FAR Council Issues Notice of Proposed Rulemaking to Implement Prohibition on Acquisition of Certain Semiconductors

Key Takeaways

• Prohibits SMIC, CXMT, YMTC chips in all federal purchases.
• Applies below $15,000 and to commercial off‑the‑shelf items.
• Contractors must conduct reasonable inquiry and certify compliance.
• Grandfathered equipment exempt; waivers possible for critical needs.
• Commercial IT/telecom exemption delayed until Dec 2028.

Pulse Analysis

The FY23 National Defense Authorization Act introduced Section 5949 to curb reliance on semiconductor manufacturers linked to geopolitical adversaries. By targeting SMIC, CXMT, and YMTC, the legislation reflects growing concerns over supply‑chain vulnerabilities that could be exploited for espionage or sabotage. The FAR Council’s proposed rule translates this statutory mandate into procurement policy, signaling a decisive shift toward tighter control of electronic components across the federal ecosystem.

Unlike the earlier Advanced Notice of Rulemaking, the current proposal applies to virtually all acquisitions, even those under the $15,000 micro‑purchase threshold and commercially available off‑the‑shelf products. While commercial IT and telecommunications services receive a one‑year postponement, the rule still mandates a reasonable inquiry into component origins and a certification of non‑use. Contractors are relieved of providing detailed bills of materials, but they must embed the prohibitions in every subcontract, creating a cascading compliance burden throughout the supply chain.

For industry participants, the implications are immediate and far‑reaching. Companies must invest in supply‑chain due‑diligence tools, revise certification processes, and potentially seek waivers where compliant alternatives are unavailable or cost‑prohibitive. The grandfathering clause offers limited relief for legacy systems, yet future upgrades will likely require compliant components, prompting a market shift toward U.S. or allied semiconductor sources. Stakeholders have until April 20, 2026 to comment, making this a critical window to influence the final rule and mitigate operational disruptions.