The American Business for American Companies Act of 2026 adds new procurement bars to both civilian and defense acquisition statutes that prevent awarding federal contracts to foreign-incorporated entities the bill treats as ‘‘inverted domestic corporations’’ and to joint ventures substantially owned by such entities. It also requires prime-contract clauses in large non-commercial contracts that bar the flow of more than 10 percent of contract value to inverted entities as first‑tier subcontracts and authorizes contract termination and suspension/debarment for violations.
The measure defines inversion using an acquisition test tied to transactions on or after May 8, 2014, a >50 percent ownership attribution test to former domestic owners or a management-and-control test focused on whether an expanded affiliated group is effectively run and substantially active in the United States. The bill assigns the Treasury rulemaking role for the management-and-control and business‑activity tests, limits applicability to FAR/DFARS‑regulated contracts and task/delivery orders issued after enactment, and allows agency waivers for national security and certain health programs with 14‑day congressional notice.
At a Glance
What It Does
Amends Title 41 (chapter 47) and Title 10 (chapter 363) to add mirror prohibitions that stop agencies from awarding contracts to foreign entities the bill deems ‘‘inverted’’ and to joint ventures more than 10% owned by them. It requires a clause in >$10M non‑commercial prime contracts that forbids first‑tier subcontracts exceeding 10% of the prime to inverted parties and bars tiering designed to circumvent that limit.
Who It Affects
Federal contracting agencies and contracting officers, prime contractors on large non‑commercial procurements, joint ventures bidding for federal work, foreign‑incorporated companies that acquired U.S. businesses (post‑May 8, 2014), and Treasury as the regulator who issues management/control and business‑activity rules.
Why It Matters
This is a procurement‑level response to corporate inversions: rather than change tax law, it restricts market access to federal dollars and forces primes and their supply chains to redesign teaming and subcontracting arrangements or seek waivers. The Treasury’s regulatory definitions will determine how broadly the ban reaches.
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What This Bill Actually Does
The bill inserts new, parallel sections into civilian procurement law (new 41 U.S.C. §4715) and defense procurement law (new 10 U.S.C. §4664). Both provisions operate the same way: agency heads may not award contracts to a foreign‑incorporated entity the statute treats as an ‘‘inverted domestic corporation’’ or to joint ventures more than 10 percent owned (by vote or value) by such an entity.
For large non‑commercial prime contracts (value over $10,000,000) agencies must include a clause that forbids the prime from awarding first‑tier subcontracts that exceed 10 percent of the prime contract to inverted entities and forbids structuring subcontract tiers to evade that rule. Violation can trigger termination for default and referral for suspension or debarment.
The statute borrows the inversion concept from preexisting federal definitions but sets its own tests. An entity becomes an ‘‘inverted domestic corporation’’ under the bill if it acquired substantially all the properties or assets of a U.S. corporation or partnership on or after May 8, 2014, and, after the deal, either (A) more than 50 percent of its stock (by vote or value) is held by the former U.S. owners, or (B) management and control of the expanded affiliated group is effectively located primarily in the United States and the group has ‘‘significant’’ domestic business activities.
The bill quantifies ‘‘significant domestic business activities’’ as at least 25 percent in any of four tests (employees, employee compensation, assets, or income) but delegates to Treasury the authority to issue regulations and to lower the threshold in some tests.There is a narrow exception if the expanded affiliated group demonstrates substantial business activities in the foreign country of incorporation, using Treasury regulations that cannot be more permissive than the Internal Revenue Code section 7874 regulations as of January 18, 2017. The Secretary of the Treasury must issue regulations to operationalize the ‘‘management and control’’ test and expressly directs that senior executives who actually exercise day‑to‑day decision authority count for that analysis.
Agency heads can waive the prohibition for national security or for efficient administration of federal or federally funded health programs; each waiver requires a written notice to the relevant congressional committees within 14 days.The prohibition does not apply retroactively to contracts entered before enactment, but it does apply to any task or delivery order issued after enactment (even if the underlying base contract predates the law). The bill’s reach is limited to contracts subject to the FAR (and, for defense, the DFARS).
