OMB Chief: Contractors Need More Time to Cut Ties With Huawei, ZTE

The head of the Office of Management and Budget is asking the Trump administration and Congress to give government contractors and federal grant recipients more time to cut ties with Chinese telecom providers like Huawei.

If officials don’t grant the extension, there may be “a dramatic reduction” in the number of contractors able to legally do business with the government, acting OMB Director Russel Vought wrote in a letter to Vice President Mike Pence and congressional leaders. The letter, dated June 4, was first reported by The Wall Street Journal.

The 2019 National Defense Authorization Act prohibited the use of federal funds to purchase products from Huawei, ZTE and other Chinese telecom firms after intelligence officials warned the Chinese government could use the companies to spy on the U.S. The measure not only bans agencies from doing business directly with the firms but also bars government contractors and federal grant recipients from working with the Chinese companies or any other group that uses their tech.

Last month, President Trump also signed an executive order prohibiting all U.S. companies from purchasing technology products from any group deemed a national security threat. The measure, which came amid the escalating trade war with China, was widely viewed as a shot against Huawei.

The same day, the Commerce Department effectively banned U.S. firms from selling products to Huawei or any one of its dozens of subsidiary firms.

Under the NDAA provision, companies have until 2021 to detach themselves from Huawei and the other firms, but Vought said the time frame might be too tight for small businesses to fully comply. Similarly, he said, federal grant recipients in rural areas may struggle to find alternatives to Huawei in time due to “the limited number of market options.”

However, extending the deadline another two years would give companies more time to weigh in on the measures and work with the government to find a more sustainable solution, Vought said. In the letter, he included a draft amendment that would change the deadline for federal contractors and grant recipients.

“While the administration recognizes the importance of these prohibitions to national security, a number of agencies have heard significant concerns from a wide range of potentially impacted stakeholders ... which the Administration believes could be addressed with a modified implementation schedule,” Vought wrote in the letter, a copy of which was obtained by Nextgov.

The proposal wouldn’t affect the ban on federal agencies doing business with Huawei, nor the prohibition on American firms selling products to the company, according to OMB spokesperson Jacob Wood. Under the NDAA, Huawei products must be removed from federal networks by Aug. 13.

“This is about ensuring that companies who do business with the U.S. government or receive federal grants and loans have time to extricate themselves from doing business with Huawei and other Chinese tech companies listed in the NDAA,” Wood told Nextgov.

Vought’s request highlights the difficulty of scrubbing the federal supply chain from a global tech company as large as Huawei. Security researchers estimate there are still thousands of Huawei and ZTE devices still operating on federal, state and local government networks, and last week, the Chinese government warned Microsoft, Dell and other major tech firms that abiding by the Trump administration’s ban could lead to dire consequences.