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Under Section 889 and the subsequent regulation 2 CFR §200.216, federal grant recipients and sub-recipients are restricted from using federal funds to procure, obtain, extend or renew a contract, or enter into a contract for equipment, services, or systems that use the prohibited telecommunications equipment or services as of August 13, 2020.

The Fiscal Year 2019 National Defense Authorization Act included a prohibition on federal agencies and federal grant recipients from procuring certain Chinese telecommunications and video surveillance equipment. The Section 889 restrictions went into effect on August 13, 2020, for federal grant recipients under a new section to 2 CFR contained in 2 CFR §200.216.

The prohibited telecommunications equipment is telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities). Additionally, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities) that is used for the purpose of public safety, security of 16 government facilities, physical security surveillance of critical infrastructure, and other national security purposes is covered equipment under Section 889.

The same rules apply to matching funds as they do to federal funds.  Therefore, the state should follow its laws and procedures related to residual supplies when a grant ends.  If the value of residual unused supplies exceeds $5,000, the state must work with EAC to determine if the state did not meet its minimum matching requirement and calculate the match shortfall. 

These situations are governed by federal regulation 2 CFR 200.314 related to residual unused supplies. Generally, supplies purchased by states and subgrantees with federal funds are to be used, managed, and disposed of in accordance with state laws and procedures. However, pursuant to 2 CFR 200.314, if a state or subgrantee’s residual inventory of unused supplies exceeds $5,000 in aggregate when the federal grant project ends, and the supplies are not needed for any other federal award program, the state or subgrantee must retain the supplies for use on other activities or sell them, but must, in either case, compensate the federal government for its share. While the EAC does not anticipate many situations in which the fair market value of residual unused supplies will exceed an aggregate value of more than $5,000, states need to have processes in place to make that determination.  If the value of unused supplies exceeds $5,000 in aggregate, the state must report to the EAC the amount owed to the federal government. If the unused supplies are worth less than $5,000 in aggregate, the state or subgrantee can decide how to use or dispose of the unused supplies based on their state specific laws and procedures.

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