Given recent world events and their attendant economic shocks, 2026 looks to be another year of supply chain gyration. Government contractors, besides having to cope with such shocks, must add semiconductors to the list of supply chain concerns. Semiconductors, as the U.S. Government states in a new proposed rule (2026-03065 (91 FR 7223)), are the “tiny electronic devices” essential to “consumer electronics, automobiles, data centers, critical infrastructure, and virtually all military systems.” Indeed, semiconductors “power tools as simple as a power adapter and as complex as a fighter jet or a smartphone. They are also essential building blocks of the technologies that will shape our future, including artificial intelligence, biotechnology, and clean energy.”

As with previous rulemaking regarding the supply chain, a recurrent theme is inoculating against certain Chinese companies and potential future threats. The U.S. Government took initial steps regarding semiconductors in Section 5949 of the National Defense Authorization Act (NDAA) from Fiscal Year 2023. Section 5949 prohibits agencies from procuring certain electronic products or electronic services that include or contain “covered semiconductor” products or services. Due to the ubiquity and utility of semiconductors, the Federal Acquisition Regulatory Council released a proposed rule this past February seeking public input, and the window for such comments closes soon, on April 20.

We anticipate that soon after, there will be a new rule and clause added to the Federal Acquisition Regulation (FAR). The new rule will take effect in December 2027 and will prohibit government agencies from buying “covered semiconductors” and related products and services. For government contractors—whether a prime or a sub—there will be another certification for compliance. Notably, the ubiquity and the utility of semiconductors make the “covered semiconductor” rule impactful. Companies may have to curate supply chains, locate new sources of supply, and/or rip/replace prohibited components, all the while containing costs.

The proposed rule seeks to add a new section to the FAR, currently designated as “FAR 40.20X, Prohibition on certain semiconductor products and services.” This potential new FAR section would have several aspects, the most notable of which are summarized as follows:

• “Covered semiconductor product or service.” The proposed rule introduces a new defined term, “covered semiconductor product or service,” which means “a semiconductor, semiconductor product, a product incorporating a semiconductor product, or a service using such a product, if it is designed, produced, or provided by” Semiconductor Manufacturing International Corporation (SMIC), ChanXin Memory Technologies (CXMT), Yangtze Memory Technologies Corp (YMTC), or an entity determined by the U.S. Government to pose a national security threat. Such a determination will be published in the Federal Register, and the U.S. Department of Commerce will maintain a website listing such determinations.
• “Reasonable Inquiry.” The proposed rule and clause will require contractors to certify that they made a “reasonable inquiry” into whether any products or services provided to the U.S. Government include “covered semiconductor products or services.”
• Disclosure Requirements. The proposed rule will require a contractor to disclose to the U.S. Government any instance in which it discovers that a “covered semiconductor product or service” has been offered or provided during performance.
• Safe Harbor. The proposed rule provides that, if a contractor makes a timely disclosure of providing a prohibited semiconductor, the contractor will not be subject to civil liability or a non-responsibility determination. If a contractor is providing a product that incorporates prohibited semiconductors, the contractor must also provide a “comprehensive and documentable effort to identify and remove the covered semiconductor products or services.”
• Exceptions. Given the broad impact of Section 5949’s requirements, the proposed rule envisions the following exceptions to dampen impacts from implementation: (i) agencies do not need to replace covered semiconductors acquired prior to December 23, 2027; (ii) agencies do not need to limit use of such equipment throughout its lifecycle if it is acquired prior to December 23, 2027; (iii) commercial products or services with no available alternatives are excepted until December 23, 2028; (iv) semiconductors are designated as “covered” by the U.S. Government after contract award, “unless the contract is modified to include such covered semiconductor product or service”; (v) the prohibition does not apply to commercial service procurements except for procurements for Information Technology and Telecommunications; and (vi) electronic services that are incidental to the performance of the contract (e.g., contractor payroll) are excepted.
• Waivers. The proposed rule intends to provide agencies with the ability to waive implementation, though such waivers are to be made in coordination with the Secretary of Commerce and Secretary of Defense or Director of National Intelligence. Such waivers “are meant to act as a bridge to near-term compliance with the rule, not an indefinite reprieve from it.”
• Flowdown.  The proposed clause related to the rule will have the standard requirement of flowdown to subcontractors.

We expect that the FAR Regulatory Council will enact a final rule substantially similar in scope to the proposed rule soon after the period for comment closes on April 20. Therefore, government contractors at all levels will be impacted. We also anticipate that compliance costs will be significant, as companies will have to make “reasonable inquiries” and manage their supply chains in the face of sourcing prohibitions. Despite the rule’s being effective in 2027, the potential for waivers, and exceptions for acquisitions prior to the effective dates, contractors will need to obtain additional transparency on their semiconductors in 2026.

Understanding connections to “covered semiconductors” may be resolved relatively quickly, but finding alternative sources or making alternative designs, if necessary, will be harder. In any event, the certification requirements will arrive soon enough, requiring more than a concept of a plan for the forthcoming new compliance requirement attendant to supply chain integrity. Contractors that take action now to conduct diligence and memorialize the provenance of semiconductors in their offerings will be well positioned to protect their supply chains and bottom lines.