Key Details: On August 25, 2025, the Department of War (DoW) published a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to prevent conflicts of interest in DoW consulting contracts. The rule implements Section 812 of the National Defense Authorization Act (NDAA) and is a significant development for government contractors, especially consulting firms with global clients. The new rule prohibits the DoW from awarding certain consulting service contracts to companies that also provide consulting services to covered foreign entities (CFEs) unless strict mitigation measures are in place. The final rule took effect on October 24, 2025. As such, contractors should be prepared now to stay ahead of compliance barriers.
Covered Foreign Entities
Under the final rule, CFEs include:
- The government of the People’s Republic of China.
- The government of the Russian Federation.
- Countries on the U.S. State Sponsors of Terrorism list.
- Any country that appears on certain U.S. export control lists maintained by the Department of Commerce.
Which Contractors are Covered by the Rule?
Under the final rule, consulting contractors who are bidding on or performing on DoW contracts in the 5416 NAICS category are covered. This includes firms offering management consulting, business consulting, strategic consulting, or scientific and technical consulting services. The requirement also flows down to any subsidiaries and affiliates.
Key Provisions of the Final Rule
The DoW’s new rule targets consulting firms with foreign ties through a new solicitation provision at DFARS 252.209-7012 titled “Prohibition Relating to Conflicts of Interest in Consulting Services – Certification". The final rule is far reaching and even applies to procurements below the Simplified Acquisition Threshold and to contracts for the acquisition of commercial services under FAR Part 12.
Key provisions are as follows:
- The rule applies to DoW contracts assigned a North American Industry Classification System (NAICS) code beginning with 5416. This corresponds to “Management, Scientific, and Technical Consulting Services.” DoW procurement for services such as consulting or advisory would therefore be within the scope. Notably, the provision covers solicitations for commercial services under these NAICS codes (even below the Simplified Acquisition Threshold).
- DoW contracting officers are barred from awarding a covered consulting contract to any offeror that both (1) cannot certify that neither it nor its subsidiaries or affiliates has consulting contracts with a covered foreign entity, and (2) does not maintain an acceptable conflict-of-interest mitigation plan. As such, if a consulting contractor (or any of its affiliates/subsidiaries) is currently providing certain foreign entities or governments of concern and the firm lacks a DoW-approved mitigation plan, the firm cannot receive the DoW contract. This two-pronged test was refined in the final rule to clarify that both conditions must be present to trigger a disqualification.
In practice, this means contractors engaged in consulting with the DoW must rigorously evaluate their other consulting engagements worldwide. Note that there are exceptions for services related to compliance, such as legal, tax, accounting, or other requirements of countries.
What to Include in a Conflict-of-Interest Mitigation Plan
At a minimum, contractors must include the following in their conflict-of-interest mitigation plan:
- The disclosure or identification of any current contracts (prime or subcontracts) with covered foreign entities held by the offeror or affiliates.
- A written analysis outlining how the contractor will avoid, neutralize, or mitigate any potential conflicts of interest presented by those foreign contracts disclosed above. Contractors should aim to explain the nature of the conflict and propose concrete courses of action to manage it so that work for the DoW is not compromised.
- A description of procedures to ensure no overlap of personnel between the covered foreign contract and the DoW contract. This must include how firms will guarantee that individuals working on a DoW contract will also not simultaneously work on a foreign consulting engagement for the duration of the DoW contract. This may include creating separate teams and supervisory controls to prevent information flow.
- A description or policies surrounding prompt reporting to the DoW if a new conflict arises that is not mitigated.
Contractors should aim to have a mitigation plan that is auditable by a contract oversight entity.
Conclusion and Action Plan
Contractors in the defense contracting arena should take steps now to stay ahead of these requirements.
- Conduct a thorough audit of your current and anticipated consulting contracts, as well as those of your subsidiaries and affiliates. Compile a list of any clients that may be considered a covered foreign entity under this rule.
- Screen new opportunities during the business development phase for potential conflicts of interest.
- Develop conflict of interest mitigation plans in advance.
- Consult with legal counsel or compliance experts to refine the plan.
- Train key employees so they understand the requirements.
- Monitor the covered entities lists and regulatory guidance.
- Maintain documentation of the steps you take to mitigate potential conflicts of interest.
For further information and expertise, contact Ryan & Wetmore today.
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About Rosie Cheng
Senior Finance Consultant
Rosie Cheng is a Senior Finance Consultant at Ryan & Wetmore. She focuses on government contracting services and produces many of the firm’s government contracting newsletters. Rosie earned her Master of Science in Management from Georgetown University and a BBA from William and Mary.