Federal Agency Restrictions on Purchasing Products or Services with Certain Chinese Semiconductors: Proposed Federal Acquisition Rule Released

On February 17, 2026, the Federal Acquisition Regulatory Council (FAR Council) issued a Notice of Proposed Rulemaking to implement section 5949 of the 2023 National Defense Authorization Act for Fiscal Year 2023 (NDAA) restricting the U.S. government from purchasing “covered” products and services, which the Proposed Rule defines as products and services that use semiconductors designed, produced or provided by Semiconductor Manufacturing International Corporation,  (SMIC), ChangXin Memory Technologies (CXMT) or Yangtze Memory Technologies Corp (YMTC) (collectively, “covered semiconductors”). The Proposed Rule will be open for public comment until April 20, 2026.¹

Certification and Reasonable Inquiry

Under the Proposed Rule, effective December 23, 2027, all solicitations for products, non-commercial services, and commercial information technology services and telecommunication services would require offerors to certify that they have conducted a reasonable inquiry and will not provide:

• any electronic products or electronic services that include covered semiconductor products or services to the Government under a resulting contact; and
• electronic products for use in critical systems (as identified by the Government) that include covered semiconductor products or services.

The Proposed Rule places significant emphasis on pre-award and ongoing supply-chain due diligence, requiring offerors to conduct a “reasonable inquiry” to determine whether any electronic products or services offered to the Government include covered semiconductor products or services. “Reasonable inquiry” is defined as an “inquiry intended to uncover any information in the entity's possession, including any information acquired from external sources, about whether any electronic products or services provided to the Government— (i) Include covered semiconductor products or services; or (ii) Use electronic products that include covered semiconductor products or services.”  However, the Proposed Rule also states that when “the entity does not have information in their possession regarding whether the semiconductors included in the electronic product or electronic service are compliant with this prohibition, entities shall require suppliers at the next lower tier of the supply chain to conduct a reasonable inquiry and then certify whether their electronic products and electronic services are compliant.” 

In practice, contractors will have to go beyond surface-level representations and undertake structured internal reviews of bills of materials, supplier disclosures, and component sourcing, including for embedded systems and commercial off-the-shelf (COTS) products. Contractors may need to engage directly with suppliers and subcontractors to obtain written assurances, traceability information, and risk assessments, particularly where semiconductor content is sourced through complex or opaque global supply chains.

Exclusions and Exceptions

The Proposed Rule includes several exclusions and exceptions. The restriction and the certification will not apply (1) generally to commercial services, only to commercial information technology services and telecommunication services and (2) where the “electronic service” is only “incidental to the performance of the contract (e.g., contractor payroll)”. The head of an agency in consultation with the Secretary of Commerce may also waive the requirement in 2-year renewable terms when “no compliant product or service is available to be procured as and when needed at U.S. market prices or a price that is not considered prohibitively expensive (i.e., would impose significant difficulty or expense considering the agency resources available)” and in consultation with the Secretary of Defense or the Director of National Intelligence, the head of the agency determines that such waiver could not reasonably be expected to compromise the critical national security interests of the United States.

The Proposed Rule also notes that the FAR Council does not intend to make an exception to the prohibition for acquisitions at or below the Simplified Acquisition Threshold (SAT).

Post Award Reporting and Notification

The Proposed Rule imposes stringent post-award reporting and notification requirements on contractors that identify, or reasonably suspect, the presence of covered semiconductor products or services in items provided to the Government. Upon discovery, contractors would be required to notify the contracting officer within 72 hours, regardless of whether the covered semiconductor content was included intentionally or identified through subsequent supply-chain review or third-party disclosure. Required notifications are expected to include, at a minimum, information regarding the affected product or service, the identity and location of the semiconductor manufacturer, the nature of the covered content, the extent of Government exposure, and any interim mitigation measures undertaken. Importantly, the reporting obligation applies even where the contractor previously conducted a reasonable inquiry and certified compliance.

Next Steps – Comment Submission

Given the significant impact these changes may have on federal contracting and supply chains, it is crucial for stakeholders to review the proposal and submit comments during the 60-day public comment period to help shape the final rule.

1 It is noteworthy that the Department of War recently published and rescinded a listing that removed CXMT and YMTC from the 1260H list. Even if the 1260H listing to remove these companies is republished, this proposed rule will still apply.