Defense contractors face a new restriction beginning Tuesday as a provision from the fiscal 2025 defense policy bill takes effect, prohibiting the Pentagon from contracting with companies that retain consultants lobbying for certain Chinese military-linked firms.
Section 851 of the fiscal 2025 defense authorization bill bars the Defense Department from entering into contracts with companies that retain “covered lobbyists” — entities that engage in “lobbying activities” on behalf of companies designated by the Pentagon as Chinese military companies under its Section 1260H list. The provision is essentially making lobbying and consulting firms to either drop certain Chinese clients or risk losing defense contractor business.
Congress has already urged “strict implementation of the upcoming ban.” In a June 15 letter to Defense Secretary Pete Hegseth, the House Select Committee on China said it is “critical that the department’s contractors avoid partnering with firms and lobbyists that simultaneously advance the interests of companies executing the military ambitions of the Chinese Communist Party.”
“Defense contractors seeking to work with the Pentagon face a clear obligation: cut all ties with firms and lobbyists that also lobby on behalf of companies on the 1260H List,” House Select Committee on China Chairman Rep. John Moolenaar (R-Mich.) and House Republican Leadership Chair Rep. Elise Stefanik (R-N.Y.) said in the letter.
The lawmakers said the Defense Department should apply the ban to both current and prospective contractors and encouraged DoD officials to interpret the definition of “lobbying activities” broadly to include research, planning and other behind-the-scenes work. Moolenaar and Stefanik also urged DoD to ensure the restriction captures subsidiaries of companies on the 1260H List.
The Defense Department updates its 1260H List annually — this year, the department significantly expanded its blacklist, adding dozens of subsidiaries and affiliates as well as companies that span key industries including artificial intelligence, consumer electronics, e-commerce, energy and semiconductors.
Notably, the updated list includes household names such as Alibaba Group, Baidu and BYD. In response, the Chinese government imposed trade restrictions on dozens of United States companies, including USA Rare Earth and MP Materials Corp.
“China firmly opposes the U.S. overstretching the concept of national security and making discriminatory lists to go after Chinese companies,” Liu Pengyu, a spokesperson for the Chinese Embassy in the U.S., told reporters last year.
Alibaba has also filed a lawsuit against the Defense Department over its designation as a Chinese military-linked company. Meanwhile, several Washington lobbying firms have already cut ties with the tech giant.
With the new restriction in place, defense contractors are now under an obligation to certify that their outside consultants, law firms, lobbying shops and public relations firms are not representing companies on the Pentagon’s blacklist. The provision, however, doesn’t make it easy to understand exactly what is being prohibited.
“This provision has not been widely publicized, and so it’s not like we’ve seen a flood of contractors coming in, saying we need help in understanding how we would actually put this provision into practice in our own business. What do we ask all of our contractors? Who do we ask? Who do we tell?” a former senior DoD lawyer told Federal News Network.
“I do think that as the Department of Defense puts in place a clause in the contracts that will come forward in the days on or after July 1, you’re going to see more contractors sort of scratching their heads and saying, ‘What does this certification that they’re requiring mean?’” the lawyer added.
The law did create a safe harbor for companies that make “reasonable inquiries regarding the lobbying activities of another entity and determined such entity was not a covered lobbyist.” But Congress never defined what qualifies as a reasonable inquiry.
The legislation required the Defense Department to issue a Defense Federal Acquisition Regulation Supplement rule explaining what contractors would need to certify that their consultants do not work with companies that represent entities on the 1260H list, but submission of the draft rule has already been delayed multiple times.
“We have not seen anything at all published to say we’ve developed this rule, and we would like comments on this rule. And then we’re going to take your comments and work them into a final rule. We’ve not seen that. We’ve not seen the DFARS clauses that are going to be used. Candidly, the department is a little bit behind on this one,” the former DoD lawyer said.
“While that’s kind of regrettable for contractors, that is not going to save the day for them that the department has not published this rule. If I were a contractor, I would recommend starting to look at my relationships that are out there. Are there any relationships that could be problematic?” the lawyer added.
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