On August 25, 2025, the Department of Defense (DOD) issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to prohibit the award of contracts to offerors with conflicts arising from consulting relationships with certain foreign entities. The rule is effective October 24, 2025, and establishes new offeror certification and compliance requirements designed to prevent countries of concern from gaining access to information that could compromise U.S. national security.

The new rule, implemented primarily at DFARS clause section 209.572 and in solicitation provision DFARS 252.209-7012 dealing with conflicts of interest in certain consulting services, has obvious implications for defense contractors that will require enhanced diligence and procedures. It also serves as a reminder that government contractors and grant recipients must diligently monitor the development of government regulations and requirements for business impacts.

Specifically, the rule prohibits contracting officers from awarding contracts with North American Industry Classification System (NAICS) codes beginning with 5416, which are those for management, scientific, or technical consulting services, to offerors who hold consulting service contracts with China, Russia, or any country that the U.S. secretary of state determines has supported acts of terrorism. The rule will also apply to solicitations and contracts for commercial services including those at or below the simplified acquisition threshold. It does not apply to solicitations and contracts for commercial products or commercially available off-the-shelf items.

Going forward, offerors responding to solicitations assigned a NAICS code beginning with 5416 will be required to:

• Certify whether they hold any contracts involving consulting services with a covered foreign entity.
   
• Certify whether they maintain an approved conflict-of-interest mitigation plan.

Offerors holding covered contracts may submit a conflict-of-interest mitigation plan for approval by the contracting officer or other "contract oversight entity." If the mitigation plan is approved, the contracting officer will incorporate it into the contract. The contracting officer may waive the mitigation plan requirement upon determining that the award is in the best interests of the United States; however, any use of this waiver authority must be reported to Congress.

An offeror’s conflict-of-interest mitigation plan must be auditable by the contracting officer or contract oversight entity, and include:

• An identification of any contracts held by the offeror or its affiliates with covered foreign entities.
   
• An explanation of how the offeror will avoid, neutralize, or mitigate actual or potential conflicts of interest.
   
• A description of the procedures ensuring that individuals performing under a DOD contract do not simultaneously provide consulting services to covered foreign entities.
   
• A description of the procedures by which the offeror will notify contract oversight entities of any unmitigated conflicts within 15 days of discovery.

Contractor and Subcontractor Takeaways

• This new rule will require enhanced diligence and procedures for defense contractors and is a reminder that government contractors and grant recipients must be vigilant in monitoring for changes in government regulations and requirements.
   
• Federal, state, and local government contractors and grant recipients should expect to see an increase in regulations and other contract and grant terms that are intended to prevent adversaries from accessing sensitive information of the United States. This includes but is not limited to new or enhanced cybersecurity rules, rules on prohibited sources, and rules for addressing conflicts of interest.
   
• Government contractors now have an additional reason to ensure that they have a system in place for closely tracking the work they perform, including but not limited to the NAICS codes under which they perform, and the entities with which they contract or subcontract.
   
• Companies that do business with the government should engage counsel to review their government contracts and assess the adequacy of their policies and systems.

Click here to read our previous client alert about another recent DOD final rule related to cybersecurity.

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