More supply chain scrutiny is coming. Nearly two years ago, we blogged about an advanced notice of proposed rulemaking (ANPR) involving a potential proposed rule on covered semiconductors. The wait is finally over. In February, the Federal Acquisition Regulatory Council (FAR Council) released its proposed rule (Proposed Rule) identifying and explaining some potential changes coming to the Federal Acquisition Regulation (FAR). The impact on contractors in every industry will be expensive and time-consuming, especially for small businesses. Below, PilieroMazza highlights the Proposed Rule’s changes, some differences from the ANPR, and what impact it will have on contractors.
Basics of the New Prohibition
Starting December 23, 2027, offerors will be prohibited from providing (1) any electronic parts, products, or services that include covered semiconductor products or services, and (2) any electronic products, for use in critical systems identified by the government, that use any electronic products that include covered semiconductor products or services. There are several instances where an exception or waiver to this prohibition may be given. However, generally, this prohibition will apply to all acquisitions of products and services, including contracts at or below the micro-purchase threshold and contracts for commercial products, commercial IT services, and commercial telecommunication services.
The Proposed Rule defines a “covered semiconductor product or service” to mean (1) a semiconductor, a semiconductor product, a product that incorporates a semiconductor product, or a service that utilizes such a product, “designed, produced, or provided by” Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies, or Yangtze Memory Technologies Corp (or any subsidiary, affiliate, or successor of such entities), or (2) a semiconductor, semiconductor product, or semiconductor service “produced or provided by” an entity that the government (through the Secretary of Defense or the Secretary of Commerce) determines to be owned, controlled, or connected to the government of North Korea, China, Russia, Iran, or 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 (hereafter referred to as a Foreign Country of Concern).
What Will Contractors be Required to Do?
For applicable contracts, each offeror will certify that it conducted a “reasonable inquiry” into its supply chain and that it will not provide covered semiconductor products or services with its offer. The Proposed Rule’s preamble explains that to conduct this inquiry, an entity will need to assess which electronic products or electronic services are included in its offer and seek out information to identify the source of semiconductor products or services, including consulting the Department of Commerce website, searching supplier websites, searching manufacturer websites, using supply chain illumination or other due diligence tools, or relying on its suppliers to conduct reasonable inquiries.
To the extent an electronic product or service containing a covered semiconductor will be provided, the offeror must disclose that fact to the government, in addition to a host of other details including, but not limited to, a description of the functionality of the covered semiconductor product/service, how that functionality impacts the risk to the underlying electronic product or electronic service, and an explanation of any factors relevant to determining if an exception to the prohibition is warranted. If a contractor discovers or has reason to suspect that any electronic product or electronic service provided during performance contains covered semiconductors and was not previously disclosed to the government, then the contractor must notify the government in writing within 72 hours. This is a key shift from the ANPR which only stated contractors must provide that notice within 60 days of discovery.
Potential Implications for Federal Contractors
The Proposed Rule, if finalized as written, will have far-reaching impacts. Impacted contractors should be weary of the following:
- Safe Harbor: Timely disclosures of noncompliant products/services can protect contractors from civil liability and non-responsibility determinations, irrespective of whether the offeror/contractor is the concern providing the covered product/service or one of its suppliers is. And failing to disclose noncompliant products/services could result in corrective action or rework, the costs for which are unallowable.
- Subcontractor Certifications: As part of a contractor’s reasonable inquiry, subcontractors and suppliers should complete certifications that affirm no covered products/services will be provided. Contractors will generally be able to reasonably rely on these certifications, unless the contractor discovers any discrepancies or has reason to doubt the accuracy of the certification.
- Non-Federal Market Disclosures: Semiconductor covered entities are firms that develop a design of a semiconductor that is the direct product of United States origin technology or software, and purchase covered semiconductor products/services from SMIC or a Foreign Country of Concern. Semiconductor covered entities must disclose the inclusion of a covered semiconductor product/service in electronic products or electronic services sold to non-Federal customers.
Conclusion
Comments must be submitted here by April 20, 2026. PilieroMazza attorneys are monitoring any new developments related to the Proposed Rule and will provide an update when the rule becomes final. If you have questions regarding this blog, please contact Cy Alba, Daniel Figuenick, or another member of the Firm’s Government Contracts or Cybersecurity & Data Privacy practice groups.
