On Friday, Defense Secretary Pete Hegseth said in a social media post that he had directed the Department of Defense to designate AI company Anthropic a "Supply-Chain Risk to National Security." Hegseth said that not only will the DOD no longer do business with Anthropic, but he also suggested that department contractors may not conduct any commercial activity with Anthropic. In addition, in a social media post President Trump appeared to have extended that ban across every federal agency.
The legal basis for these directives remains unclear, but government contractors and others doing business with Anthropic should closely monitor developments.
Anthropic Supply Chain Risk Background
Anthropic had been providing its AI model, Claude, on the Pentagon's classified network since 2024. However, in recent months, Anthropic and the DOD had been negotiating its continued terms of use, which appears to have boiled down to a disagreement over using Claude for mass domestic surveillance and for autonomous weapons systems. According to Pentagon officials, Hegseth had given Anthropic until 5:01 p.m. on Friday to come to terms, which the company failed to do.
In response to the continued disagreement, Hegseth wrote on social media that "effective immediately, no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic." Trump went further, stating that he was "directing EVERY Federal Agency in the United States Government to IMMEDIATELY CEASE all use of Anthropic's technology."
Anthropic released its own statement, calling the Pentagon's designation of the company as a supply chain risk "an unprecedented action—one historically reserved for US adversaries, never before publicly applied to an American company." It said the designation would be "legally unsound and set a dangerous precedent for any American company that negotiates with the government," and that it would challenge any supply chain risk designation in court.
Anthropic's statement also intimated its assumption that Trump and Hegseth were relying on 10 U.S.C. § 3252 as legal authority, but that this was improper and could not extend to Anthropic's customers' non-federal work. Specifically, Anthropic asserted: "[l]egally, a supply chain risk designation under 10 USC 3252 can only extend to the use of Claude as part of Department of War contracts—it cannot affect how contractors use Claude to serve other customers."
These developments have already generated substantial attention in Congress, with some senators accusing the government of staking out an "incoherent and extreme position," given that it has designated Anthropic a supply chain risk while at the same time threatening to invoke the Defense Production Act to force Anthropic to provide its technology.
Legal Authority Under 10 U.S.C. § 3252
The DOD may be relying on 10 U.S.C. § 3252, which defines a "supply chain risk" as the risk that an adversary could compromise the design, production, or operation of a covered system to surveil, disrupt, degrade, or otherwise interfere with its function.
Section 3252 is implemented through a Defense Federal Acquisition Regulation (FAR) supplement that authorizes the DOD to mitigate supply chain risks in covered systems, including by directing contractors to exclude particular sources or withholding consent for certain subcontracting relationships.
Federal Acquisition Supply Chain Security Act Implications
With respect to non-DOD agencies, as noted, Trump suggested Anthropic could be barred from doing business with all federal agencies. In this regard, the government could go through the suspension and debarment process (FAR Subpart 9.4), but that process is not what the administration appears to be invoking. Rather, the administration may be invoking the authorities under FAR 52.204-30, Federal Acquisition Supply Chain Security Act Orders—Prohibition.
We published a detailed explainer previously on this FAR provision, but in a nutshell, the Federal Acquisition Supply Chain Council (FASC) is an interagency council within the executive branch with representation from many agencies.
Among other functions, the FASC is responsible for establishing criteria and procedures for "recommending orders applicable to executive agencies requiring the exclusion of sources or covered articles from executive agency procurement actions" and "recommending orders applicable to executive agencies requiring the removal of covered articles from executive agency information systems[.]"
GSA Removes Anthropic from MAS Program
Following suit, it appears that GSA has already taken steps to implement Trump's all-agency directive. For example, on Friday evening, the U.S. General Services Administration (GSA) issued a press release that it was removing Anthropic from USAi.gov and the Multiple Award Schedule (MAS) program.
Hegseth's statement resembles Part B of Section 889 of the FY2019 NDAA (the "Huawei ban"), which prohibited contractors from using certain covered telecommunications equipment, even in their non-federal operations. Unlike Section 889, however, that restriction had explicit statutory authorization, and there is no comparable procurement-law precedent clearly supporting the broader commercial prohibition suggested here.
What Government Contractors Should Expect Next
Most immediately, there may be implications for all government contractors and subcontractors doing business with Anthropic, as there could be guidance forthcoming to disassociate from Anthropic on government-funded and potentially even commercial work.
More broadly, Hegseth's and Trump's declarations appear somewhat unprecedented, as the use of the designations and legal authorities being invoked are generally applied to foreign adversaries. Here, however, there appears to be a mere contractual dispute between the administration and a commercial U.S. entity over the terms of use. Contractors should pay close attention.
In addition, Anthropic has promised to challenge the DOD designation in court, and this will be a litigation worth following because of the implications for companies operating at all levels of the federal supply chain.
We anticipate that Friday's news on this matter will not conclude the dispute and that much more is likely to come, which we will continue to monitor. If you have questions about the Pentagon's designation of Anthropic as a supply chain risk to national security, please contact the authors or any attorney in Venable's Government Contracts Group.