KEY LEGISLATIVE UPDATES

Defense Bill Moves Out of Appropriations Committee

In June, the House Appropriations Defense Subcommittee sent a $706.5 billion defense funding bill to the full Appropriations Committee for markup. This July, the defense bill passed out of the Appropriations Committee along party lines and is set for debate and amendments on the House floor. The bill funds both the U.S. Department of Defense and the Intelligence Community and satisfies the Biden administration’s budget request. House Appropriations Committee Chairwoman Rosa DeLauro (D-CT) says the bill supports maintaining a strong industrial base, providing for $134.3 billion in procurement and $110.4 billion in research, development, test, and evaluation. The proposed procurement base funding is $2.2 billion more than the administration’s total funding request, while the Research, Development, Test,   and Evaluation (RDT&E) base funding is $1.6 billion below the Biden Administration’s total funding request. The text of the draft bill is here.

Bill Authorizing Incentive Payments for Certain Federal Airport Infrastructure Projects Passes the House

The Expedited Delivery of Airport Infrastructure Act of 2021 (H.R. 468) would permit the use of incentive payments to expedite certain federally financed airport development projects. The bill is sponsored by Representative Garret Graves (R-LA) and Representative Ross Spano (R-FL). Rob Wittman (R-VA) also co-sponsored the 2020 version of the bill. The bill would enable public agencies and some private contractors to utilize Airport Improvement Program (AIP) funds from the Federal Aviation Administration. Under the act, a contractor would be eligible for an early incentive payment if: the payment is not greater than 5 percent of the initial construction contract amount or $1,000,000; the contractor does not negatively impact the operation of the airport by shortening the duration of the project; the contract “specifies application of the incentive structure in the event of unforeseeable, non-weather delays beyond the control of the contractor”; the agreement would not prevent the airport operator from retaining safety of the airport; and the use of the payment would likely increase the airport’s capacity or efficiency by shortening the duration of the project.

KEY REGULATORY & EXECUTIVE UPDATES

General Services Administration Issues an Interim Rule to Vet Federal Leases With Foreign Ties

The U.S. General Services Administration (GSA) issued an interim rule on foreign ownership disclosures for federal leases on July 1, 2021, that took effect June 30, 2021. The rule amends the General Services Administration Acquisition Regulation (GSAR) to implement Section 3 and Section 5 requirements of the Secure Federal Leases from Espionage and Suspicious Entanglement Act (“The Act”) (Public Law No: 116-276). The Act addresses the risks of foreign ownership in federally leased property and requires the disclosure of ownership information for high-security spaces (i.e., properties with a security level of three or higher) leased by federal agencies. The Act responded to a 2017 U.S. Government Accountability Office (GAO) report revealing that the GSA was leasing high-security spaces with foreign ownership in 20 buildings, 6 of which were Federal Bureau of Investigation offices. The GAO found that most federal agency tenants were unaware of such foreign ownership, and for some of the leases, the GAO was unable to identify ownership information. These findings highlighted a need to address these agencies’ exposure to the risk of physical or cyber espionage by foreign actors.

The interim rule applies to new lease awards, the exercise of options for current leases, lease extensions, and ownership changes for high-security leases, including renewal, succeeding, expansion, superseding, extension, replacing leases, and novations. The interim rule implements the act’s requirement that covered entities disclose their immediate and highest-level foreign owners, including disclosure of an entity involved in financing of the property and the country associated with each ownership entity. The interim rule also requires that landlords identify the country associated with each ownership entity. Covered entities also must update their disclosures annually, and lease agreements are required to include language that limits the access to the leased space by the covered entity and any member of the property management company responsible for the space without prior approval from the federal tenant.

The interim rule is available at 86 Fed. Reg. 34966.

DoD, GSA, and NASA Issue Proposed Rule Amending the FAR to update the Historically Underutilized Business Zone Program

On June 14, 2021, DoD, GSA, and NASA issued a proposed rule that would update the Federal Acquisition Regulation (FAR) to reflect the current policies for the Historically Underutilized Business Zone (“HUBZone”) program. This rule would remove obsolete text and implement updated terminology to incorporate updates that were made by the Small Business Administration (“SBA”) to the HUBZone program in a final SBA rule issued on November 26, 2019 (84 Fed. Reg. 65222). The proposed changes include updating the small business concern definition, revising the status protest procedures to specify who may protest a prospective contractor's HUBZone status for HUBZone sole-source awards, and removing restrictions against applying the HUBZone Act to contracts at or below the simplified acquisition threshold (“SAT”). The proposed rule intends to clarify existing regulation and create more contracting opportunities for HUBZone businesses.

Comments on the proposed rule are due on August 13, 2021 (86 Fed. Reg. 31468).

Executive Order on Addressing the Threat From Securities Investments That Finance Certain Companies of the People’s Republic of China

On June 3, 2021, President Biden signed an executive order, Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China (E.O. 14032) (86 Fed. Reg. 30145). The EO prohibits any “United States person” from purchasing or selling securities in certain People’s Republic of China (“PRC”) entities that have been identified as posing a threat to U.S. national security, foreign policy, and the U.S. economy. Specifically, the EO intends to address the threats posed by (i) the military-industrial complex of the PRC and its involvement in military, intelligence, and security research and development programs, and weapons and related equipment production under the PRC’s Military-Civil Fusion strategy” and (ii) the use of Chinese surveillance technology outside of the PRC that facilitate repression and human-rights abuses.

The prohibited entities include Chinese defense and surveillance technology firms that have been determined by the U.S. Treasury Secretary either “to operate or have operated in the defense and related materiel sector or the surveillance technology sector of the economy of the PRC” or “to own or control, or to be owned or controlled by, directly or indirectly,” any such PRC company. The EO identifies these particular entities as those that threaten and undermine the security and democratic values of the United States and its allies. President Biden’s EO modifies and expands the national emergency declared by former President Trump in EO 13959 (Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies), signed on November 17, 2020, as amended by EO 13974. Additionally, the annex to President Biden’s EO lists 59 PRC entities to which the EO’s investment prohibitions apply. It also grants authority to the Secretary of the Treasury, in consultation with the Secretary of State and, as the Secretary of the Treasury deems appropriate, the Secretary of Defense, to identify additional PRC entities to be covered by the EO’s investment prohibitions.

The EO’s prohibitions take effect on August 2, 2021, for the 59 entities listed in the EO’s Annex. However, purchase or sale of publicly traded securities in the 59 designated entities made solely to effect the divestment of such securities is allowed until June 3, 2022. The EO further provides a 365-day divestment period for current shareholders of any additional Chinese company that the Secretary of Treasury identifies in the future as a covered entity.

 

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