On August 13, 2020, the Office of Management and Budget (OMB) released new revisions to its Guidance for Grants and Agreements set forth under 2 CFR (commonly referred to as the Uniform Guidance).  The Uniform Guidance governs the terms of federal funding issued by agencies, including grants, cooperative agreements, federal loans, and non-cash assistance awards.  This includes federal awards to state and local government agencies, which are generally required to flow down certain provisions of the Uniform Guidance to organizations that they contract with.  Accordingly, the guidance is relevant both when an organization receives funding directly from the Government and when an organization receives funding from a federally funded state or local program.

Among other notable changes to the Uniform Guidance is the implementation of Section 889(b) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 through the addition of 2 CFR § 200.216, which prohibits federal award recipients from using loan or grant funds to enter into contracts (or to extend or renew contracts) with entities that use covered telecommunications equipment or services.[1]  Because of its impact on state and local procurements, as well as on billions of dollars in other federal funding distributed to agencies, this is expected to significantly expand the reach of the Section 889 statutory prohibition, which we have covered in several other prior blog posts.

OMB’s guidance is somewhat contradictory with regard to the implementation of Section 889 in the Uniform Guidance.  On the one hand, the preamble states that new section, 2 CFR § 200.216, is intended to “prohibit Federal award recipients from using government funds to enter into contracts (or extend or renew contracts) with entities that use covered telecommunications equipment or services.”  Further, OMB states that “[t]his prohibition applies even if the contract is not intended to procure or obtain, any equipment, system, or service that uses covered telecommunications equipment or services” indicating that OMB intended for the restrictions to apply to telecommunications equipment or services used by an entity even if that entity is providing non-connected commodities.

On the other hand, the actual language in 2 CFR § 200.216 does not refer to a restriction on entering into contracts with entities that use covered telecommunications equipment and services.  Rather, the prohibition in section 200.216 is limited to the use of federal funds to procure or contract for covered telecommunications equipment or services.  The regulatory prohibition, which closely mirrors the statutory language in Section 889(b)(1) states:

Recipients and subrecipients are prohibited from obligating or expending loan or grant funds to:

(1) Procure or obtain;

(2) Extend or renew a contract to procure or obtain; or

(3) Enter into a contract (or extend or renew a contract) to procure or obtain equipment, services, or systems 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.

Thus, although the preamble indicates a broader intention, the actual regulatory language appears to impose only the limitations of Section 889(a)(1)(A) on recipients.  Similarly, although not entirely clear, the language of the statute can be read to limit the loan and grant fund prohibition to Part A’s procurement ban.  In addition, 2 CFR § 200.216 also does not appear to prohibit the procurement or use of covered telecommunications equipment or services where the equipment or services is purchased using non-federal funds.

Consistent with this approach, the new guidance clarifies that telecommunications and video surveillance costs associated with purchases prohibited by 2 CFR § 200.216 are unallowable.  (2 CFR § 200.471.)  In recognition of the costs associated with complying with the prohibitions on covered technology and the importance of ensuring users continue to have access to communications services, the Uniform Guidance requires federal awarding agencies to work with OMB to prioritize funding and technical support to assist affected businesses, institutions, and organizations.  The funds should be prioritized as “reasonably necessary” to help affected entities transition from covered technologies to replacement technologies.

Recipients of federal funds should be mindful of the new prohibitions contained in 2 CFR § 200.216 and ensure that they are appropriately segregating their costs going forward, particularly as compliance with the new provision will almost certainly be closely evaluated by auditors, awarding agencies, and pass-through entities alike.  Entities that contract with state and local governments will need to be mindful of the new requirements and may begin to see in the short term new contract language incorporating the requirements of 2 CFR § 200.216 from state and local agencies where federal funds are being used, such as state and local transportation projects which commonly receive funding from the Federal Transit Administration.

