DCSA Set to Expand Foreign Ownership Reviews to Unclassified Defense Contracts

The Defense Counterintelligence and Security Agency (DCSA) is preparing to implement sweeping changes that will expand foreign ownership, control, or influence (FOCI) reviews to thousands of unclassified U.S. Department of Defense (DoD) contracts, marking a major shift in federal acquisition policy under Section 847 of the Fiscal Year 2020 National Defense Authorization Act (FY20 NDAA).

Under current practice, FOCI reviews are generally reserved for companies seeking or holding facility security clearances (FCLs) to perform on classified contracts. However, forthcoming regulations will require FOCI assessments prior to contract award for all “covered contractors or subcontractors” — defined as entities performing DoD work exceeding $5 million in value — even if the contract does not involve classified information.

“Foreign investment can play an important role in maintaining the vitality of the U.S. industrial base,” the U.S. government reaffirmed in policy documents. “Therefore, it is the policy of the U.S. Government to allow foreign investment consistent with the national security interest of the United States.”

What Will Change

Once implemented, the new FOCI rule will require DCSA to:

• Evaluate beneficial ownership (direct and indirect control) of covered contractors prior to award of unclassified contracts;

• Reassess FOCI status post-award upon material changes;

• Impose mitigation measures where national security or sensitive data may be compromised.

These new requirements will apply to research assistance awards and unclassified defense contracts that exceed $5 million, excluding commercial contracts unless the DoD identifies potential risk to national security, cybersecurity, personally identifiable information, or other sensitive systems.

DCSA estimates the annual number of FOCI reviews will rise from approximately 2,000 to 41,000, potentially affecting up to 250,000 contractors. The agency is actively onboarding personnel to meet demand and offer training for contractors and government acquisition officials.

Implementation Timeline

The FOCI review expansion will take effect upon publication of a new Defense Federal Acquisition Regulation Supplement (DFARS) clause. A draft rule is due from the Defense Acquisition Regulations Council by May 14, 2025. Full implementation is expected within 12 to 18 months.

DCSA will provide either a “risk indicator report” or a full “FOCI assessment” to contracting officers within 25 business days of being notified post-proposal evaluation. Mitigation plans — such as proxy agreements, special security agreements, or governance restrictions — must be executed within 90 days of contract award if FOCI risks are identified.

Broader Context

The Department of Defense has stated that a company is considered under FOCI when a foreign entity has the power, directly or indirectly, to influence operations in a way that may result in:

• Unauthorized access to classified or sensitive information;

• Adverse effects on performance of classified or sensitive contracts.

Review factors include foreign ownership percentage, prior espionage or unauthorized technology transfers, compliance history, bilateral defense relationships, and whether the foreign interest is a government.

Compliance and Risk Mitigation

Contractors and subcontractors must be prepared to report beneficial ownership changes during contract performance, as such changes may trigger additional reviews. Notably, failure to mitigate FOCI concerns may result in the denial of contract award, amendment, or extension.

Companies providing commercial products or services are generally exempt unless their work poses a defined national security risk.

The expansion underscores the U.S. government’s growing focus on protecting sensitive data and technologies beyond the classified space. Legal experts expect new FOCI mitigation templates tailored to unclassified contexts will emerge as implementation proceeds.

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For More Information:

Visit DCSA’s dedicated FOCI webpage or consult the DoD Instruction 5205.87: Mitigating Risks Related to Foreign Ownership, Control, or Influence for Covered DoD Contractors and Subcontractors.