guidance-for-grants-and-agreements.

Brian R. Zimmerman

Rowan T. Maso n

By Brian R. Zimmerman and

Rowan T. Mason