Rules that ride along with the contract
Defense contracts incorporate clauses from the Federal Acquisition Regulation and its defense supplement, and many of those clauses flow down to subcontractors. Cybersecurity requirements for contractors handling controlled unclassified information have grown into a certification program that the Department of Defense is phasing into contracts, so what applies depends on the particular solicitation. Export controls often apply as well: defense articles and related technical data fall under the State Department's regime, while dual-use items fall under the Commerce Department's, and sharing controlled technical files with foreign nationals, even employees working in the United States, can count as an export. Getting a classification wrong is a frequent source of trouble.
Where exposure tends to come from
Certifications are a central risk. A contractor that represents compliance with cybersecurity, domestic sourcing, small business status, or pricing rules can face False Claims Act liability if the representation was knowingly false, a standard that under that law can include reckless disregard, and whistleblowers, including employees, can bring those suits. Contractors also carry a mandatory disclosure obligation when they have credible evidence of certain violations, which makes internal reporting channels important. Companies with foreign ownership or investors may need mitigation measures to hold a facility security clearance. Cost accounting, timekeeping, and subcontractor charges are examined in audits, and errors there can turn into disputes long after the work is finished.
Building a program that holds up
A useful first step is an inventory of which contracts you hold, which clauses they contain, what technical data you handle, and who can access it. From there, the export classification of products and data, the state of your cybersecurity controls against the contract requirements, and your disclosure and hotline procedures can be checked one by one. If a problem has already surfaced, preserve the related records and speak with counsel before making statements to the government or a prime contractor. We usually start by learning where you sit in the supply chain and which agency relationships matter most, then set priorities around the risks with the heaviest consequences.
