Last month, we wrote about a proposed amendment to the FY 2023 National Defense Authorization Act (“NDAA”) that would prohibit contractors from selling certain Chinese semiconductor technologies to federal agencies and from using these same covered products and services. This measure was added through Section 5949 of the NDAA.
On
Compromise Version of NDAA Limits Semiconductor Ban to Federal Sales
Section 5949 bans semiconductor products and services from
Like Section 889, Section 5949 originally contained Part A and Part B prohibitions banning contractors from selling covered semiconductor products and services to the government (Part A) and also from using these same technologies (Part B). Structurally, the compromise version of Section 5949 retains Parts A and B, but both parts prohibit federal sales of covered semiconductor products and services:
- Prohibition on Use or Procurement.
(1) IN GENERAL.—The head of an executive agency may not—
(A) procure or obtain, or extend or renew a contract to procure or obtain, any electronic parts, products, or services that include covered semiconductor products or services; or
(B) enter into a contract (or extend or renew a contract) with an entity to procure or obtain electronic parts or products that use any electronic parts or products that include covered semiconductor products or services.
Notably absent is any prohibition against contractors using covered semiconductor products or services. The “use” prohibition in Part B only bans agencies from procuring electronic parts and products that use covered semiconductor products or services. The elimination of a true use ban may have been in response to lobbying efforts by the semiconductor industry, as reflected in a
NDAA's Joint Explanatory Statement—Rulemakers Expected to Extend Ban to Contractors
Despite what appears to be a more limited semiconductor ban in Section 5949, contractors should not assume that the ban, once implemented, will only apply to their federal sales. In particular, the “Joint Explanatory Statement” accompanying the NDAA states
We note that the intent of
With regard to the regulations to be prescribed by this
(emphasis added).
While the text of Section 5949 only prohibits federal sales of covered semiconductor technologies, the joint explanatory statement reflects a Congressional intent that the ban be extended to use by contractors and suppliers—including their domestic and foreign subsidiaries and affiliates. This would be more onerous than Part B of Section 889, which currently only applies to the prime contracting entity and excludes affiliates, subsidiaries, and subcontractors. As noted by trade groups, covered entities would be required to trace their supply chain down to the component level to identify any covered semiconductor equipment used in the contractor's enterprise. Additional diligence would be required to identify whether third parties (such as payroll, accounting, or logistics support) use covered products or services.
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