[Federal Register Volume 89, Number 87 (Friday, May 3, 2024)]
[Proposed Rules]
[Pages 36738-36742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08735]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 40
[FAR Case 2023-008, Docket No. FAR-2023-0008, Sequence No. 1]
RIN 9000-AO56
Federal Acquisition Regulation: Prohibition on Certain
Semiconductor Products and Services
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Advanced notice of proposed rulemaking.
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SUMMARY: DoD, GSA, and NASA are considering amending the Federal
Acquisition Regulation (FAR) to implement paragraphs (a), (b), and (h)
in section 5949 of the James M. Inhofe National Defense Authorization
Act for Fiscal Year 2023 that prohibits executive agencies from
procuring or obtaining certain products and services that include
covered semiconductor products or services effective December 23, 2027.
DATES: Interested parties should submit written comments to the
Regulatory Secretariat Division at the address shown below on or before
July 2, 2024 to be considered in the formation of the proposed rule.
ADDRESSES: Submit comments in response to FAR Case 2023-008 to the
Federal eRulemaking portal at https://www.regulations.gov by searching
for ``FAR Case 2023-008''. Select the link ``Comment Now'' that
corresponds with ``FAR Case 2023-008''. Follow the instructions
provided on the ``Comment Now'' screen. Please include your name,
company name (if any), and ``FAR Case 2023-008'' on your attached
document. If your comment cannot be submitted using https://www.regulations.gov, call or email the points of contact in the FOR
FURTHER INFORMATION CONTACT section of this document for alternate
instructions.
Instructions: Please submit comments only and cite ``FAR Case 2023-
008'' in all correspondence related to this case. Comments received
generally will be posted without change to https://www.regulations.gov,
including any personal and/or business confidential information
provided. Public comments may be submitted as an individual, as an
organization, or anonymously (see frequently asked questions at https://www.regulations.gov/faq). To confirm receipt of your comment(s),
please check https://www.regulations.gov, approximately two to three
days after submission to verify posting.
FOR FURTHER INFORMATION CONTACT: [email protected] or call 202-969-
4075. Please cite FAR Case 2023-008.
SUPPLEMENTARY INFORMATION:
I. Background
Semiconductors are tiny electronic devices that are essential to
America's economic and national security. Semiconductors power our
consumer electronics, automobiles, data centers, critical
infrastructure, and virtually all military systems. These devices power
tools as simple as a power adapter and as complex as a fighter jet or a
smartphone. They are also essential building blocks of the technologies
that will shape our future, including artificial intelligence,
biotechnology, and clean energy. For additional information on
semiconductors, visit https://www.nist.gov/semiconductorsandchips.gov.
See the section containing definitions in this advance notice of
proposed rulemaking for the definition of ``semiconductor''.
The National Counterintelligence and Security Center, located in
the U.S. Office of the Director of National Intelligence, has
identified semiconductors as one of the technology sectors where the
stakes of disruption are potentially greatest for U.S. economic and
national security. There are numerous opportunities for adversaries and
other threat actors to introduce hardware backdoors, malicious
firmware, and malicious software into a semiconductor during
production. Since semiconductors are key components of U.S. critical
infrastructure (e.g., information technology, communications) and have
many military applications, it is vital that these threat vectors are
addressed during the production process. Chips are ultimately
integrated into end products, so it can be difficult to identify and
mitigate risks to semiconductor hardware, firmware, and software.
Due to this significant national security risk, Congress included a
prohibition for certain covered semiconductors in section 5949 of the
James M. Inhofe National Defense Authorization Act (NDAA) for Fiscal
Year (FY) 2023 (Pub. L. 117-263). The statute states that ``[t]he head
of an executive agency may not (A) procure or obtain, or extend or
renew a contract to procure or obtain, any electronic parts, products,
or services that include covered semiconductor products or services; or
(B) enter into a contract (or extend or renew a contract) with an
entity to procure or obtain electronic parts or products that use any
electronic parts or products that include covered semiconductor
products or services''. However, executive agencies are not required
to--
(1) Remove or replace any products or services resident in
equipment, systems, or services, prior to the effective date of the
prohibition.
(2) Prohibit or limit the utilization of covered semiconductor
products or services throughout the lifecycle of existing equipment.
DoD, GSA, and NASA plan to implement section 5949 of the NDAA for
FY 2023 in the FAR via FAR Case
[[Page 36739]]
2023-008, Prohibition on Certain Semiconductor Products and Services.