Throughout, the text imports certain defined terms (like ‘‘expanded affiliated group’’ and ‘‘foreign incorporated entity’’) from the Homeland Security Act’s existing definitions and ties Treasury rulemaking to those cross‑references to create consistency with federal tax/regulatory frameworks.
The Five Things You Need to Know
The bill adds mirror statutory prohibitions to civilian and defense procurement (new 41 U.S.C. §4715 and 10 U.S.C. §4664) that bar awards to ‘‘inverted domestic corporations’’ and to joint ventures more than 10% owned by them.
For prime contracts over $10,000,000 (non‑commercial), the bill requires a clause that prohibits awarding a first‑tier subcontract exceeding 10% of the prime contract’s value to an inverted entity and forbids subcontract‑tiering designed to circumvent the limit.
An entity is treated as ‘‘inverted’’ if it completed an acquisition on or after May 8, 2014, of substantially all U.S. properties/assets and post‑transaction either >50% stock is attributed to former U.S. owners or management and control is primarily in the U.S. and the group has significant domestic activities.
The bill defines ‘‘significant domestic business activities’’ as at least 25% in employees, employee compensation, assets, or income based in the U.S.
but directs Treasury to issue regulations and permits Treasury to lower those thresholds in some tests.
Waivers are available only for national security or for administration of federal/federally funded health programs; any waiver requires written notice to relevant authorizing and appropriations committees within 14 days, and task/delivery orders issued after enactment are covered even if the base contract predates the law.
Section-by-Section Breakdown
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Civilian procurement ban and subcontracting restrictions
This subsection creates the civilian counterpart of the policy: agency heads may not award FAR‑regulated contracts to foreign incorporated entities the statute deems inverted or to joint ventures more than 10% owned by them. It mandates a contract clause for non‑commercial primes above $10 million that bars first‑tier subcontracts over 10% to inverted parties and forbids tiering to circumvent that limit. The clause must authorize termination for default and referral to suspension/debarment officials — giving contracting officers both a remedies path and an administrative enforcement mechanism.
Defense procurement mirror and DFARS scope
This mirrors the civilian provision for defense acquisitions and explicitly ties applicability to both the FAR and the Defense Supplement (DFARS). The same subcontracting and enforcement mechanics apply, but the reporting for waivers is channeled to the congressional defense committees. Practically, this ensures DoD contracting officers must follow the same prohibition and prime‑contract clause template as civilian agencies, while retaining DFARS implementation paths.
Acquisition date, ownership attribution, and management/control tests
The statute triggers the inversion label for transactions on or after May 8, 2014, using two alternative triggers: (1) a >50% ownership attribution to former U.S. shareholders/partners by reason of their prior holdings, or (2) a management‑and‑control analysis where the expanded affiliated group is run primarily in the U.S. plus it shows ‘‘significant’’ domestic activity. The bill imports the terms 'expanded affiliated group' and 'foreign incorporated entity' from Homeland Security Act §835(c) to anchor the tax/ownership vocabulary.
Exception for substantial foreign activities and 25% domestic‑activity test
A carve‑out exists if the expanded affiliated group demonstrates substantial business activities in the foreign country of organization, measured under Treasury regulations that may not be more permissive than the IRC §7874 regulations as of January 18, 2017. Absent that exception, the bill sets a default 25% threshold for ‘‘significant domestic business activities’’ using four tests (employees, employee compensation, assets, income) and allows Treasury to lower the percent in any given test by regulation, giving the executive latitude to calibrate reach.
Narrow waiver authority with mandatory congressional notice
Agency heads may waive the prohibition for national security or where necessary for administering federal or federally funded health programs; the waiver framework is narrow and procedural: agencies must send written notice to relevant authorizing and appropriations committees (or to congressional defense committees for DoD) within 14 days. The limited waiver categories indicate a policy preference for exclusion but preserve discrete programmatic and security exceptions.
