FAR Council Proposes Restricting Semiconductor Acquisitions
The Federal Acquisition Regulation (FAR) Council has proposed new rules to restrict the acquisition of certain semiconductors and related products. The move, aimed at protecting national security, is expected to have a significant impact on government contractor supply chains. The proposal reflects a broader government effort to secure the microelectronics industrial base.
- This proposal implements Section 5949 of the National Defense Authorization Act (NDAA) for Fiscal Year 2023. It specifically prohibits federal agencies from purchasing products or services that use semiconductors designed or produced by China-based companies SMIC, CXMT, and YMTC, or others designated as a national security threat. - The proposed rule extends beyond just chips to include any electronic products that incorporate the targeted semiconductors and even services that utilize such products. This wide scope affects nearly all government contracting sectors, from IT and defense to medical devices and vehicles. - A key concern driving the rule is the potential for foreign adversaries to introduce hardware "backdoors" or malicious firmware into semiconductors used in critical U.S. infrastructure, defense, and energy systems. - Contractors will be required to conduct a "reasonable inquiry" into their supply chains to certify they are not providing banned semiconductor products or services. This will likely involve detailed reviews of bills of materials and direct engagement with suppliers for traceability information. - The rule is set to take effect on December 23, 2027, giving contractors a window to audit and restructure their supply chains. Equipment acquired by the government before this date is exempt from the prohibitions and can be maintained throughout its lifecycle. - This acquisition rule is part of a larger government strategy that includes the CHIPS and Science Act, which provides over $52 billion to boost domestic semiconductor manufacturing, research, and workforce development. - The Department of Defense is also directly investing in securing the microelectronics industrial base through initiatives like the Microelectronics Commons, which received $2 billion from the CHIPS Act to accelerate the "lab-to-fab" transition of semiconductor technologies. - The FAR Council estimates the implementation costs for both government and industry will be substantial, potentially exceeding $1 billion over ten years, due to the complexity of tracing semiconductor origins and redesigning products.
