Foreign ownership scrutiny is expanding beyond companies that handle classified information. Under Section 847 of the FY2020 National Defense Authorization Act (NDAA), certain Department of Defense (DoD) contractors and subcontractors are subject to a framework for evaluating risks associated with foreign ownership, control, or influence (FOCI).
This is particularly relevant to companies performing unclassified work that have never needed a Facility Clearance (FCL) or undergone a formal FOCI review.
In May 2026, DoD published a proposed Defense Federal Acquisition Regulation Supplement (DFARS) rule outlining additional disclosure, review, and mitigation requirements for covered contractors.
For businesses pursuing DoD contracts exceeding $5 million, understanding these developments can help identify potential compliance obligations before they affect a contract award.
Section 847 of the FY2020 NDAA established requirements for DoD to assess and address national security risks associated with foreign ownership and beneficial ownership among certain contractors and subcontractors.
The legislation was subsequently amended by Section 819 of the FY2021 NDAA.
The objective is to improve the government's visibility into the ownership and control of companies performing covered DoD work, including those that do not handle classified information.
Historically, formal FOCI reviews have been closely associated with companies seeking or maintaining an FCL under the National Industrial Security Program (NISP).
Section 847 establishes a broader framework for evaluating foreign ownership risks in the defense supply chain.
These risks may arise through:
Foreign ownership does not automatically make a contractor ineligible for an award. Rather, the government evaluates whether the ownership arrangement presents risks that require further review or mitigation.
For additional background, see our guide, What Is FOCI? A Practical Guide for Government Contractors.
Section 847 focuses on certain existing and prospective DoD contractors and subcontractors associated with contracts exceeding $5 million.
The May 2026 proposed DFARS rule defines covered contractors and subcontractors to include companies at any tier of the DoD supply chain associated with a contract valued above that threshold.
Importantly, the requirements are not limited to companies performing classified work.
Potentially affected businesses may include:
The proposed rule contains important distinctions for commercial products and commercial services. These acquisitions generally receive different treatment unless a designated senior DoD official identifies relevant national security risks.
Not every federal contract exceeding $5 million is covered. Section 847 concerns DoD contracting, and applicability depends on the contract, implementing regulations, and any applicable exceptions.
Related article: Section 847 and the $5 Million Threshold: Which Contracts Are Covered?
On May 7, 2026, DoD published a proposed DFARS rule titled Mitigating Risks Related to Foreign Ownership, Control, or Influence, identified as DFARS Case 2021-D011.
The proposal would introduce additional requirements for covered contractors to disclose beneficial ownership and FOCI information and for the government to assess associated risks.
Several provisions are particularly important.
The proposed rule would require covered contractors to disclose beneficial ownership and FOCI information.
This includes submitting an updated SF-328, Certificate Pertaining to Foreign Interests, and supporting documentation through the National Industrial Security System (NISS).
The SF-328 has traditionally been associated with facility clearance processing, but the proposed rule would extend its use to additional covered contractors.
DCSA would evaluate disclosed ownership information and identify potential foreign ownership risks.
The assessment would consider whether foreign interests have the ability to influence the contractor's management, operations, or access to sensitive information.
Depending on the findings, additional information or mitigation measures may be required.
Under the proposed rule, covered contractors with identified FOCI risks would be required to implement an appropriate mitigation strategy within specified timeframes.
The proposal includes a 90-day period associated with certain triggering events, including contract award, modification, option exercise, or the identification of risks during performance.
The appropriate mitigation measures would depend on the circumstances and applicable government requirements.
The proposed requirements also address changes in beneficial ownership or FOCI during contract performance.
Contractors would need to maintain accurate disclosures and provide updated information when relevant ownership or control arrangements change.
These provisions are intended to improve visibility into foreign ownership risks throughout the contract lifecycle, rather than only at the initial award.
The full proposal is available in the Federal Register: DFARS Case 2021-D011.
The SF-328 is a government form used to disclose foreign interests that may be relevant to a FOCI assessment.
It asks companies to identify certain foreign ownership, governance, financial, and business relationships.
For companies seeking an FCL, the SF-328 is already an established part of the security clearance process.
