Navigating the FAR Council’s Proposed Semiconductor Prohibitions
The federal procurement landscape is bracing for a significant shift as the Federal Acquisition Regulatory (FAR) Council issued a Notice of Proposed Rulemaking (NPRM) on February 17, 2026, to implement Section 5949 of the Fiscal Year 2023 National Defense Authorization Act (NDAA). This proposed rule aims to block semiconductors manufactured by specific foreign entities: (1) The Democratic People’s Republic of Korea (North Korea); (2) The People’s Republic of China; (3) The Russian Federation; and (4) The Islamic Republic of Iran from entering the federal supply chain. For U.S. defense contractors, this represents a major compliance hurdle that extends far deeper into the supply chain than previous hardware bans such as Section 889(a) of the Fiscal Year 2019 NDAA (FAR 52.204-24, -25, -26).
What Will the Rule Prohibit?
The proposed rule targets “covered semiconductor products and services” originating from specific Chinese companies, including SMIC, Hua Hong Semiconductor, and JCET. However, the FAR Council is also targeting any semiconductor produced or provided by an entity the U.S. Government has determined is controlled by a foreign country of concern. The scope of application for this prohibition is also remarkably broad. The prohibition applies to any electronics that incorporate these semiconductors if those electronics are destined for a “critical system,” which is determined by the government requiring activity.
Unlike previous hardware bans, the FAR Council has signaled that there are no “safe harbors” for small-scale acquisitions. The rule is intended to apply to Commercial Off-the-Shelf (COTS) items and even purchases falling below the micro-purchase threshold. This means that common office equipment or minor replacement parts could trigger compliance obligations if they are integrated into critical federal infrastructure or systems.
The “Reasonable Inquiry” Standard
One of the more daunting aspects of the proposal is the requirement for contractors to conduct a “reasonable inquiry” into their semiconductor supply chain. Unlike prior hardware bans, this is not a simple “check-the-box” exercise. Prime contractors have a heightened responsibility to delve more deeply into their subcontractors’ semiconductor supply chains to ensure no prohibited components are present. The proposed rule indicates that a “reasonable inquiry” does not go so far as to include third party audits, but prime contractors are required to ask their subcontractors and can rely on their representations assuming there is no reason to doubt them.
These certification requirements are designed to flow down through every tier of the supply chain. Furthermore, subcontractors face an additional transparency burden: they must disclose if they are supplying any prohibited semiconductors to their commercial customers as well, not just their government-facing business units. This “dual-disclosure” requirement is aimed at identifying systemic dependencies on adversarial technology and to prevent any cross contamination or compliance risks.
No Contractor Opt-Ins for Exceptions
Unlike some federal regulations where contractors can apply for waivers or certifications of non-availability, the power to grant exceptions under this rule rests solely with the government. Contractors cannot “opt-in” to an exception. Instead, the procuring agency must determine if a waiver is in the national interest or if no compliant alternative exists. This places the burden of proof squarely on industry to show that their supply chains are clean if they want to win government contracts.
Industry Reaction and the Path Ahead
The public comment period for this proposed rule is open until April 2026. While there are not many publicly posted comments yet, the early feedback highlights a sobering reality: the global electronics supply chain is inextricably reliant on Chinese manufacturing. Industry experts agree that this proposed rule will strengthen national security, but note that there are currently very few viable workarounds for certain semiconductor classes.
How Should Contractors Prepare?
It is important to note that this rule is in line with the broader trend of hardening U.S. technology, so defense contractors should not wait for the final rule to begin their due diligence. To prepare, firms should:
Map the Tier-N Supply Chain: Identify every touchpoint where semiconductors enter your products, moving beyond Tier 1 suppliers to the actual foundry level.
Update Procurement Policies: Integrate “reasonable inquiry” language into subcontractor agreements and require upstream transparency regarding semiconductor origins.
Audit Critical Systems: Review current contracts to identify which deliverables fall under the “critical system” definition and prioritize those for immediate supply chain scrubbing. This may require coordination with your government counterpart.
Engage with Agencies: Stay in close contact with contracting officers regarding potential disruptions, as the government-led exception process will likely be slow and rigorous. The contracting officer will have to identify critical systems at the solicitation stage, so it is important to begin having the conversation during requirement development.
Obfuscation in the electronics supply chain is ending. As the FAR Council pushes for transparency, contractors must act now to identify and remove prohibited hardware.
