Arlington, Virginia — A new chapter in defense procurement is unfolding as the U.S. Department of Defense (DoD) plans to implement stringent measures related to foreign ownership and influence across the defense supply chain, following significant legislative changes. Section 847 of the National Defense Authorization Act (NDAA) for Fiscal Year 2020 dramatically expands the scope of evaluations for companies seeking to work with the DoD.
Previously limited to contractors needing access to classified information, these evaluations will now apply broadly to all contracts or subcontracts worth more than $5 million, regardless of the classification of the work. Companies will now need to disclose their beneficial ownership structure, instead of solely focusing on cleared facilities. This marks a tactical shift aimed at shielding sensitive defense operations from potential foreign threats.
The implications of this new rule are substantial. The Defense Counterintelligence and Security Agency (DCSA) anticipates that the number of assessments required annually could increase from about 2,000 to over 41,000, a staggering rise reflecting a new era of oversight in defense contracting. This aggressive expansion of compliance requirements aims to prevent adversarial foreign actors from accessing critical defense-related operations.
With the updated regulations, contractors must prepare for foreign ownership and control evaluations early in the acquisition process, even before signing contracts. While some exemptions may apply to commercial products, the DoD retains authority to initiate reviews if there are concerns about sensitive data or technology being compromised.
Contractors will also face increased pre-award obligations, necessitating that they identify any foreign entities or individuals who may have significant influence over operations. These evaluations will not be once-off but will require companies to maintain up-to-date compliance programs, triggering reviews whenever there is a substantial change in ownership.
The rollout of these broader regulations presents considerable challenges for many contractors, especially those unfamiliar with FOCI reviews. Companies will need to engage in meticulous due diligence, a process that may be new and burdensome for some. Particularly complex ownership structures may intensify the difficulties as contractors work to meet the heightened scrutiny and respond adequately to any inquiries from the DCSA.
Once a foreign influence concern is identified, the DoD may necessitate mitigation actions, which could range from simple adjustments to substantial alterations in corporate governance or ownership. This aspect underlines the importance of preparedness as firms navigate the evolving compliance landscape.
Contractors eager to remain competitive will have to adopt proactive strategies. Reviewing ownership structures and potential foreign influences prior to bidding will become essential, as will updating internal policies and training personnel on the intricacies of the new requirements.
As the Defense Federal Acquisition Regulation Supplement (DFARS) emerges, companies must carefully assess their readiness, pinpoint vulnerabilities, and implement necessary changes to align with the new expectations. Noncompliance could lead to contract delays, jeopardizing access to lucrative U.S. government contracts.
Section 847 represents a critical shift in DoD policy towards supply chain security, highlighting rising concerns over foreign access to American defense capabilities. The road ahead demands diligence and adaptability from contractors in defense markets, ushering in a new compliance era to safeguard national interests.
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