Pentagon Extends Deadline for Contractors' Ban on Chinese Equipment

Defense Under Secretary for Acquisition and Sustainment Ellen Lord confirmed Thursday the Director of National Intelligence provided a waiver to the Pentagon extending the deadline for government contractors to comply with a new supply chain rule—which requires contractors to eliminate products from a list of Chinese companies including Huawei and ZTE—for a narrow set of low-risk commodities.  

Lord also said the Defense Department would not seek further waivers for the rule—a part of Section 889 of the 2019 National Defense Authorization Act—at this time. The governmentwide mandate bans agencies from working with contractors in business with a list of Chinese companies that represent national security threats took effect on an interim basis August 13. 

DNI John Ratcliffe granted a waiver for a select category of items that are unlikely to pose an immediate threat to security. The waiver extends the deadline for this equipment until September 30. It is exclusive to the Pentagon; all other contractors working with other agencies have to comply with the mandate in full.

Speaking at a Pentagon press conference Thursday, Lord clarified the intent of the waiver, which was first reported by Defense News Friday.

“The waiver covers items that are considered low risk to national security, such as food, clothing, maintenance services, construction materials that are not electronic and numerous other items that ODNI has identified as low risk commodities,” Lord said. “The waiver received is not for our major weapons systems or any support activity related to them.”

Lord added the purpose of the waiver is to avoid interruptions to end-of-year fiscal activities. It is not meant to become a wholesale extension of implementation, and DOD isn’t seeking any other extensions for a broader range of equipment or products. 

“We are balancing warfighter readiness and completing end-of-year purchases to avoid issues with expiring funds, with rule implementation for the next 45 days,” Lord said. 

The waiver gives contractors time to review the full details of the rule, Lord said. The provision took effect just over a month after the final language of the provision was published in the Federal Register July 9. 

Lord stressed the department is aware of the challenges contractors are facing. She said the department plans to remain in “constant dialogue” moving forward, echoing requests she made to industry organizations the day the rule was implemented for feedback and notes on what’s working and what’s causing problems with implementation. 

But rollout has been marked by confusion. When news of the waiver broke, some contractors weren’t sure what kind of equipment it was meant to address. Though welcome, such a brief extension that is already limited in scope is only a Band-Aid on a much deeper wound, they said. 

On Tuesday, Kea Matory, who works on legislative policy with the National Defense Industrial Association, told Nextgov she hadn’t received any official communication from DOD regarding the waiver, and had yet to see the waiver publicly posted. 

Instead, contractors that work with NDIA were sending Matory the Defense News story and asking for clarification. The memo came after some companies had already received notice from contracting officers asking for mass modifications to operations, according to Matory. 

“They got caught by surprise when they got these contract modifications out from their contracting officers,” Matory said. “That hit, and then come Friday … we were hearing that there might be some type of modification, there might be a waiver. That just caused more confusion.”

Matory said it’s not clear to contractors to what equipment the extended deadline refers versus what is still fully covered under the interim rule. Lord’s comments at the press conference may help clear this confusion.

But even with the waiver, companies face steep challenges for compliance. Visibility is a critical problem.

“They don't necessarily have Huawei, ZTE stamped on the side of the equipment,” Matory said.

Lord herself has pushed for an extension of implementation in the past. At a June 10 House Armed Services Committee hearing, she expressed concern that August implementation may cause unintended consequences. 

"The thought that somebody in six or seven levels down in the supply chain could have one camera in a parking lot, and that would invalidate one of our major primes being able to do business with us gives us a bit of pause," Lord said at the time. 

Matory said in general, companies NDIA represents agree with the intent of Section 889. Many defense contractors go into business for the explicit purpose of supporting national security and the warfighter. But companies, and small businesses in particular, need more help from the government in order to be able to comply. 

“They also need the government's help in implementing these strategies in a way that makes sense and that doesn't cost them their business as they're going,” Matory said. “Because they really can't afford it this time to lose these contracts, so it's a very scary place to be right now for them.”