Alex Sarria, member of the litigation practice of Miller & Chevalier, explains the content of a new rule by the U.S. government, further expanding its ban on the procurement of telecommunications equipment and services from Huawei and other Chinese technology companies.

This summer, the U.S. Federal Acquisition Regulatory (FAR) Council issued a second interim rule on the matter. Both the first and second rules were mandated by the National Defense Authorization Act, the primary means by which Congress funds procurement activities of the U.S. Department of Defense and other federal agencies.

The first rule was a procurement ban, prohibiting federal agencies from directly purchasing components from Huawei and four other Chinese suppliers. The second and more recent rule is broader in nature, addressing the types of companies that the U.S. federal government is allowed to do business with. It scrutinizes whether a government agency is contracting with a banned party for equipment, services or systems that constitute essential technology, or make up a central component of the item in question.

That puts many suppliers in a bind, especially multinationals with operations all over the globe. They will need to ensure that none of their subsidiaries is providing banned technology to the government, even indirectly through a multi-tiered supply chain. What’s more, language issued by FAR will soon be made part of the requirements that companies must meet under the government’s strict and exhaustive System for Award Management.

Sarria says manufacturers that contract with the U.S. government must gain a deep understanding of all components that go into their systems and services, no matter how removed they might be from the final stages of manufacturing and distribution. “The real challenge is a logistical one,” he says, “setting up a compliance program from scratch.”