This client alert was co-authored by William Kirkwood, Bruce Thompson, and Timothy Graham of Parker Poe.

Department of Defense contractors are facing a new requirement that will disqualify companies from receiving DOD contracts based on certain lobbying relationships maintained by the company, its parent company, or its subsidiaries.

Section 851 of the Fiscal Year 2025 National Defense Authorization Act, which went into effect June 30, 2026, prohibits the DOD from entering into contracts with an entity if the entity, its parent company, or one of its subsidiaries is a party to a contract with a "covered lobbyist." Under the statute, a covered lobbyist is an entity that engages in lobbying activities for an entity identified as a Chinese military company on DOD’s Section 1260H list.

DOD’s implementing class deviation, however, defines covered Chinese military companies more broadly, potentially extending the representation requirement beyond lobbying relationships involving entities appearing on the Section 1260H list. DOD implemented the prohibition through a June 29, 2026, class deviation which established a new DFARS Subpart 240.70 and a solicitation representation at DFARS 252.240-7995. The DOD later revised that deviation on July 16, 2026, to implement a federal court order temporarily barring DOD from treating Alibaba Group Holding Limited and Alibaba Group (U.S.) Inc. as Chinese military companies for purposes of the Section 851 restriction.

The statutory prohibition and the implementing class deviation are now in effect. The implementing DFARS provision requires offerors to make a representation concerning these relationships. Companies pursuing DOD awards should establish a documented reasonable-inquiry process before submitting the representation, including appropriate diligence concerning relevant engagements maintained by the parent companies and subsidiaries.

The new law has significant compliance implications for current and prospective DOD contractors. Because the restriction extends to parent and subsidiary relationships, contractors should evaluate engagements with outside law firms, lobbying firms, government relations consultants, and other strategic advisers across their corporate structure. The law also includes a safe harbor for contractors that make "reasonable inquiries" and determine that a service provider is not a covered lobbyist, though Congress did not define what constitutes a reasonable inquiry.

In light of these changes, DOD contractors should consider taking the following steps:

• Inventory their outside consultants.
   
• Obtain written representations regarding covered lobbying activities.
   
• Implement procedures to monitor changes in consultants' client representations.
   
• Review the new DFARS solicitation representation and monitor further DOD guidance or rulemaking concerning the scope of required inquiries and ongoing compliance expectations.
   
• Consider partnering with outside counsel to assess existing consultant relationships, develop compliance procedures, and evaluate the potential impact on current and future DOD contracting opportunities.

For more information, please contact me or your regular Parker Poe Consulting contact.