DoD Unveils New FOCI Disclosure Requirements for Defense Contractors

The Department of Defense (DoD) has recently announced a significant policy shift through a proposed rule under the Defense Federal Acquisition Regulation Supplement (DFARS) that mandates defense contractors and subcontractors to disclose their beneficial ownership and foreign ownership, control, or influence (FOCI) information. This proposed regulation directly targets contracts and subcontracts valued above $5 million. Historically, FOCI requirements were more stringent for cleared contractors, but this new proposal expands the scope to include both cleared and uncleared contractors, thereby increasing the regulatory burden on small and mid-sized businesses that have previously avoided intense oversight efforts.

Under the proposed rule, disclosures will be submitted to the Defense Counterintelligence and Security Agency (DCSA) prior to contract awards for risk assessment purposes. The DCSA’s newfound requirement to evaluate ownership structures could create significant delays in the contract award process. As many contractors may operate under the assumption that their business practices or company structures are immune from such scrutiny, this rule aims to identify potential risks early in the procurement process and proactively address them.

Highlighting the urgency, the DoD has set a comment deadline for July 6, 2026, during which organizations and stakeholders must respond to the proposed changes. The rule will not only impose greater disclosure responsibilities but also stipulates mitigation measures that must be enacted within 90 days of identified risks. Furthermore, ongoing eligibility checks will be required throughout the duration of contract performance, complicating compliance for contractors who are accustomed to relatively less oversight.

In light of these forthcoming changes, procurement professionals should adopt a proactive approach to ensure compliance ahead of these deadlines. Companies should take immediate steps to review their ownership structures and foreign affiliations to identify potential risks and develop mitigation strategies. The transition towards increased DCSA involvement in contract eligibility determinations is indicative of a transformative shift in how contracts are awarded and managed, likely influencing contract administration and oversight significantly.

The proposed regulatory changes will reshape contract capture strategies. As noted by Dean W. Baxtresser, a Partner at Latham & Watkins LLP, “Contract capture and award gating will change as NISS eligibility and SF 328 submission move earlier in the process, requiring offerors to complete beneficial ownership diligence and filings pre-award and to maintain eligibility checks at option exercises and modifications.” This alteration suggests that the initiation of procurement processes will require a heightened focus on compliance, potentially leading to delays and modifications in how contracts are traditionally approached.

In summary, the DoD's proposal to enforce strict FOCI disclosure rules represents an evolution of the compliance landscape. The increased scrutiny and transparency requirements impact the entire supply chain, with particularly heavy ramifications for smaller firms that may lack the resources to adapt swiftly. As contractors gear up to meet these new obligations, the timely establishment of risk management frameworks will be crucial to ensure sustained eligibility for defense contracts in the evolving regulatory environment.

• Contractors and subcontractors on DoD awards above $5 million must prepare for new pre-award beneficial ownership and FOCI disclosures.
• The expanded scope to uncleared contractors will increase the compliance burden, affecting small and mid-sized businesses.
• Organizations should evaluate ownership structures and foreign affiliations to identify risks prior to the July 6 comment deadline.
• Increased DCSA involvement will lead to longer eligibility determinations, impacting award timelines.
• Mitigation measures must be implemented within 90 days of identified FOCI risks during contract performance.
• Proactive compliance planning is essential to navigate these regulatory changes and mitigate potential delays.
• Expect greater oversight and transparency during the contract administration phase as DCSA enforces these new obligations.
• Businesses should consult legal and compliance teams to adapt their strategies in light of these proposed changes.