Update: DFARS Class Deviation Implements Prohibition on Contracting with Lobbyists for Chinese Military Companies
As anticipated in our previous client alert here, the U.S. Department of Defense (DoD) issued a class deviation – which is a regulatory change without notice-and-comment rulemaking – on June 29, 2026, to revise the Defense Federal Acquisition Supplement (DFARS). The class deviation, among other things, implements Section 851 of the FY2025 National Defense Authorization Act (NDAA), which prohibits DoD from entering into a contract with any company, or its parent or subsidiary, that contracts with an entity that engages in lobbying activities for Chinese military companies identified on DoD’s Section 1260H list. The class deviation provides very little guidance or interpretation of the statutory prohibition, but it broadens the definition of Chinese military companies beyond those on the 1260H list.
DoD issued the class deviation as part of the Revolutionary Federal Acquisition Regulation Overhaul (RFO), revising DFARS Part 240, Information Security and Supply Chain Security, and the implementing clauses in DFARS Part 252. The class deviation provides that it is effective “immediately,” supersedes the December 18, 2025 class deviation for DFARS Part 240, and implements Section 851 and other NDAA provisions prohibiting certain contracts or relationships with Chinese military companies. We will address the class deviation’s implementation of other NDAA provisions in a separate client alert.
As relevant to Section 851, the class deviation includes a new Subpart 240.70, Prohibited Sources, and a new clause at DFARS 252.240-7995, Prohibition on Contract Awards with Entities That Contract with Lobbyists for Chinese Military Companies—Representation. Subpart 240.70 provides definitions and direction to the contracting officer not to “award a contract with an entity, a parent company of such entity, or a subsidiary of such entity that is a party to a contract with a covered lobbyist.” It also includes Section 851’s exception that the prohibition does not apply to any entity that made “reasonable inquiries regarding the lobbying activities of another entity and determined that such an entity was not a covered lobbyist.” “Reasonable inquiries” is not defined, and Subpart 240.70 provides no other guidance or interpretations of the statutory language in Section 851.
Notably, Subpart 240.70 and DFARS 252.240-7995 broadly define a Chinese military company to significantly expand the scope of prohibited lobbying activities from those in Section 851. In addition to entities identified on the 1260H list published in the Federal Register (now the first paragraph of the definition), the class deviation adds three other paragraphs to the definition of a Chinese military company:
(2) An entity that is currently identified in the non-specially designated Nationals (SDN) Chinese military industrial complex companies list (NS-CMIC List) published in the Federal Register by the Department of the Treasury or on the website of the Department of the Treasury’s Office of Foreign Assets Control (OFAC);
(3) A People’s Republic of China entity currently identified on the entity list published in the Federal Register by the Department of Commerce, which is found at Supplement No. 4 to Part 744 of the Export Administration Regulation (EAR); or
(4) An entity owned or controlled by, or affiliated with, an element of the government or armed forces of the People’s Republic of China, or a subsidiary, affiliate including any parent or holding company, or any entity subject to the control of an entity described in paragraphs (1), (2), or (3) of this definition.
By including the definition’s fourth paragraph, the class deviation moves from a list-checking exercise to one that requires entities engaged in lobbying to vet the ownership, control, and corporate affiliations of their lobbying clients.
Finally, rather than requiring an affirmative representation from the contractor, DFARS 252.240-7995 provides that the offeror represents its compliance with the prohibition by virtue of submitting its proposal.
Wiley’s Government Contracts and Election Law & Government Ethics practices are closely tracking regulatory developments and have extensive experience supporting clients with conducting due diligence for election law and government contracts issues.
