Alert
Alert
07.08.21
On June 30, 2021, the U.S. General Services Administration (GSA) issued new interim, regulations governing the disclosure of foreign ownership of high-security space leased to the federal government. While interim, the regulations became effective immediately and are intended to implement certain requirements enacted in the Secure Federal Leases from Espionage and Suspicious Entanglement Act (Secure Federal LEASES Act), which the President signed on December 31, 2020 (see our client alert dated January 8, 2021). The new, interim, regulations do not apply to the Department of Defense or intelligence agencies, but the regulations do apply to GSA, the Architect of the Capitol, and any other agency that has independent leasing authority. High-security leased space refers to space that maintains a security level of Level III, IV, or V; in the interim rule, GSA estimates that, as of June 2021, approximately 16 percent of the existing leases in GSA’s portfolio (or 1,263 out of 7,860 leases) qualify as having high-security leased space.
In the interim rule, GSA has adopted two new General Services Administration Acquisition Regulation (GSAR) requirements: (i) Offerors must make a representation regarding foreign ownership or foreign involvement in financing, and (ii) leases must include a new GSAR clause. Both of these requirements apply to new lease awards, the exercise of options for current leases, lease extensions, and ownership changes for high-security leased space, executed on or after June 30, 2021. The new representation, codified in the GSAR at 552.270-33 and entitled “Foreign Ownership and Financing Representation for High-Security Leased Space,” requires the Offeror or Lessor to state whether it does or does not have an “immediate owner.” “Immediate owner” is a defined term in the new regulation to mean “an entity that has direct control of the offeror or Lessor.” The regulation goes on to explain that “[i]ndicators of control include, but are not limited to, one or more of the following: ownership or interlocking management, identity of interests among family members, shared facilities and equipment, and the common use of employees.” If the Offeror or Lessor has an “immediate owner,” then the Offeror or Lessor must identify whether that entity is foreign (or not), and if it is foreign the Offeror or Lessor must identify the physical address and country of the foreign owner. The representation does not stop there, however. It goes on to require the Offeror or Lessor to state whether the immediate owner is or is not controlled by another entity; if the immediate owner is controlled by another entity, then the Offeror or Lessor must state whether that entity is foreign, and if so, the physical address and country of that foreign, controlling entity must also be provided. Finally, the Offeror or Lessor must state whether the Lease is financed by a foreign entity, and if so, the legal name, unique entity identifier, physical address, and country of the foreign financing entity must be disclosed.
The new GSAR clause, codified in the GSAR at 552.270-34 and entitled “Access Limitations for High-Security Leased Space,” requires Lessors and property managers to secure advance Government approval before accessing high-security leased space. Absent such approval, Lessors and property managers must not access the high-security leased space.
In the event a foreign ownership or financing disclosure is made pursuant to the new representation summarized above, the GSA or other agency Contracting Officer must notify the tenant agency in writing. The Contracting Officer is also required to “coordinate with the Federal tenant regarding security concerns and any necessary mitigation measures.” New GSAR Section 570.118.
While these new provisions governing foreign ownership and/or foreign financing entities are not disqualifying, it stands to reason that GSA (and the tenant agencies) will carefully scrutinize any new leases, lease extensions, or novations to assess the security risks associated with such foreign involvement in high-security leases. In the interim rule, GSA also observes that, “by requiring ‘Financing Entity’ information in the representation clause, GSA will benefit by better understanding the source of funds used to finance projects…. By collecting this information, GSA will be able to share more transparent information on foreign financing of leases with tenant agencies.”