The American Business for American Companies Act of 2026 forbids federal civilian and defense agencies from awarding contracts to foreign incorporated entities the bill classifies as “inverted domestic corporations,” their subsidiaries, and joint ventures where such an entity holds more than 10 percent of vote or value. It also requires prime contractors on large contracts to include clauses preventing first‑tier awards that would route significant value to those entities or use subcontract tiering to hide their participation; violations can trigger termination for default and referral for suspension or debarment.
The bill repurposes the familiar inversion tests from tax and homeland security law: it looks to post‑May 8, 2014 acquisition structures, a >50 percent ownership test, and a ‘‘significant domestic business activities’’ metric (25 percent on employees, compensation, assets, or U.S.‑sourced income). Treasury must issue regulations defining management-and-control and how the domestic‑activity tests operate.
Agency heads may waive the prohibition for national security or certain health program needs, but must notify Congress within 14 days.
At a Glance
What It Does
Adds parallel procurement prohibitions in 41 U.S.C. (civilian) and 10 U.S.C. (defense) that block awards to foreign incorporated entities treated as inverted domestic corporations, extends the rule to subsidiaries and to joint ventures exceeding a 10% ownership threshold, and inserts subcontract clauses into noncommercial prime contracts over $10 million to prevent circumvention.
Who It Affects
Federal contracting officers, prime contractors on large FAR/DFARS contracts, companies that completed post‑May‑8‑2014 inversions or operate under foreign incorporation, and Treasury (for regulatory definitions and tests). Suppliers that are lower‑tier foreign affiliates or joint ventures will face new access limits to U.S. government work.
Why It Matters
This bill translates inversion and domestic‑activity concepts from tax law into procurement policy, creating an operational compliance regime across civilian and defense acquisition. It shifts risk onto primes and contracting officers to detect and police inversion status and gives Treasury rulemaking power that will determine how broad or narrow the prohibition becomes.
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What This Bill Actually Does
The bill creates mirror prohibitions in civilian (chapter 47 of title 41) and defense (chapter 363 of title 10) procurement law. For both, agency heads may not award contracts to foreign incorporated entities that meet the bill’s inversion test, to subsidiaries of those entities, or to joint ventures where more than 10 percent (by vote or value) is held by such an entity.
The prohibition applies to awards regulated by the FAR (and DFARS for defense) and reaches task and delivery orders issued after enactment even under legacy contracts.
To stop work from being shuffled to an inverted entity beneath the prime, the statute requires that prime contracts with value over $10,000,000 (excluding pure commercial‑item contracts) include a clause forbidding first‑tier subcontracts greater than 10 percent of the prime value to the barred entities and forbidding tier structuring intended to route more than 10 percent of value to them. The clause must authorize termination for default and referral for suspension/debarment if violated, which makes enforcement a contract‑based remedy as well as an administrative sanction route.The bill borrows the familiar inversion framework: an entity counts as inverted if, under a post‑May‑8‑2014 acquisition plan, it acquired substantially all of a U.S. corporation’s properties and, after the deal, former U.S. owners hold more than 50 percent of the foreign entity’s stock (or the affiliated group’s control/management is primarily in the U.S. and the group has significant domestic business activities).
Treasury must issue regulations to identify when management and control are ‘‘primarily’’ in the United States and to define what counts as substantial foreign or significant domestic activities, with an explicit cross‑reference to §7874 regulatory standards as of January 18, 2017.There is an exception: a foreign incorporated entity will not be treated as inverted if the expanded affiliated group has substantial business activities in the foreign country of organization relative to its total activities, under Treasury’s rules. The statute sets a bright‑line 25 percent test for ‘‘significant domestic business activities’’ (employees, compensation, assets, or U.S. income) but allows Treasury to lower those thresholds via regulation.
Finally, agency heads can waive the prohibition on narrow grounds—national security, or to administer federal health benefit or public health programs—with a 14‑day congressional notification requirement following the waiver.
The Five Things You Need to Know
The bill bars awards to any foreign incorporated entity deemed an ‘‘inverted domestic corporation’’ and to subsidiaries, and bars joint ventures where such an entity holds more than 10% by vote or value.
Prime contracts over $10,000,000 (non‑commercial) must include clauses forbidding first‑tier subcontracts exceeding 10% of contract value to barred entities and forbidding tiering intended to route >10% of value to them; violations can lead to termination for default and suspension/debarment referrals.
An entity is treated as inverted only if it completed, on or after May 8, 2014, an acquisition of substantially all U.S. properties or assets and post‑transaction more than 50% of its stock is held by former U.S. owners, or its affiliated group’s management is primarily in the U.S. and the group has significant domestic business activities.
‘‘Significant domestic business activities’’ is defined as at least 25% measured by employees, employee compensation, assets located in the U.S.
or income derived in the U.S.; Treasury may issue regulations to adjust those thresholds downward.
Agency heads may waive the prohibition for national security or for efficient administration of certain federal health programs, but must notify specified congressional committees within 14 days of issuing a waiver.
Section-by-Section Breakdown
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Short title
Designates the measure as the "American Business for American Companies Act of 2026." It is purely nominal but frames the statute’s focus on redirecting federal business away from entities treated as post‑inversion foreign incorporations.
