Proposed FAR Rule Prohibits Use Of Semiconductors From Foreign Adversaries

     On February 17, 2026, the Office of Federal Procurement Policy, Office of Management and Budget; Department of Defense; General Services Administration, and National Aeronautics and Space Administration (collectively, the “FAR Council”), published a Proposed Rule that prohibits federal government agencies from purchasing certain semiconductor products and services connected to certain foreign adversaries – China, Russia, Iran and North Korea.  The Proposed Rule implements restrictions that were enacted by Congress in the National Defense Authorization Act for Fiscal Year 2023 and that would take effect on December 23, 2027.

Prohibitions

     Specifically, as of December 23, 2027, the Proposed Rule prohibits agencies from purchasing, and government contractors from providing, (1) electronic products or electronic services that include “covered semiconductor products or services;” or (2) electronic products, for use in critical systems, that use electronic products that include “covered semiconductor products or services.”

     “Covered semiconductor products or services” means semiconductors, semiconductor products, products that incorporate semiconductor products, and services that utilize such products that are designed, produced, or provided by:

• Semiconductor Manufacturing International Corporation(SMIC), or any subsidiary, affiliate or successor

• ChangXin Memory Technologies (CXMT) or Yangtze Memory Technologies Corp (YMTC), or any subsidiary, affiliate, or successor

• Any entity determined by the Secretary of Defense or the Secretary of Commerce to be owned or controlled by, or otherwise connected to, the government of a “semiconductor foreign country of concern.”  

     A list of such entities is expected to be published on the Department of Commerce’s website.  “Semiconductor foreign countries of concern” currently include North Korea, China, Russia and Iran and will also include any country that the Secretary of Commerce determines to be engaged in conduct that is detrimental to the national security or foreign policy of the United States.

     Before December 23, 2027, agencies and contractors are not required to remove or replace covered semiconductor products or services from existing equipment, systems, or services or to prohibit the use of covered semiconductor products or services in existing equipment, systems, and services provided to the Government.

Contractor Certifications

     Under the corresponding proposed FAR clauses, by submitting submitting an offer, a contractor certifies that it has conducted a "reasonable inquiry" and that (i) during contract performance it will not provide to the Government electronic products or electronic services that include covered semiconductor products or services; and (ii) during contract performance it will not provide for use in critical systems that are identified by the Government electronic products that include covered semiconductor products or services.

Reasonable Inquiry

     Under the Proposed Rule FAR regulations, a reasonable inquiry is defined to mean an inquiry intended to uncover any information in the contractor’s possession, including information that it may have acquired from external sources, about whether any electronic products or services that are provided to the Government include covered semiconductor products or services or use electronic products that include covered semiconductor products or services.  A contractor may reasonably rely on any certifications in the Department of Commerce's website of organizations that have certified their products or services do not contain covered semiconductor products or services.  Although not stated in the proposed FAR regulations, and notwithstanding the language in those proposed regulations limiting the inquiry to information in the contractor's possession, the preamble in the Proposed Rule states that in conducting a reasonable inquiry a contractor will need to "seek out" information to identify the source of its semiconductor products or services.  The preamble explains further that in conducting the inquiry a contractor may consult the Department of Commerce's website, search supplier or manufacturer websites, or "use supply chain illumination or other due diligence tools."

     The proposed FAR regulations state that if a contractor does not have information in its possession regarding whether any semiconductors included in electronic products or electronic services comply with the restrictions, a contractor must require that suppliers at the next lower tier of its supply chain conduct a reasonable inquiry and certify whether their electronic products and electronic services are compliant.  Contractors may reasonably rely on certifications provided by their lower tier suppliers without conducting further reviews and are not required to obtain third-party audits or other formal reviews. 

Mandatory Reporting

     If a contractor is providing, or is notified by any source or has reason to suspect that it has provided, to the Government electronic products or electronic services that do not comply with the restrictions, the contractor must include in its offer, and thereafter within 72 hours, the following information:

• A description of the electronic products or electronic services proposed to the Federal Government that the contractor identifies or has reason to suspect contains covered semiconductor products or service

• The entity that produced the covered semiconductor products or services

• A description of the functionality of the covered semiconductor products or services and how that functionality impacts the risk to the electronic product or electronic service

• Any factors relevant to determining if the covered semiconductor products or services would be permissible under any exceptions

• Whether alternative products or services are available that would be compliant with the prohibition

• If the electronic product or electronic service is related to item maintenance

Mandatory Disclosure To Non-Federal Customers

     Contractors and subcontractors that design semiconductors with U.S. origin technology or software and that purchase covered semiconductor products and services from SMIC or from an entity owned, controlled, or connected to a semiconductor foreign country of concern must disclose to their non-Federal customers the inclusion of any covered semiconductor product or service in the electronic products or services that are sold to the non-Federal customers outside of the Government. 

Subcontractor Flow Downs

     Contractors are required to incorporate the substance of the applicable FAR clause into their subcontracts.

     Comments on the Proposed Rule must be submitted no later than April 20, 2026.