Section 5949 of the FY 2023 NDAA directed that federal agencies may not directly procure or contract with an entity to procure or obtain any electronic parts, products, or services that include covered semiconductor products or services. This prohibition will take effect on December 23, 2027. The statute defines “covered semiconductor product or service” to include semiconductor parts, products, or services designed, produced, or provided by three Chinese companies—Semiconductor Manufacturing International Corporation (SMIC), ChangXin Memory Technologies (CXMT), and Yangtze Memory Technologies Corp (YMTC)—as well as their subsidiaries or affiliates. Electronics imported into the United States, including mobile phones, automobile parts, and networking equipment such as routers, switches, and modems, currently incorporate chips manufactured by these companies. Section 5949 also authorized the U.S. Secretaries of Defense and Commerce to include within the covered semiconductor ban semiconductor products or services provided by an entity owned, controlled by, or connected to the governments of Russia, North Korea, and Iran, which, in addition to China, are all identified in the statute as foreign countries of concern.

The ANPRM proposes a FAR clause that would apply broadly to all federal government solicitations and contracts, subject to a limited waiver. The clause would require contractors to conduct a reasonable inquiry to detect and avoid the use or inclusion of covered semiconductor products or services in electronic products and services provided to the government. As part of this reasonable inquiry, contractors may rely on certifications of compliance from those in their supply chains as well as “other mechanisms of diligence review depending on the facts and circumstances.” Diligence review will always be required for entities established or operated in foreign countries of concern, even if they certify compliance. Additionally, contractors must notify federal authorities within 60 days of learning of or suspecting the use of a covered semiconductor product or service. Further, if the contractor is a “covered entity” that develops—either domestically or abroad—a semiconductor design that is (1) a direct product of U.S. origin technology or software and (2) purchases from either SMIC or an entity designated by the government as connected to a foreign country of concern, it must disclose the use or inclusion of covered semiconductors in any electronic products or services rendered to the U.S. Government.