March 4, 2026

FAR Council Proposes Rule to Prohibit Acquisition of Semiconductors from China and Countries of Concern

J. Ryan Frazee, Thea Kendler, Anjani Nadadur, John Prairie Mayer Brown + Follow Contact LinkedIn Facebook X Send Embed

On February 17, 2026, the Federal Acquisition Regulatory Council took the next step to implement the prohibition on federal acquisition of products and services that incorporate semiconductors manufactured by countries of concern, including China, set out in Section 5949 of the FY2023 National Defense Authorization Act. Through a proposed rule, the council is requesting comments on implementation of this provision in the Federal Acquisition Regulation (FAR). Among other provisions, consistent with Section 5949, the rule contains a proposed disclosure requirement for sales to non-federal customers outside the government that could have broad-reaching market impact.

The deadline for interested parties to submit written comments on the proposed rule is April 20, 2026. The statutory prohibition becomes effective on December 23, 2027. Our prior Legal Update discusses Section 5949.

This proposed rule is the latest in a series of US government actions aimed at safeguarding critical technology supply chains against influence by China and other foreign adversaries, and would impose new compliance obligations on a broad swath of the federal contracting community.

BACKGROUND

Section 5949 broadly prohibits US federal agencies from procuring electronic parts, products, or services that include covered semiconductor products or services. This prohibition applies when covered semiconductor products or services are in a “critical system,” which is defined as a telecommunications or information system operated by the federal government (i.e., systems that involve intelligence and cryptologic activities or command and control of military forces; equipment that is an integral part of a weapon or weapons system; or any other system identified by the Federal Acquisition Security Council or the Department of Defense). Alongside these prohibitions, Section 5949 details limited grounds for waivers and certain safe harbor provisions for government contractors.

The proposed rule incorporates comments received by the Federal Acquisition Regulatory Council in response to its May 3, 2024 advanced notice of proposed rulemaking (ANPRM), which sought preliminary feedback on implementation of Section 5949.

KEY PROVISIONS OF THE PROPOSED RULE

The proposed rule would amend the FAR to create a new section FAR 40.20X (Prohibition on certain semiconductor products and services), with a new corresponding solicitation provision at FAR 52.240-XX (Certification Regarding Certain Semiconductor Products and Services), and a new corresponding contract clause at FAR 52.240-YY (Prohibition on Certain Semiconductor Products and Services).

Key proposed provisions include:

1. PRODUCT SCOPE

With respect to specific items covered, the rule restates the Section 5949(j)(3) definition of “covered semiconductor product or service” based on the product or service’s affiliation with particular manufacturers. Restated, covered products are those that incorporate or use products incorporating semiconductors produced or provided by the Chinese companies Semiconductor Manufacturing International Corporation (SMIC), ChangXin Memory Technologies (CXMT), and Yangtze Memory Technologies Corp. (YMTC), as well as any of their subsidiaries, affiliates, or successor entities. Covered products and services also include those that the Secretary of Defense or Secretary of Commerce—in consultation with the Director of the National Intelligence or the Director of the Federal Bureau of Investigation—determines to be an entity owned or controlled by (or otherwise connected to) the government of a “semiconductor foreign country of concern.”

“Semiconductor foreign country of concern” would include a set list of covered nations (People’s Republic of China, the Democratic People’s Republic of Korea, Russia, and Iran), as well as any country that the Secretary of Commerce determines to be engaged in conduct detrimental to US national security or foreign policy, in consultation with the Secretary of Defense, the Secretary of State, and the Director of National Intelligence.) This covers the same scope as section 103(a)(4) of the CHIPS Act of 2022.

The proposed rule further specifies, consistent with Section 5949, that the prohibitions would be applicable to micro-purchases and commercially available off-the-shelf (COTS) items because of the extent to which many such products are “critical to the mission of the Federal Government.” This would draw a significant number of transactions under the statutory prohibition.

2. WHITE LIST CERTIFICATIONS

The Department of Commerce will host a website for organizations to certify that the electronic products or services they produce or provide do not contain prohibited covered semiconductor products or services. This would be available for government contractors to reasonably rely on “without the need for further inquiry” unless discrepancies or other reason to doubt the certifications’ accuracy are identified.

3. CERTIFICATION AND “REASONABLE INQUIRY” OBLIGATIONS FOR CONTRACTORS

Before submitting an offer, the proposed rule would require contractors to conduct a “reasonable inquiry” to determine whether their electronic products or services include covered semiconductors. Offerors would then be required certify that they will not provide covered semiconductor products or services. The proposed rule would not require a reasonable inquiry to include independent third-party audits or other formal reviews, and entities may in good faith rely on certifications provided by lower-tier subcontractors.

