**Navigating the Maze: Defense Contractors Face New Ambiguities in China-Related Compliance**
The Defense Department’s recent issuance of a class deviation has thrown the contracting world into a further state of confusion regarding compliance with new China-related restrictions. These rules, which took effect on June 30, are designed to sever ties with entities supporting Beijing’s military, but the lack of clear implementing guidance has left contractors grappling with significant uncertainty.
At the heart of the issue is a two-pronged challenge. First, a new ban prohibits the Defense Department from contracting with firms on the Pentagon’s Section 1260H list—companies identified as Chinese military entities. Second, a separate provision, Sec. 851 of the fiscal 2025 defense authorization bill, bars the Pentagon from working with companies that retain consultants who lobby on behalf of these blacklisted firms.
Adding to the complexity, the department was expected to release a detailed rule explaining how contractors should certify that their consultants are not working with these prohibited entities. However, the publication of this Defense Federal Acquisition Regulation Supplement (DFARS) rule has been delayed multiple times. In the interim, the department issued the class deviation, effectively pushing the new restrictions into immediate effect without opening the floor for industry feedback.
One of the most significant changes lies in the definition of a “Chinese military company.” The class deviation broadens the scope far beyond the entities on the Section 1260H list. It now explicitly includes companies listed on the Treasury Department’s non-specially designated nationals (NSAN) list for the Chinese military industrial base, entities flagged by the Commerce Department, and any company owned, controlled, or affiliated with those listed entities. This expansion creates a much larger universe of potentially off-lisk firms.
However, the practical application remains murky. As Tracye Howard, a government contracts partner at Wiley Rein LLP, pointed out to *Federal News Network*, “It does not appear to encompass the broader definition of Chinese military company, but again, that’s a little bit of a gray area, and it’s not entirely clear what the rulemakers were intending here.” The core requirement for contractors remains the same: they must obtain certifications from consultants stating they are not “covered lobbyists.” Yet, the lack of a clear definition for the broader term “Chinese military company” leaves contractors unsure of the full extent of their vetting obligations.
Another critical unresolved question is what constitutes a “reasonable inquiry.” The new law provides a safe harbor for companies that can prove they made “reasonable inquiries” into the lobbying activities of their partners and determined they were not covered lobbyists. Unfortunately, neither the law nor the class deviation offers any concrete guidance on what qualifies as “reasonable.”
Howard suggests that for now, contractors feel they must go beyond the basics. “I don’t think you can rely on the [Federal Acquisition Regulation] definition here, I don’t think it would make sense,” she stated. “Most contractors who I’ve spoken to have decided that it is going to involve getting representations from people who might be covered lobbyists. It could also involve reviewing public disclosures from lobbying or the Foreign Agents Registration Act.”
The requirement to make these representations carries significant legal weight. According to Howard, anytime a contractor makes a representation to the government—whether in a standalone document or as part of a proposal submission—it creates a False Claims Act risk. With the government placing increased emphasis on scrutinizing contractor statements, this new area adds another layer of potential liability that contractors must carefully navigate.
Finally, the Pentagon appears to have closed its comment period on the proposed rule, fully implementing the class deviation. While this particular change is part of a larger overhaul of the Federal Acquisition Regulation (FAR) and DFARS, it signals a broader shift that will likely continue. As the regulatory landscape continues to evolve, contractors can expect further notices and comment periods, but for now, they must operate within a framework that is as ambiguous as it is strict.
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*Federal News Network’s Anastasia OBis reported this article. The original article can be found here: [https://federalnewsnetwork.com/defense-spending-china-contracts-deviation-ambiguity/](https://federalnewsnetwork.com/defense-spending-china-contracts-deviation-ambiguity/)