A. Prohibition Scope
The statute's prohibition applies to products, parts, and services.
The term ``products'' is currently defined in FAR 2.101 to mean
supplies, which in turn includes all types of property including parts,
except land and interests in land. Thus, under the FAR's definition,
the term ``product'' already covers ``parts'' (see FAR 2.101). To avoid
redundancy, DoD, GSA, and NASA are planning to use the following
language, which removes the term ``part'', to implement the statutory
prohibition:
Section 5949(a)(1)(A) of the NDAA for FY 2023 prohibits
executive agencies from procuring or obtaining electronic products or
electronic services that include covered semiconductor products or
services.
Section 5949(a)(1)(B) of the NDAA for FY 2023 prohibits
executive agencies from procuring or obtaining electronic products that
use electronic products that include covered semiconductor products or
services; however, this prohibition does not apply to electronic
products used in systems that are not critical systems.
Section 5949(a)(1)(B) goes beyond the prohibition in section
5949(a)(1)(A) by prohibiting Federal agencies from acquiring electronic
products used within critical systems that use electronic products that
incorporate covered semiconductor products or services. For example,
section 5949(a)(1)(B) could restrict a Federal agency from acquiring a
replacement control panel within a critical system that enables an
Internet of Things (IoT) device that includes a covered semiconductor
product or service and was purchased prior to the effective date of the
prohibition.
B. Definitions
DoD, GSA, and NASA are considering incorporating the following
definitions that are referenced in section 5949 of the NDAA for FY
2023:
Covered entity (section 5949(j)(2)).
[cir] An entity that--
[ssquf] Develops, domestically or abroad, a design of a
semiconductor that is the direct product of United States origin
technology or software; and
[ssquf] Purchases covered semiconductor products or services from
an entity described in the first or third paragraph of the definition
of covered semiconductor product or services.
Covered nation (section 5949(j)(5) and 10 U.S.C. 4872(d))
[cir] The Democratic People's Republic of Korea (North Korea);
[cir] The People's Republic of China;
[cir] The Russian Federation;
[cir] The Islamic Republic of Iran.
Covered semiconductor product or service (section
5949(j)(3))
[cir] A semiconductor, a semiconductor product, a product that
incorporates a semiconductor product, or a service that utilizes such a
product, that is designed, produced, or provided by Semiconductor
Manufacturing International Corporation (SMIC) (or any subsidiary,
affiliate, or successor of such entity);
[cir] A semiconductor, a semiconductor product, a product that
incorporates a semiconductor product, or a service that utilizes such a
product, that is designed, produced, or provided by ChangXin Memory
Technologies (CXMT) or Yangtze Memory Technologies Corp (YMTC) (or any
subsidiary, affiliate, or successor of such entities); or
[cir] A semiconductor, semiconductor product, or semiconductor
service produced or provided by an entity that the Secretary of Defense
or the Secretary of Commerce, in consultation with the Director of the
National Intelligence or the Director of the Federal Bureau of
Investigation, determines to be an entity owned or controlled by, or
otherwise connected to, the government of a foreign country of concern,
provided that the determination with respect to such entity is
published in the Federal Register.
Critical national security interests mean any interests
having a critical impact on the national defense, foreign intelligence
and counterintelligence, international and internal security, or
foreign relations of the United States.
Critical system (section 5949(j)(4))
[cir] National security system (see 40 U.S.C. 11103(a)(1));
[cir] Additional systems identified by the Federal Acquisition
Security Council; or
[cir] Additional systems identified by the Department of Defense,
consistent with guidance provided under section 224 of the NDAA for FY
2020 (Pub. L. 116-92).
[cir] Does not include a system that is used for routine
administrative and business applications (including payroll, finance,
logistics, and personnel management applications).
Foreign country of concern (15 U.S.C. 4651)
[cir] A country that is a covered nation; and
[cir] Any country that the Secretary of Commerce, in consultation
with the Secretary of Defense, the Secretary of State, and the Director
of National Intelligence, determines to be engaged in conduct that is
detrimental to the national security or foreign policy of the United
States.
National security system (40 U.S.C. 11103(a)(1))
[cir] A telecommunications or information system operated by the
Federal Government, the function, operation, or use of which--
[ssquf] Involves intelligence activities;
[ssquf] Involves cryptological activities related to national
security;
[ssquf] Involves command and control of military forces;
[ssquf] Involves equipment that is an integral part of a weapon or
weapons system; or
[ssquf] Is critical to the direct fulfillment of military or
intelligence missions.
