On August 25, 2025, the Department of Defense (DOD) issued a final rule intended to prevent consulting services providers from contracting with certain foreign entities. The impetus behind this rule was a concern that conflicts of interest might arise when entities that offer their services to DOD also provide consulting services to other foreign entities such as China, Russia, or other governments that undermine U.S. national security interests.
The new rule, which goes into effect on October 24, 2025, revises the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 812 of the National Defense Authorization Act (NDAA). Section 812 prohibits contracting officers from awarding DOD contracts assigned a North American Industry Classification System (NAICS) code beginning with 5416 (which represents Management, Scientific, and Technical Consulting Services) to offerors that hold contracts that involve consulting services with certain covered foreign entities. Offerors must either (1) certify that neither they nor their subsidiaries or affiliates hold a contract involving consulting services with one or more covered foreign entities or (2) have a conflict-of-interest mitigation plan that has been approved by the contracting officer and is auditable by a contract oversight entity. The new solicitation provision will be added to the list of provisions and clauses for use in solicitations and contracts for commercial products and commercial services at DFARS 212.301.
The rule defines consulting services as "advisory and assistance services," with exceptions for those related to compliance with legal, audit, accounting, tax, reporting, or other requirements of the laws and standards of countries, or participation in a judicial, legal, or equitable dispute resolution proceeding. Covered foreign entities include the government of the People's Republic of China (as well as its security services and the Chinese Communist Party), the government of the Russian Federation, and the government of any country that the secretary of state determines has provided support for acts of international terrorism. Furthermore, entities that are on the Department of Commerce's Entity List, Denied Purpose List, Unverified List, or Military End User List, as well as OFAC's Non-Specially Designated Nationals Chinese Military-Industrial Complex Companies List, are also considered covered foreign entities.
If the offeror plans on drafting a mitigation plan, the offeror needs to (1) identify any covered contracts with a covered foreign entity, (2) include a written analysis for mitigating the conflict of interest, (3) include a description of procedures for how the offeror/subsidiaries/affiliates on the covered contract will avoid providing consulting services to a covered foreign entity, and (4) include a description of procedures by which the offeror/subsidiaries/affiliates will submit to the contract oversight entities a notice of an unmitigated conflict of interest.
DOD has also stated that these restrictions apply for procurements at or below the Simplified Acquisition Threshold, as well as for contracts for the acquisition of commercial services under FAR Part 12. However, these requirements will not apply for the acquisitions of commercial products.
Additionally, the rule does include a waiver provision. For example, if the prospective contractor certifies that it or its subsidiaries or affiliates hold a contract for consulting services with a covered entity, the contracting officer may request a waiver by the secretary of defense or a Senate-confirmed designee. Notably, any waivers must be reported to Congress.
Given these changes, entities that contract with DOD under NAICS code 5416 should properly vet and audit not only their existing contracts, but the contracts of their subsidiaries and affiliates to ensure that they are not affiliated with covered entities. Because contractors will be required to certify that they, their subsidiaries, and their affiliates do not hold any contracts with a covered entity, they should have a strong and deep understanding of their relationships and affiliations. Additionally, consulting services providers that have potential exposure to covered entities should also begin taking steps to mitigate this exposure in advance by monitoring future contracting efforts and preparing an appropriate conflict-of-interest mitigation plan.
There is no question that this new rule will have far-reaching impacts on consulting services providers, particularly large multinational consulting firms. Moreover, the rule leaves some ambiguity and practical complications. Venable will continue to monitor this rule and its application. Should you have questions, please contact the authors of this article or any lawyers in Venable's Government Contracts Group.