DOW Proposes New DFARS Rule for FOCI Disclosure by Contractors

The Department of War (DOW) has initiated steps towards tightening regulations concerning the oversight of foreign influence in defense contracting. In a recent proposal, the DOW has outlined amendments to the Defense Federal Acquisition Regulation Supplement (DFARS) that will necessitate contractors managing contracts valued at $5 million or above—along with select commercial deals involving sensitive national security-related products or services—to disclose their beneficial ownership and relevant information regarding foreign ownership, control, or influence (FOCI) to the Defense Counterintelligence and Security Agency (DCSA).

The requirement is part of a broader movement to fortify supply chain security, particularly in an era where foreign threats to U.S. interests are increasingly pronounced. By mandating that contractors provide necessary FOCI disclosures, the DOW aims to ensure that national security is prioritized across all levels of contracts. Under the proposed rule, contractors identified as having foreign ties will need to disclose contact information for each foreign owner who qualifies as a beneficial owner, as well as submit ongoing updates regarding any changes to their FOCI status over the contract’s duration. This creates a shift towards more rigorous compliance mechanisms within federal contracting processes.

Significantly, the call for compliance will not end with the initial disclosure. Contractors will also be required to implement risk mitigation measures within 90 days of contract award or if ownership changes occur during contract performance. This aspect of the proposal underlines the DOW's commitment to preemptively address potential risks rather than reactively managing them after breaches or compromises occur. The implications of failing to comply may include eligibility for future contracts being jeopardized, which may disproportionately impact smaller businesses or those unfamiliar with stringent regulatory requirements.

The DOW’s proposal has been influenced by legislative directives outlined in the National Defense Authorization Act (NDAA), specifically sections 847 and 819 from the fiscal years 2020 and 2021, respectively. The agency is actively soliciting input from industry stakeholders regarding this proposed rule, with comments due by July 6. This is a prime opportunity for contractors to voice their concerns and suggestions regarding the potential impact of such regulations. As these proposals move through the regulatory pipeline, organizations must begin evaluating their current ownership structures and compliance capabilities.

Procurement professionals and contractors alike are advised to stay abreast of these changes, as the heightened scrutiny of foreign influence will not only reshape eligibility for contracts but will also necessitate a re-evaluation of joint ventures and subcontracting relationships involving foreign entities. Expect established industry practices to evolve, as companies may need to implement new compliance frameworks to align with the DOW’s requirements effectively. Understanding these regulations will be crucial as they reflect a significant regulatory shift underscoring the need for safeguarding sensitive U.S. defense operations against potentially adverse foreign interactions.

The procurement environment will inevitably undergo transformations driven by the increased regulatory demands for FOCI disclosures and the active engagement of contractors in achieving national security objectives. As contractors reconsider their strategies in the face of these new rules, there is an opportunity for stable, security-focused partnerships to emerge—especially between domestic firms and government entities that prioritize mutual transparency and risk mitigation.

• The proposed DFARS rule targets contracts valued over $5 million.
• Contractors are required to disclose beneficial ownership and FOCI status to the DCSA.
• Compliance with the new rules involves ongoing updates, potentially impacting contract eligibility.
• 90-day risk mitigation measures must be implemented after contracts or ownership changes.
• The rule is a response to sections of the NDAA aimed at enhancing national security.
• Comments on the proposed changes are due by July 6, urging industry participation.
• Defense contracts will face increased scrutiny regarding foreign partnerships.
• The DOW seeks to enhance oversight of potential foreign influences in sensitive procurements.