NDAA Section 847: What Defense Contractors Need to Know About FOCI Reporting

The defense contracting community is paying close attention to the implementation of NDAA Section 847, a provision designed to increase transparency around Foreign Ownership, Control, or Influence (FOCI) within the Defense Industrial Base.

For many contractors, especially startups and small businesses, the proposed requirements raise an important question:

Will Section 847 affect my company?

The answer depends on your ownership structure, investors, contractual relationships, and the types of defense contracts you perform. While many organizations are familiar with FOCI as part of the Facility Clearance process, Section 847 introduces broader considerations that may impact companies that do not hold a Facility Clearance (FCL).

In this article, we'll break down what Section 847 is, why it matters, and what contractors should be doing today to prepare.

What Is NDAA Section 847?

Section 847 of the National Defense Authorization Act (NDAA) directs the Department of Defense to establish procedures for identifying and evaluating Foreign Ownership, Control, or Influence risks among certain defense contractors.

Historically, FOCI reviews were primarily associated with classified contracts and organizations seeking or maintaining a Facility Clearance. However, Section 847 expands the government's ability to evaluate foreign influence concerns among contractors performing covered defense work.

The goal is straightforward: ensure that companies supporting national security missions are transparent about foreign interests that could create security risks or influence business decisions.

As implementation moves forward, contractors should expect greater scrutiny of ownership structures, investment relationships, and foreign affiliations.

What Is FOCI?

FOCI stands for Foreign Ownership, Control, or Influence.

The government uses the term to describe situations where a foreign entity may have the ability to influence a U.S. company's management, operations, strategic decisions, or access to sensitive information.

Many contractors assume FOCI only applies when a foreign company owns a majority of the business. In reality, FOCI evaluations consider a wide range of factors, including:

• Foreign ownership interests
• Venture capital investments
• Foreign parent companies
• Foreign board members
• Foreign lending arrangements
• Joint ventures
• Strategic partnerships
• Contractual control rights
• Access to sensitive information or technology

The existence of foreign investment does not automatically create a FOCI problem. Instead, the government evaluates the totality of the circumstances to determine whether foreign influence presents a potential risk.

Why Section 847 Is Generating So Much Attention

Many defense contractors have never completed a Facility Clearance process and therefore have limited exposure to FOCI concepts.

As Section 847 gains visibility, companies are discovering that ownership and governance structures they never considered relevant may become important during future contract opportunities.

This is particularly true for:

• Defense startups backed by venture capital
• Companies pursuing their first Department of Defense contract
• Organizations considering foreign investment
• Contractors supporting emerging technologies
• Businesses planning acquisitions or mergers

For these companies, understanding FOCI before it becomes an issue can prevent costly surprises later.

The Role of the SF-328

One term contractors are likely to encounter is the SF-328, or Certificate Pertaining to Foreign Interests.

The SF-328 is used by the government to gather information about potential foreign ownership, control, or influence. It asks questions about:

• Foreign ownership interests
• Foreign debt obligations
• Foreign business relationships
• Foreign management involvement
• Foreign contractual rights
• Other potential indicators of foreign influence

Many companies are surprised by the breadth of information requested.

Importantly, completing an SF-328 does not mean a company has a FOCI issue. The form is simply a tool used to identify and evaluate potential concerns.

Common Misconceptions About FOCI

"We Have Foreign Investors, So We Must Have a FOCI Problem."

Not necessarily.

Many successful defense contractors have foreign investors. The government evaluates factors such as ownership percentage, governance rights, board control, and access to sensitive information.

"We're Not Seeking a Facility Clearance, So This Doesn't Affect Us."

Historically, many organizations viewed FOCI as a classified contracting issue. Section 847 has changed that conversation by expanding awareness of foreign influence concerns beyond traditional clearance holders.

"We're Too Small to Worry About This."

Startups and small businesses may actually be among the most affected organizations because venture capital funding, strategic investments, and growth-related transactions often introduce ownership considerations that require careful review.

"Our Investors Are From Allied Countries."

While the nature of foreign relationships may matter during an evaluation, the presence of an allied-country investor does not automatically eliminate FOCI considerations.

Questions Every Defense Contractor Should Ask

As Section 847 implementation continues, contractors should begin evaluating their own organizations.

Consider the following questions:

• Do we have any foreign ownership interests?
• Are any investors foreign-owned or foreign-controlled?
• Do foreign individuals serve on our board?
• Do any foreign entities hold special governance rights?
• Are we pursuing classified work in the future?
• Could upcoming funding rounds create new FOCI concerns?
• Have we ever completed an SF-328?

If the answer to any of these questions is yes, it may be worth conducting a preliminary review.

Why Early Planning Matters

One of the most common mistakes contractors make is waiting until a contract opportunity or security review to evaluate FOCI concerns.

By that point, ownership structures are often already established, investment agreements have been executed, and governance decisions have been finalized.

Early planning provides several advantages:

• Better understanding of potential risk areas
• Improved readiness for future contract opportunities
• More informed discussions with investors
• Reduced delays during government reviews
• Greater confidence during growth and acquisition activities

For many organizations, a simple assessment can identify issues long before they become obstacles.

How Industry FSO Can Help

Industry FSO helps defense contractors understand how ownership structures, investor relationships, and foreign affiliations may affect future contracting opportunities.

Our team includes experienced FOCI specialists who work with startups, small businesses, and established defense contractors to evaluate potential concerns and identify practical next steps.

Whether you're preparing for future growth, pursuing classified work, or simply trying to understand whether NDAA Section 847 may apply to your organization, an early assessment can provide valuable clarity.

Learn More About NDAA Section 847 and FOCI

If you're unsure whether Section 847 could impact your company, Industry FSO can help you evaluate your ownership structure, understand potential reporting obligations, and determine whether additional action may be necessary.

Schedule a consultation to discuss your organization's specific circumstances and receive guidance from experienced FOCI professionals.