Task orders, definitions, and Treasury’s regulatory role
The prohibition doesn’t apply to contracts entered into before enactment, but it does apply to any task or delivery order issued after enactment, potentially affecting many active contract vehicles. The bill limits its coverage to contracts subject to the FAR/DFARS and cross‑references Homeland Security Act definitions for key terms. Section 3 directs the Secretary of the Treasury to issue regulations defining when management and control occurs primarily in the U.S., including a specific rule treating executive officers and senior management who exercise day‑to‑day decisionmaking as central to that test.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- U.S.-based incumbent contractors and domestic firms: By excluding entities that effectively reincorporated abroad through inversion, the bill reduces direct competition from those foreign‑incorporated acquirers in federal procurements and preserves opportunities for companies that remained U.S. incorporated.
- U.S. workforce and domestic operations: The 25% domestic‑activity test and management‑control focus create incentives for firms seeking federal work to maintain employees, compensation, assets, and operations in the United States, which favors domestic employment and operations.
- Federal contracting officers and policy officials: The statute gives agencies a clear statutory basis to exclude inverted entities without changing tax law, furnishing a procurement tool to align contract awards with industrial base or national‑interest goals.
Who Bears the Cost
- Foreign‑incorporated firms that acquired U.S. businesses after May 8, 2014: Companies that completed inversions or reorganizations and their subsidiaries could be disqualified from federal contracting and from earning significant subcontract revenue.
- Prime contractors and their supply chains: Primes that rely on affiliates or lower‑tier subcontractors that are foreign‑incorporated (including U.S. firms owned by foreign parents) will face reengineering of teaming arrangements, certification and flowdown obligations, and potential lost capacity when familiar subvendors are ineligible.
- Agencies and contracting offices: Identifying inverted status, assessing business‑activity metrics, processing waivers, and defending suspension/debarment referrals create new administrative and legal burdens for contracting officers and agency procurement counsel.
- M&A and tax advisors: The bill changes the commercial returns to inversion strategies for companies seeking federal business, complicating cross‑border M&A valuation models and adding procurement risk to post‑deal integration planning.
Key Issues
The Core Tension
The central dilemma is straightforward: the bill seeks to prevent companies that moved or reorganized overseas primarily for tax or regulatory reasons from accessing U.S. taxpayer dollars, but doing so requires importing tax‑style, ownership‑and‑control tests into procurement law. That protects procurement policy goals at the cost of complex, fact‑intensive determinations that raise administrative burdens, create uncertainty for contractors and agencies, and risk unintended disruption to legitimate cross‑border supply arrangements.
Several implementation tensions will determine how expansive the ban becomes. First, the definition of ‘‘inverted domestic corporation’’ hinges on cross‑references to tax/regulatory constructs (Homeland Security Act §835(c) and the IRC §7874 regulatory baseline).
That linking creates complexity: procurement officers will rely on Treasury rulemaking and tax‑style analyses to identify inversion status, but agencies lack the tax audit tools and evidentiary processes that the IRS uses. Expect disputes over attribution to ‘‘former shareholders,’' timing and valuation of the triggering acquisition, and whether management‑and‑control facts suffice to label a group inverted.
Second, the subcontract anti‑circumvention language (no first‑tier sub over 10%, no tiering to avoid the limit) is blunt and practically hard to police. Contracting officers will need new oversight procedures to detect artificial tiering, beneficial‑ownership arrangements, or service‑delivery models that shift work to lower tiers while formally complying with first‑tier limits.
The Treasury’s authority to lower the 25% thresholds and its obligation to craft a management/control test give the executive branch large discretion that will materially affect which firms are covered; that discretion creates legal uncertainty, administrative inconsistency across agencies, and potential litigation over arbitrary or retroactive regulatory choices. Finally, task/delivery order applicability (but not base‑contract retroactivity) creates situations where longstanding IDIQ vehicles could suddenly bar certain awardees for new orders — a practical and legal tension for vehicle holders and ordering activities.
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