Foreign Ownership, Control, or Influence In Federal Contracting

Kaitlyn ClarkeAPEX Accelerator

By Thomas Gerke, Utah APEX Accelerator Consultant

The United States government takes safeguarding its secrets seriously and recognizes federal contractors expose a potential weakness. 

A U.S. company is considered under federal ownership, control, or influence (FOCI) when a foreign interest has the power, direct or indirect, whether or not exercised, to direct or decide matters affecting the management or operations of the company. This arrangement may result in unauthorized access to classified information or adversely affect the performance of classified contracts (NISPOM, paragraph 2-300a).

FOCI regulations identify situations where mitigation measures may be necessary to protect sensitive information adequately. Mitigation strategies authorized by the regulation include agreements that limit access of foreign interests to classified information. 

Successful mitigation of FOCI concerns is necessary for government contractors to obtain and maintain facilities security clearance (FCL). It may also impact contractor responsibility determinations. A company determined to be under FOCI is not eligible for an FCL until the FOCI factors have been favorably resolved (NISPOM, paragraph 2-300a).

The 2023 National Defense Authorization Act requires the secretary of defense to develop a demonstration program for commercial due diligence programs to “support small businesses in identifying attempts by malicious foreign actors to gain undue access to, or foreign ownership, control, or influence over the small business, or any technology a small business is developing according to a contract or other agreement with the Department of Defense.” 

The demonstration program should identify one or more vendors capable of supplying tools to assist small businesses with combating FOCI issues and further develop processes and procedures to reduce FOCI risks. The demonstration program should be in place by Dec. 31, 2027.