Key Takeaways

• The FAR Council proposed a new rule impacting the sale of semiconductors by contractors to the federal government, effective December 23, 2027.
• Contractors must ensure their products do not use semiconductor products from specified prohibited sources, including certain Chinese companies.
• Contractors are required to conduct reasonable inquiries to certify compliance and disclose any noncompliance, without facing civil liability.

Proposed Rule Overview

On February 17, 2026, the Federal Acquisition Regulation (FAR) Council released a proposed rule affecting technology companies providing electronic products and services to the federal government. This rule stems from Section 5949 of the 2023 National Defense Authorization Act, aiming to curb national security threats by barring certain semiconductor products and services.

The rule is scheduled to take effect on December 23, 2027, and mandates contractors to evaluate their semiconductor supply chains ahead of this date. Comments on the proposal are due by April 20, 2026, with the final rule yet to be determined.

Prohibitions on Semiconductor Products

The proposed rule particularly targets semiconductor products from companies such as Semiconductor Manufacturing International Corporation (SMIC), ChangXin Memory Technologies, and Yangtze Memory Technologies Corp, among others. The U.S. Secretary of Defense or Commerce can also designate additional prohibited sources from countries deemed a threat, including China, North Korea, Russia, and Iran.

Federal agencies will be barred from procuring products that include “covered semiconductor products or services.” Therefore, contractors must ensure their offerings are free from noncompliant semiconductors.

Compliance Requirements

Contractors are expected to conduct a “reasonable inquiry” to ascertain compliance with the new rule. They will need to certify this compliance in their offers without the need for a third-party audit. However, if they cannot confirm compliance, they must seek information from their suppliers and obtain certifications from them.

If a contractor discovers that their product includes a noncompliant semiconductor, the proposed rule allows for a disclosure that will shield them from civil liability. Six exemptions for noncompliance are proposed, including exceptions for existing government equipment and certain commercial products until December 23, 2028.

Post-Award Obligations

Contractors are required to notify the contracting officer within 72 hours if they learn post-award that a product contains covered semiconductor products. This notification must be made regardless of any applicable exemption.

The Department of Commerce plans to develop a website to list prohibited semiconductor sources and possibly another for compliant sources, which contractors can reference.

Disclosure Requirements for Non-Federal Customers

Contractors identified as “semiconductor covered entities” must disclose any covered semiconductor products sold to non-federal customers. This disclosure aims to enhance overall supply chain visibility and risk mitigation.

In summary, while the final rules are pending, contractors should proactively assess their supply chains and compliance practices to satisfy new obligations related to semiconductor sourcing, reflecting the government’s emphasis on supply chain security.

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