[cir] This term excludes a system to be used for routine
administrative and business applications (including payroll, finance,
logistics, and personnel management applications).
DoD, GSA, and NASA are also considering using the following
definitions in the FAR rule:
Affiliate means associated business concerns or
individuals if, directly or indirectly either one controls or can
control the other; or a third-party controls or can control both. See
FAR 2.101.
Electronic products means products that include
technology, parts, or components that have electrical, digital,
magnetic, wireless, optical, electromagnetic, or similar capabilities.
See 15 U.S.C. 7006.
Electronic services means services that use electronic
products.
Reasonable inquiry means an inquiry designed to uncover
any information in the entity's possession about whether any electronic
products or electronic services that are provided to the Government--
(1) Include covered semiconductor products or services; or
(2) Use electronic products that include covered semiconductor
products or services.
A reasonable inquiry may reasonably rely on the certifications of
compliance from covered entities and subcontractors who supply
electronic products or services. This inquiry is not required to
include independent third-party audits or other formal reviews but may
be required to include other mechanisms of diligence review depending
on the facts and circumstances. Diligence review shall be required with
regard to entities that are established or operated in foreign
countries of concern, even when they certify compliance with this rule.
Routine administrative and business applications means
applications for payroll, finance,
[[Page 36740]]
logistics, and personnel management applications primarily used for
standard commercial practices and functions.
Semiconductor means an integrated electronic device or
system most commonly manufactured using materials including, but not
limited to, silicon, silicon carbide, or III-V compounds, and processes
including, but not limited to, lithography, deposition, and etching.
Such devices and systems include, but are not limited to, analog and
digital electronics, power electronics, and photonics, for memory,
processing, sensing, actuation, and communications applications. See
Creating Helpful Incentives to Produce Semiconductors (CHIPS) Program
Office, National Institute of Standards and Technology, Department of
Commerce rule published September 25, 2023 (88 FR 65600).
Subsidiary means an entity in which more than 50 percent
of the entity is owned directly by a parent corporation or through
another subsidiary of a parent corporation. See FAR 9.108-1.
C. Solicitation Provision
DoD, GSA, and NASA are planning to require a provision in all
solicitations that would require offerors to certify, after conducting
a reasonable inquiry, to the non-use of covered semiconductor products
or services in electronic products or electronic services provided to
the Government in accordance with section 5949(h)(1)(A).
D. Contract Clause
DoD, GSA, and NASA are planning to require a clause in all
solicitations and contracts that incorporates the prohibitions in
section 5949(a)(1)(A) and 5949(a)(1)(B), and the requirements in
section 5949(h). The clause would--
(1) Direct contractors to apply the prohibition in section
5949(a)(1)(A);
(2) Direct contractors to apply the prohibition in section
5949(a)(1)(B) unless the agency identified a non-critical system that
is not subject to this specific part of the prohibition;
(3) 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 electronic services;
(4) Require covered entities that are Federal contractors or
subcontractors to disclose to direct customers the inclusion of a
covered semiconductor product or service in electronic products or
electronic services;
(5) Require that any Federal contractor or subcontractor, including
any covered entity, who becomes aware, or has reason to suspect, that
any product to be used in a critical system purchased by the Federal
Government, or purchased by a Federal contractor or subcontractor for
delivery to the Federal Government for any critical system, that
contains covered semiconductor products or services shall notify
appropriate Federal authorities in writing within 60 days;
(6) Require that a contractor or subcontractor that provides a
notification under paragraphs (4) and (5) above regarding electronic
parts or products that are manufactured or assembled by an entity other
than the contractor or subcontractor shall not be subject to civil
liability nor determined to not be a presently responsible contractor
on the basis of such notification;
(7) State that a contractor or subcontractor that provides a
notification under paragraphs (4) and (5) above regarding electronic
parts or products manufactured or assembled by such contractor or
subcontractor shall not be subject to civil liability nor determined to
not be a presently responsible contractor on the basis of such
notification if the Federal contractor or subcontractor makes a
comprehensive and documentable effort to identify and remove the
covered semiconductor products or services;
(8) Provide that a covered entity that is a Federal contractor or
subcontractor that fails to disclose the inclusion to direct customers
of a covered semiconductor product or service in electronic parts or
electronic services shall be responsible for any rework or corrective
action that may be required to remedy the use or inclusion of such
covered semiconductor product or service;
(9) State that any rework or corrective action that may be required
to remedy the use or inclusion of a covered semiconductor product or
service is not an allowable cost;
(10) State that contractors and subcontractors may reasonably rely
on the certifications of compliance from covered entities and
subcontractors who supply electronic products or services when
providing proposals to the Federal Government and are not required to
conduct independent third-party audits or other formal reviews related
to such certifications.