[1] Other notable changes to the regulations not discussed in depth in this post include among others: (i) expanding the ability of award recipients to elect use of a de minimis 10% indirect cost rate even where they have previously held Negotiated Indirect Cost Rate Agreements with federal agencies (2 CFR § 200.414); (ii) expanding the definition of fixed amount awards to allow Federal awarding agencies to apply the provision to both grant agreements and cooperative agreements (2 CFR § 200.201); (iii) making technical clarifications to key definitions within the regulations such as “recipient,” “subsidiary,” and “period of performance” (2 CFR § 200.201); and (iv) raising the micro-purchase threshold to $10,000 and the simplified acquisition threshold to $250,000, as well as allow recipients to request approval to operate under a micro purchase threshold in excess of $10,000 (2 CFR § 200.320).

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Susan B. Cassidy

Ms. Cassidy represents clients in the defense, intelligence, and information technologies sectors.  She works with clients to navigate the complex rules and regulations that govern federal procurement and her practice includes both counseling and litigation components.  Ms. Cassidy conducts internal investigations for government…

Ms. Cassidy represents clients in the defense, intelligence, and information technologies sectors.  She works with clients to navigate the complex rules and regulations that govern federal procurement and her practice includes both counseling and litigation components.  Ms. Cassidy conducts internal investigations for government contractors and represents her clients before the Defense Contract Audit Agency (DCAA), Inspectors General (IG), and the Department of Justice with regard to those investigations.  From 2008 to 2012, Ms. Cassidy served as in-house counsel at Northrop Grumman Corporation, one of the world’s largest defense contractors, supporting both defense and intelligence programs. Previously, Ms. Cassidy held an in-house position with Motorola Inc., leading a team of lawyers supporting sales of commercial communications products and services to US government defense and civilian agencies. Prior to going in-house, Ms. Cassidy was a litigation and government contracts partner in an international law firm headquartered in Washington, DC.

Photo of Samantha Clark Samantha Clark

Samantha Clark practices in the firm’s Public Policy Practice Group as well as the CFIUS and Government Contracts groups. Ms. Clark provides advisory and advocacy support to clients facing policy, political, and regulatory challenges in the aerospace, defense, and national security sector.

Before…

Samantha Clark practices in the firm’s Public Policy Practice Group as well as the CFIUS and Government Contracts groups. Ms. Clark provides advisory and advocacy support to clients facing policy, political, and regulatory challenges in the aerospace, defense, and national security sector.

Before joining the firm, Ms. Clark served in a number of senior staff positions on the U.S. Senate Armed Services Committee, most recently as Deputy Staff Director and General Counsel. In this role, she managed the passage of the National Defense Authorization Act (NDAA), the annual defense policy bill that authorizes the Defense Department’s budget. Ms. Clark worked on Chairman McCain’s legislative priorities to modernize the military retirement system and reform the defense acquisition system and served as an investigative counsel for the committee’s inquiry into cyber intrusions affecting U.S. Transportation Command contractors. During her time on the committee, she managed a multi-billion dollar policy portfolio that covered acquisition law and policy, national security law and policy, military, civilian, and acquisition workforce policy, congressional investigations, military end strength authorizations, military pay and compensation, law of war and detainee issues, and women in combat.

The Secretary of the Navy awarded Ms. Clark the Department of the Navy Distinguished Public Service Award for her “exceptional service to the Department of the Navy as Deputy Staff Director of the Senate Armed Services Committee,” and the Department of the Air Force awarded Ms. Clark her second Distinguished Public Service Award for her work leading specific legislative initiatives to modernize acquisition authorities and reform the military and civilian personnel systems in support of the Air Force during her tenure on the Senate Armed Services Committee.

Photo of Ryan Burnette Ryan Burnette

Ryan Burnette advises clients on a range of issues related to government contracting. Mr. Burnette has particular experience with helping companies navigate mergers and acquisitions, FAR and DFARS compliance issues, public policy matters, government investigations, and issues involving government cost accounting and the…

Ryan Burnette advises clients on a range of issues related to government contracting. Mr. Burnette has particular experience with helping companies navigate mergers and acquisitions, FAR and DFARS compliance issues, public policy matters, government investigations, and issues involving government cost accounting and the Cost Accounting Standards.  Prior to joining Covington, Mr. Burnette served in the Office of Federal Procurement Policy in the Executive Office of the President, where he worked on government-wide contracting regulations and administrative actions affecting more than $400 billion dollars’ worth of goods and services each year.