Contractors Must Disclose Work Performed in China.

• Author: Cassidy, Susan
• Position: GOVERNMENT CONTRACTING INSIGHTS

The Defense Department on Aug. 25 published--with immediate effect--two new Defense Federal Acquisition Regulation Supplement clauses requiring prime contractors and subcontractors to disclose any work performed in China on certain department contracts.

Under the interim rule, the department is prohibited from awarding or extending certain new contracts if a contractor fails to disclose its use of Chinese labor on a covered contract. Although there is no prohibition on the department awarding a covered contract to an entity that makes a disclosure, the department can rely on a variety of authorities to exclude certain contractors and products that represent supply chain risks, especially if the products or services involve information technology.

These new rules implement section 855 of the 2022 National Defense Authorization Act, which directed the department to require two-phase disclosures from certain contractors: an initial disclosure when a contractor submits a proposal for a covered contract and an annual disclosure for fiscal years 2023 and 2024 from any contractor that holds a covered contract. The department implemented this provision with two new corresponding clauses, a solicitation clause (DFARS 252.225-7057) and a contract clause (DFARS 252.225-7058).

The disclosure requirements apply to "covered contracts," which include any Defense Department prime contract or subcontract with an expected value more than $5 million --except for contracts for commercial products or services. And the disclosure requirements apply to "covered entities," or contractors performing work on a covered contract in the People's Republic of China.

The pre-award disclosure requires that covered entities identify proposed use of Chinese labor at the time of proposal submission. The offeror also must identify the number of individuals who will perform work in China and provide a description of the physical presence--including street addresses--in China where work will be performed. This disclosure also includes any subcontract that meets the covered contract definition.

Primes and higher-tier contractors will likely need to evaluate whether to require disclosures from prospective subcontractors to support their proposals.

These new rules raise questions of how the Defense Department plans to implement these requirements.

What does it mean to be "performing work" in China on a covered contract? The definition of "covered contractors" notes that performing...