Foreign Influence Screening Just Went Mainstream: The New FOCI Rule for Unclassified Contracts

Published September 14, 2026 | TIKC NewsWire

A conflict of interest can be a relationship, a financial stake — or a foreign one. On May 7, 2026, the Department of Defense published a long-awaited proposed rule (DFARS Case 2021-D011) that would extend Foreign Ownership, Control, or Influence (FOCI) disclosure and mitigation requirements to unclassified defense contracts — not just classified ones. DoD estimates it would reach roughly 37,700 contractors and subcontractors that have never faced FOCI scrutiny before.

What Would Change

Historically, FOCI review applied only to contractors with facility clearances and access to classified information. The proposed rule — implementing Section 847 of the FY2020 NDAA — would apply to DoD contracts and subcontracts at any tier valued over $5 million, exempting commercial products and services unless a senior DoD official flags a national-security risk. Covered firms would complete Standard Form (SF) 328, disclose beneficial ownership and foreign-interest information to the Defense Counterintelligence and Security Agency (DCSA) via the National Industrial Security System (NISS), and mitigate any FOCI before award.

The Part That Will Slow Awards

Here’s the teeth: contracting officers would be prohibited from awarding, modifying, or extending a covered contract unless the contractor has an “eligible” status in NISS — meaning DCSA has reviewed the disclosures and determined that FOCI either doesn’t exist or has been mitigated. In practice, FOCI clearance becomes a prerequisite to award, which means new pre-award timelines and potential delays for tens of thousands of firms that have never registered in NISS.

What to Do Now

Map your ownership. Understand your beneficial owners and any foreign investment, lenders, board seats, or contractual control that could count as FOCI. Get familiar with SF 328 and NISS registration — the disclosure vehicle and the system you’ll need standing in. Flow it down. The rule reaches subcontractors at any tier over $5 million, so build FOCI into your teaming due diligence. Plan for timelines. If FOCI review becomes a pre-award gate, start early so it doesn’t cost you an award.

The Bottom Line

For the 37,700 contractors and subcontractors that have never dealt with FOCI, this proposed rule is a significant new compliance burden — one that becomes a pre-award eligibility gate if finalized as written. The national-security driver behind it makes finalization likely. Firms with no foreign ties should get NISS-familiar and document their clean ownership structure now. Firms with any foreign investment, foreign board members, or foreign lenders need to assess mitigation options before the rule lands. The worst time to start is when an award is on the line. Brick by brick.

Frequently Asked Questions

Is this rule final?

No — it is a proposed DFARS rule; the comment period ran into July 2026. But given the national-security driver behind it, contractors should prepare now. The direction is clear, and the pre-award eligibility gate structure means firms that wait for finalization to start will face timeline pressure at the worst possible moment.

I have no classified work — does this reach me?

Yes — that is the point of the change. The proposed rule would extend FOCI to unclassified DoD contracts and subcontracts over $5 million, well beyond the cleared-contractor world. If you hold or pursue DoD contracts at or above that threshold and have any foreign ownership, investment, or control in your structure, this rule is directly about you.

What counts as FOCI?

Foreign ownership, control, or influence exists when a foreign interest has the power to direct or decide matters affecting the management or operations of a company in a way that could result in unauthorized access to classified information or could adversely affect the performance of classified contracts. Under the proposed expansion, the same analysis would apply to covered unclassified contracts — foreign investors, board members, lenders with control rights, and licensing agreements can all create FOCI.

References

Akin Gump Strauss Hauer & Feld LLP. (2026, May). DoD proposes to expand FOCI disclosure and mitigation requirements to unclassified contracts. https://www.akingump.com

Arnold & Porter. (2026, May). DOD extends FOCI disclosure requirements to unclassified contracts and subcontracts greater than $5 million. https://www.arnoldporter.com

Wiley Rein LLP. (2026, May 13). DOD proposes expanding FOCI requirements to cover unclassified contracts. https://www.wiley.law