While the CMMC suspension grabbed this week’s headlines, another compliance deadline quietly reshaped the defense market two weeks ago — and unlike CMMC, this one is fully in force. As of June 30, 2026, the Department of Defense is prohibited from entering into, renewing, or extending contracts for goods, services, or technology with companies designated as Chinese military companies on its Section 1260H list, along with their subsidiaries and affiliates (Federal News Network, 2026). A companion prohibition bars DoD from contracting with any company whose consultants lobby for those listed entities. And the hardest part is still ahead: in June 2027, the restriction extends down through the entire supply chain. If any defense work sits in your pipeline — as a prime or a subcontractor — this is now a permanent feature of your compliance landscape. Here is what took effect, what is coming, and what to do about it.

What Took Effect on June 30

The direct entity ban. Section 805 of the FY2024 National Defense Authorization Act prohibits DoD from procuring goods, services, or technology directly from entities on the 1260H list — the Pentagon’s annually published roster of companies determined to be Chinese military companies operating in the United States, which spans sectors including artificial intelligence, aerospace, and biotechnology and has grown to well over a hundred parent companies and subsidiaries (Holland & Knight, 2026; Federal News Network, 2026). The list was most recently updated in the Federal Register on June 10, 2026 (Covington & Burling, 2026).

The lobbyist ban. Separately, Section 851 of the FY2025 NDAA — effective the same day — prohibits DoD from contracting with any company, or its parent or subsidiaries, that is party to a contract with a “covered lobbyist,” meaning any entity that engages in lobbying activities for a 1260H-listed company (Skadden, 2026). The reach is deliberately broad: the disqualifying lobbying does not have to relate to your contract, your industry, or defense work at all. A marketing consultant, government-relations advisor, or strategy firm on your vendor list that separately lobbies for a listed Chinese company can disqualify your entire organization from DoD awards.

The implementing rules. On June 29, DoD issued a class deviation revising DFARS Part 240 as part of the broader acquisition overhaul, creating a new Subpart 240.70 on prohibited sources and a new clause, DFARS 252.240-7995. Notably, the deviation defines Chinese military companies more broadly than the 1260H list itself, and it provides that an offeror represents its compliance simply by submitting a proposal — no separate signed certification required (Wiley Rein LLP, 2026). Submitting a bid is the representation.

The 2027 Cliff: Supply Chains Come Next

The June 30, 2026 restrictions target direct relationships. On June 30, 2027, the “goods and services prohibition” arrives: DoD will be barred from acquiring products or services that include those sourced — even indirectly, through third parties — from listed companies or entities they control (National Defense Magazine, 2026). In practice, that means every defense contractor must map its supply chain and eliminate 1260H-linked inputs, a task defense officials acknowledge is far harder than simply avoiding blacklisted firms directly. There is a meaningful exception for “components” as defined in federal procurement law, and existing contracts are grandfathered in defined circumstances — but the direction is unmistakable (Holland & Knight, 2026).

DoD has launched a compliance website laying out the implementation timeline, requirements, and waiver process. Waivers require a compelling justification and a phase-out plan for eliminating covered goods and services — and defense officials are publicly warning contractors not to wait until 2027 to start, because a last-minute waiver request will be a painful process (Federal News Network, 2026).

A Compliance Roadmap for Small Contractors

1. Pull the current 1260H list and screen your relationships. Check direct suppliers, teaming partners, technology vendors, and — critically — any consultants or advisory firms you retain. The statute includes a safe harbor for companies that make “reasonable inquiries” into their contractors’ lobbying activities and reasonably conclude they are not covered lobbyists (Skadden, 2026). That safe harbor only protects firms that actually made the inquiry and documented it.

2. Add representations to your consultant and vendor agreements. The cleanest protection is contractual: require current and prospective consultants to represent and warrant that they do not, and will not, engage in lobbying activities for 1260H-listed companies. Build the same screening into onboarding for new vendors.

3. Start the supply chain map now. The 2027 indirect prohibition rewards early movers. Inventory where your products, software, and service inputs originate, flag anything with a plausible link to listed entities, and identify alternative sources while you still have negotiating time. Firms that arrive at mid-2027 with a clean, documented supply chain will win work from competitors who cannot make that showing.

4. Remember Section 889 still applies to everyone. These new DoD-specific rules layer on top of the government-wide Section 889 telecommunications prohibitions that all federal contractors — civilian and defense — have certified against since 2019 (Blank Rome, 2026). Your annual SAM.gov representations and certifications already cover 889; make sure whoever maintains your SAM registration understands the new layers arriving on top of it.

5. Treat compliance as a competitive asset. Primes carry these obligations too, and they flow the risk down. A small business that can demonstrate documented 1260H screening, clean supplier representations, and a mapped supply chain is a safer teaming partner — and safer partners win subcontracts. Fold your screening posture into your capability statement and proposal narratives where supply chain integrity is evaluated.

The Bottom Line

Congress has spent five years building a wall between the U.S. defense industrial base and China’s, and June 30 was the day the first full section went up. The policy intent is explicit: defense contractors are being forced to choose which market they serve (National Defense Magazine, 2026). For small businesses, the burden is real but manageable — screen the list, paper your vendor relationships, document your inquiries, and start the supply chain work a year before the 2027 deadline makes it urgent. In compliance, as in everything else in this market, the prepared firm turns a regulation into a discriminator.

References

Blank Rome LLP. (2026, April 24). Defense contractors’ restrictions when contracting with Chinese companies. Government Contracts Navigator. https://governmentcontractsnavigator.com/2025/04/24/defense-contractors-restrictions-when-contracting-with-chinese-companies/

Covington & Burling LLP. (2026, June). New restrictions on defense contractors retaining outside consultants will take effect this month. https://www.cov.com/en/news-and-insights/insights/2026/06/new-restrictions-on-defense-contractors-retaining-outside-consultants-will-take-effect-this-month

Federal News Network. (2026, July). DoD issues guidance as ban on Chinese companies takes effect. https://federalnewsnetwork.com/defense-main/2026/07/dod-issues-guidance-as-ban-on-chinese-companies-takes-effect/

Holland & Knight LLP. (2026). U.S. Department of Defense issues updated Section 1260H Chinese military companies list. https://www.hlc.com/en/publications/us-department-of-defense-issues-updated-section-1260h-chinese-military-companies-list-

National Defense Magazine. (2026). Congress increases restrictions on Chinese military companies. https://www.nationaldefensemagazine.org/articles/2025/4/25/congress-increases-restrictions-on-chinese-military-companies

Skadden, Arps, Slate, Meagher & Flom LLP. (2026, April 27). Reminder: Effective June 30, companies barred from defense contracts if they retain third parties lobbying for certain Chinese military companies. https://www.skadden.com/insights/publications/2026/04/reminder-effective-june-30-companies-barred-from-defense