E. Subcontractors
Since section 5949(c) mandates prime contractors to incorporate the
substance of these prohibitions and applicable implementing contract
clauses into contracts, DoD, GSA, and NASA are planning to require that
prime contractors insert the clause developed for FAR Case 2023-008
into all subcontracts for the supply of any electronic products.
F. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT) and for Commercial Products (Including Commercially
Available Off-the-Shelf (COTS) Items), or for Commercial Services
DoD, GSA, and NASA are planning to require the provision and clause
in all solicitations and contracts, including those valued at or below
the simplified acquisition threshold, for the acquisition of commercial
products and commercial services, and for the acquisition of COTS
items, because the prohibitions impact any product or service that uses
or provides electronic products or electronic services to the
Government. Due to the prevalence of electronic products and services,
DoD, GSA, and NASA anticipate this would impact a large majority of
contracts and orders. If this prohibition was not included in every
solicitation, it would be very difficult for the contracting officer to
identify which offerors would not be providing an electronic product or
electronic service.
G. Applicability to Micro-Purchases
DoD, GSA, and NASA anticipate applying these prohibitions to micro-
purchases. The statute does not exempt micro-purchases and there would
be national security risks associated with allowing purchases of
covered semiconductors under the micro-purchase threshold. Many
electronic products and electronic services are procured under the
current micro-purchase threshold that are critical to the mission of
the Federal Government, and it is important that this rule address such
risks.
H. Means of Identifying Elements and Components
DoD, GSA, and NASA are considering requiring offerors to identify
the provenance of the supply chain for the semiconductor components for
each electronic product provided to the Government. This information
could allow the Government to validate contractor compliance with this
prohibition. The required provenance information for semiconductor
products could include, but is not limited to, identification of
vendors and facilities responsible for the design, fabrication,
assembly, packaging, and test of the product, manufacturer codes used
for the product, and distributor codes used for the product. DoD, GSA,
and NASA plan to assess existing supply chain
[[Page 36741]]
provenance initiatives (e.g., Uyghur Forced Labor Prevention Act
Operational Guidance for Importers at https://www.cbp.gov/document/guidance/uflpa-operational-guidance-importers) to align any provenance
requirements in this rulemaking with current industry practices.
I. Government List of Electronic Products With Prohibited
Semiconductors
DoD, GSA, and NASA are considering referencing in the proposed rule
a web page or report being considered that could be issued by the
Department of Commerce that would identify a list of electronic
products and services that include covered semiconductor products or
services that utilize such products, such as telecommunications and
cloud storage or computing services. As precedent, the Department of
Commerce published a report in January 2022 that identified key
semiconductor products that were in short supply, and the downstream
industries that depended on those products, based on the results of a
public request for information. Going forward, such a public list of
covered semiconductor products could assist offerors and contractors
with identifying electronic products and electronic services that are
prohibited.
J. Waivers
DoD, GSA, and NASA are planning to clarify that the waiver
authority for the Secretary of Defense, Director of National
Intelligence, Secretary of Commerce, and Secretary of Energy allows
each of these officials to grant a waiver for any executive agency in
accordance with the statutory requirements. The waiver authority would
be in addition to the waiver authority granted to the head of each
executive agency. See section 5949(b).
K. Impact
DoD, GSA, and NASA anticipate that entities will be impacted by
this rule in the following ways:
Education and training--time to review and become familiar
with the rule.
Time to update existing contractor business policies.
Time to conduct an investigation to determine whether the
entity uses prohibited semiconductors.
Time to complete the certification.
Given that every unique awardee with electronic products or
services would need to conduct a reasonable inquiry, as part of its
initial analysis, DoD, GSA, and NASA anticipate using the following
assumptions:
75 percent of all unique awardees have electronic products
or services that will be impacted by this prohibition.
For impacted contracts, it is estimated that each contract
will involve an average of 5 to 15 products with semiconductors.