4. 72-HOUR NOTIFICATION REQUIREMENT

Section 5949(h) permits a contractor up to 60 days to inform the federal government after identifying, having reason to suspect, or being notified that any covered semiconductor product or service has been purchased by or for delivery to the federal government during contract performance. However, the FAR Council proposes that notification within 72 hours is more appropriate given the time-sensitive national security interests at stake and similar cybersecurity reporting timelines that already exist in the FAR.

5. DISCLOSURE TO NON-FEDERAL CUSTOMERS REQUIREMENT

The proposed rule would require contractors and subcontractors that are “semiconductor covered entities” to disclose the inclusion of covered semiconductor products or services in electronic products or services sold to non-federal customers outside of the government. The rule proposes defining “semiconductor entities” as those that either “develop” semiconductor designs that are the direct product of US-origin technology or software, or purchase covered products from SMIC or an entity formally designated by the US government. Notably, the proposed rule does not designate YMTC or CXMT as “semiconductor covered entities.” While the manner of such disclosure is not mandated, the proposed rule notes that such information may be included in a semiconductor covered entity’s marketing material, on its website, or in sales agreements.

EXCEPTIONS, WAIVERS, AND SAFE HARBORS

EXCEPTIONS

The proposed rule identifies several important exceptions to the blanket prohibition (although they still are subject to the notification and reporting requirements).

First, in line with Section 5949, agencies would not be required to remove or replace any products or services resident in existing equipment, systems, or services that were acquired prior to December 23, 2027. Agencies may also continue to use covered semiconductor products or services throughout the lifecycle of existing equipment acquired before December 23, 2027, including for replacement components, spare parts, and support services. Similarly, a product or service determined to be covered that has an effective date after contract award would not be subject to the prohibition, unless the contract is modified.

Second, based on comments on the ANPRM, commercial products or commercial services for which there are no alternative sources available would be excepted from the prohibition until December 23, 2028—one year after the general effective date—to allow entities additional time to find reasonable alternatives.

Third, in order to focus on areas of higher risk, the proposed rule would not apply the prohibition to commercial service procurements, except for procurements for IT services and telecommunications services. Electronic services that are incidental to contract performance (e.g., contractor payroll) would also be excepted.

WAIVERS

The proposed rule details procedures for waivers outlined in Section 5949, including determinations by the Secretary of Defense, Director of National Intelligence, Secretary of Commerce, Secretary of Homeland Security, and Secretary of Energy for “critical national security interests.” Section 5949 also provides the heads of executive agencies with a renewable, two-year waiver authority when both of these determinations are made:

1. In consultation with the Secretary of Commerce, the head of an agency must determine that “no compliant product or service is available . . . at United States market prices or a price that is not [] prohibitively expensive.”

2. The head of an agency must determine, in consultation with either the Secretary of Defense or Director of National Intelligence, that a waiver will not “compromise the critical national security interests of the United States.”

SAFE HARBOR

Finally, the proposed rule provides important safe harbor provisions, in line with Section 5949(h). A contractor or subcontractor that provides timely notification regarding covered semiconductors in products manufactured or assembled by an entity other than the contractor or subcontractor would not be subject to civil liability and would not be determined to be not presently responsible based on such notification. Additionally, even where the contractor or subcontractor itself manufactured or assembled the product, the safe harbor applies if the entity makes a comprehensive and documentable effort to identify and remove the covered semiconductor products or services.

WHAT COMPANIES NEED TO KNOW NOW

This proposed rule would impose significant new compliance requirements on many government contractors and highlights the continued tension between two competing acquisition priorities of the US government. This tension is not new, but the scope of the semiconductor market means the impact could be substantially greater this time.

On one hand, the US government has a compelling national security interest in ensuring that adversary-linked technology is not embedded in the systems it relies upon. As described in the proposed rule, semiconductors “are essential to America’s economic and national security, powering consumer electronics, automobiles, data centers, critical infrastructure, and virtually all military systems.” The US National Counterintelligence and Security Center “has identified semiconductors as one of the technology sectors in which the stakes of disruption are potentially greatest,” with “numerous opportunities for adversaries to introduce hardware backdoors, malicious firmware, and malicious software during semiconductor production.”

On the other hand, the government has spent decades promoting the federal acquisition of commercial items and COTS products as a way to increase competition, lower costs, and gain access to cutting-edge innovation from the private sector. The Trump Administration has made it a priority to procure commercially available products and services and to reduce the unique compliance burdens associated with the federal marketplace. The semiconductors targeted by Section 5949 and this proposed rule are ubiquitous in the commercial market. They appear in consumer electronics, enterprise IT systems, automotive components, industrial equipment, and countless other products that federal agencies purchase every day. The broad prohibition could significantly reduce the pool of companies from which the government can buy, undermining the very commercial procurement strategies the government has championed.

The deadline for interested parties to submit written comments on the proposed rule is April 20, 2026.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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