Under the proposed Section 847 DFARS rule, the form would also serve as a disclosure mechanism for additional covered DoD contractors.
This means companies without classified contracts may need to become familiar with the SF-328 and the documentation necessary to support their responses.
Potential preparation activities include:
The official form is available through the General Services Administration's SF-328 resource page.
Related article: How to Complete the SF-328: A Step-by-Step Guide
No. Section 847 does not establish a blanket prohibition against foreign-owned companies receiving DoD contracts.
Instead, the legislation and proposed implementing requirements focus on identifying foreign ownership risks and determining whether those risks can be appropriately addressed.
A contractor with foreign investors may be able to demonstrate that its ownership arrangements do not create unacceptable security concerns.
Other companies may need to implement safeguards or make changes to their governance and operating procedures.
The outcome depends on the nature of the foreign interests, the requirements of the procurement, and the government's assessment.
For contractors considering foreign investment or acquisition, these requirements are another reason to evaluate ownership and control arrangements before completing a transaction.
For more information, see Can a Foreign-Owned Company Win U.S. Government Contracts?.
Traditional FOCI mitigation under the NISP is primarily associated with companies requiring access to classified information.
When DCSA determines that a company is under FOCI, it may require an approved mitigation instrument, such as a Board Resolution, Security Control Agreement, Special Security Agreement, Proxy Agreement, or Voting Trust Agreement.
Section 847 addresses a broader set of foreign ownership risks associated with covered DoD contracting.
Although the two frameworks share common security objectives, a Section 847 review should not automatically be treated as equivalent to the FCL mitigation process.
A company undergoing a Section 847 review does not necessarily need the same mitigation instrument that would be required for a cleared contractor.
The appropriate measures depend on the government's findings, applicable requirements, and the nature of the identified risks.
For a detailed discussion of traditional mitigation arrangements, read FOCI Mitigation Explained: How Companies Address Foreign Ownership Concerns.
Companies potentially affected by Section 847 do not need to wait until receiving a government inquiry to begin evaluating their ownership information.
Several practical steps can help contractors prepare.
Identify direct and indirect owners, parent companies, beneficial owners, and relevant voting rights.
Complex ownership structures involving multiple holding companies or investment funds may require additional documentation.
Consider whether foreign investors or affiliates possess board appointment rights, management authority, financial leverage, or other forms of influence.
The percentage of foreign ownership is important, but it is not the only factor.
Maintain current organizational charts, shareholder agreements, operating agreements, and other records relevant to ownership and control.
These documents may be needed to support future disclosures.
Review the form and identify which questions may require additional research or supporting documentation.
Companies with multiple foreign investors or complex affiliate relationships may benefit from an early assessment.
Evaluate whether anticipated DoD contracts or subcontracts could fall within the Section 847 framework.
Pay particular attention to contract value, commercial acquisition exceptions, and applicable solicitation provisions.
The May 2026 DFARS rule was published as a proposal. Contractors should monitor the final rulemaking process and review the actual clauses included in solicitations and contracts.
Related article: How to Prepare for Section 847 Foreign Ownership Reviews [Link when published]
Specialized assistance may be useful when a company:
In many cases, the initial work involves reviewing ownership records, identifying potential disclosure issues, and determining which requirements apply.
Contractors may benefit from working with experienced FOCI consultants to address operational and security compliance matters, while involving legal counsel when ownership transactions or legal interpretations require it.
Section 847 represents an important development in how DoD evaluates foreign ownership risks among its contractors and subcontractors.
Companies that have never required an FCL may face new expectations concerning beneficial ownership transparency, foreign interest disclosures, and risk mitigation.
Although the proposed DFARS requirements remain subject to final rulemaking, contractors can begin by understanding their ownership structures, maintaining accurate documentation, and identifying potential foreign influence concerns.
Industry FSO provides FOCI consulting services, including foreign ownership assessments, SF-328 preparation, Section 847 readiness, and mitigation support.
Whether your company is pursuing a new DoD opportunity or evaluating an existing ownership arrangement, our team can help you understand the applicable requirements and prepare for the review process.