For these semiconductors, it is anticipated that an
average of 10 to 20 percent of the semiconductors are not currently
compliant with the prohibition. While this represents an average across
economic sectors, it is recognized that the prevalence of covered
semiconductor products and services is higher in certain industries.
For each non-compliant semiconductor product or service,
it is anticipated to cost on average $10,000 to come into compliance by
providing an alternative product or service or updating a product or
service to remove prohibited semiconductors.
L. Future Rulemaking
While this advance notice of proposed rulemaking is focused on DoD,
GSA, and NASA's implementation of the prohibition in paragraphs (a),
(b), and (h) of section 5949, DoD, GSA, and NASA anticipate addressing
through separate rulemaking the requirements in paragraph (g) for
mitigating supply chain risks for semiconductor products and services
that are not otherwise prohibited by section 5949. As friendly and
allied nations expand their production and the United States continues
to build out our domestic semiconductor production capacity through the
CHIPS and Science Act and the Department of Commerce's CHIPS for
America program, DoD, GSA, and NASA anticipate this additional
rulemaking will help ensure that Federal contractors will increasingly
have a diverse and more trustworthy source of suppliers that can
provide secure and resilient semiconductors.
II. Request for Public Comment
DoD, GSA, and NASA welcome general input from the public on the
amendments to the FAR being considered to accomplish the stated
objectives when implementing section 5949 of the NDAA for FY 2023.
Respondents are encouraged to offer their feedback on the following
questions:
(a) Do you have any recommendations for how DoD, GSA, and NASA can
further clarify the scope of the prohibition?
(b) Do you have any comments on the proposed definitions being
considered for this rule, including the definition for reasonable
inquiry?
(c) Are there any definitions that should be added?
(d) Do you have any comments on DoD, GSA, and NASA's plan for
requiring a solicitation provision and contract clause?
(e) Are there any details regarding the waiver authority that would
be helpful to clarify?
(f) Do you have sufficient visibility into your supply chain to
understand whether your supply chain uses any covered semiconductor
products or services? What information is normally requested from
subcontractors and suppliers about semiconductor provenance?
(g) What procedures do you anticipate using to conduct a reasonable
inquiry into your supply chain to understand whether your supply chain
uses any covered semiconductor products or services? How do you
currently or how do you plan to detect the inclusion of covered
semiconductor products and services in your supply chain?
(h) If your organization does use covered semiconductor products or
services, how much of an impact will this prohibition have on your
organization?
(i) Do you have any comments on DoD, GSA, and NASA's estimated
impact of a future rule to implement section 5949?
(j) Are there any categories of products or services you currently
provide to the Government for which you anticipate needing a waiver
when the prohibition is effective in December 2027? If so, which
categories of products or services?
(k) For categories of products or services for which a waiver may
be necessary, how long do you anticipate it will take to find
alternative semiconductors that are compliant?
(l) What impact will implementation of section 5949 in the FAR have
on small businesses, including small disadvantaged businesses, women-
owned small businesses, service-disabled veteran-owned small
businesses, and Historically Underutilized Business Zone (HUBZone)
small businesses? How should DoD, GSA, and NASA best align this
objective with efforts to ensure opportunity for small businesses?
(m) What additional information or guidance do you view as
necessary to effectively comply with a future rule to implement section
5949?
(n) What challenges do you anticipate facing in effectively
complying with a future rule to implement section 5949?
(o) What would be the best method or process for identifying the
provenance of the supply chain for the
[[Page 36742]]
semiconductor components? Are you aware of existing guidelines or best
practices for identifying and documenting the provenance of the supply
chain for electronic products and electronic services? Do you have any
suggestions for how and when the Government should validate supply
chain provenance information and documentation?
(p) If the Department of Commerce establishes a public list that
identifies electronic products with prohibited semiconductors, would
this be helpful for implementing this prohibition?
(q) Do you have any feedback regarding how DoD, GSA, and NASA
should incorporate the requirements regarding certification,
disclosure, notification safe harbors, and allowable costs in paragraph
(h) of section 5949?
(r) What else should DoD, GSA, and NASA consider in drafting a
proposed rule to implement the prohibitions outlined in section 5949?
III. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is a significant regulatory action and, therefore, was subject to
review under Section 6(b) of E.O. 12866, Regulatory Planning and
Review, dated September 30, 1993.
Government procurement.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of
Acquisition Policy, Office of Government-wide Policy.
[FR Doc. 2024-08735 Filed 5-2-24; 8:45 am]
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