Civilian procurement bar and subcontract rule
Adds a new procurement prohibition to chapter 47 of title 41 that stops executive agencies from awarding contracts to foreign incorporated entities the agency determines are inverted domestic corporations, their subsidiaries, and to joint ventures where an inverted entity holds >10% by vote or value. For large non‑commercial prime contracts (> $10M), it mandates an anti‑circumvention subcontract clause that limits first‑tier awards and forbids structuring tiers to route more than 10% of contract value to barred entities; the clause includes contract remedies (termination for default) and administrative penalties (referral for suspension/debarment).
Defense procurement mirror and DFARS scope
Creates an equivalent prohibition in title 10 for defense contracts, explicitly applying to contracts subject to the FAR and the Defense Supplement. The defense provision copies the civilian construct including the subcontracting limits and remedial language, but requires notification of waivers to the congressional defense committees rather than the wider authorizing committees referenced in the civilian section.
Inversion definition, foreign‑activity exception, and 25% domestic test
Defines inverted domestic corporation by reference to a post‑May‑8‑2014 acquisition that transfers substantially all U.S. properties and results in former U.S. owners holding >50% of the foreign entity or where management/control shifts to the U.S. and the expanded affiliated group has significant domestic activities. The statute provides an exception if the group has substantial business activities in its foreign country of organization and requires Treasury to adopt regulations aligned with §7874 standards as of January 18, 2017. It also establishes a default 25% metric (employees, compensation, assets, or income) for ‘‘significant domestic business activities,’’ while allowing Treasury regulatory adjustments.
Narrow waivers plus 14‑day congressional notification
Permits agency heads to waive the prohibition for contracts when required for national security or necessary to administer federal health benefit or public health programs; mandates written notification to relevant congressional committees (or defense committees for DoD) within 14 days of issuing a waiver. That reporting requirement preserves congressional visibility while leaving waiver discretion with agencies.
Non‑retroactivity for existing contracts; task orders covered
Exempts contracts entered into before enactment from the new bar, except that any task or delivery order issued after enactment—regardless of when the underlying prime contract was signed—is subject to the prohibition. This prevents agencies from using pre‑existing primes as blind spots while preserving ongoing contracts unless new orders are issued.
Regulations on management, control, and activity tests
Directs the Secretary of the Treasury (or delegate) to issue regulations defining when management and control are ‘‘primarily’’ in the United States and to set out how the domestic vs. foreign activity tests operate, with application to periods after May 8, 2014. The regs must treat executive officers and senior managers who actually make strategic decisions as determinative of management location, regardless of title.
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Explore Government in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- U.S. domestic contractors and suppliers: Gains competitive advantage because foreign entities created via inversions and their subsidiaries face direct exclusion from government contracting and subcontracts in many large procurements.
- Federal procurement officers and policymakers: Receive a statutory tool to enforce a domestic‑preference objective tied to inversion transactions and to limit certain foreign participation in government programs.
- Tax and homeland‑security aligned stakeholders (domestic labor and tax policy advocates): Benefit indirectly because the bill aligns procurement policy with inversion‑related corporate conduct, potentially discouraging inversions that shift corporate domicile.
Who Bears the Cost
- Foreign incorporated entities that resulted from post‑May‑8‑2014 inversion transactions and their U.S.‑origin subsidiaries: Face exclusion from new federal business and constraints on joint‑venture participation even where U.S. operations are meaningful.
- Prime contractors on large FAR/DFARS contracts: Must implement due diligence, add compliance clauses, and police subcontract tiers to ensure no more than 10% of contract value flows to barred entities, increasing contract management and legal costs.
- Federal agencies and Treasury: Must develop procedures to identify inverted status, adjudicate determinations, process waiver requests, and implement Treasury’s forthcoming regulations—creating administrative burdens and potential staffing needs.
- Lower‑tier suppliers and international joint‑venture partners: Could be shut out of U.S. government work when they are owned or partially funded by entities that meet the inversion test, disrupting complex supply chains.
Key Issues
The Core Tension
The central dilemma is between protecting federal procurement from companies that legally re‑domiciled abroad through inversion transactions and preserving efficient access to specialized suppliers in an integrated global market: the bill tightens domestic preference by treating corporate form as determinative, but that choice risks excluding firms that still have substantial U.S. operations and could degrade procurement agility and supplier continuity.
The bill imports technical tests from tax and homeland‑security law but applies them in a procurement context where speed and predictable supplier pools matter. Determining inversion status—especially the management/control inquiry and the ‘‘substantial business activities’’ exception—will depend heavily on Treasury’s forthcoming regulations.
Those rules will effectively set the boundary between legitimate foreign‑organized multinationals and entities functionally still U.S. companies. Treasury’s discretion to lower the 25% thresholds for domestic activity means the scope could expand or contract materially depending on rulemaking choices.
Operationally, enforcement will rely on contracting officers and prime contractors to detect and report violations. The subcontract clause creates a compliance choke point, but it also incentivizes complex re‑engineering of ownership and contracting structures to avoid the 10% triggers.
The waiver carveouts for national security and certain health programs are narrow in text but could be interpreted broadly in practice; the 14‑day notice is a transparency measure but does not constrain waiver frequency. Finally, applying the rule to task and delivery orders post‑enactment closes a common loophole but raises questions about active programs that rely on specialized foreign affiliates—agencies will need transition plans to avoid sudden capability gaps.
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