Whatever your line of business, there’s a good chance that the government will be downstream in your supply chain soon — if it isn’t already.
The US military is a huge consumer, with spending accounting for about 3.5% of total GDP. That spending cuts across the full range of goods and services, from basic necessities like food, clothing, healthcare, and housing, to cutting edge vehicles and weapons systems. The Department of War has over 200,000 suppliers, many of which have thousands of suppliers of their own. That means that, directly or indirectly, a substantial portion of the American business community is already providing goods and services to the DoW.
But recently, the DoW has been changing their project management and procurement strategy dramatically, emphasizing dual use tech and commercial-style contracts. At the same time, they’re boosting supplier intelligence requirements and due diligence requirements for an ever-growing cross section of the economy. Here’s how the DoW strategy is changing, and what it means for your company.
The Commercialization of the DoW
Changes in Contracts
The DoW has dramatically altered the way it does contracts over the last year. Suppliers are now given multi-year contracts with payment up-front, and guaranteed financial compensation if the government should cancel a contract before it completes. The Pentagon is also making fixed price contracts the default, and requiring departments to get special permission to use other contract models for expensive projects.
Together, these programs constitute a carrot and stick approach. The upfront payment and lucrative, multi-year terms provide incentive to scale up production, and the fixed contracts discourage cost overruns and delays.
Practical innovation over speculative research
But perhaps the most important change is the move towards dual use technology by government research labs. The changes focus on the Small Business Innovation Research and Small Business Technology Transfer (SBIR|STTR), competitive US government programs that provide early-stage, non-dilutive funding to small businesses in cutting-edge research. The goal is to help domestic small businesses research and develop innovative technologies for a number of government agencies, including the DoW.
While SBIR|STTR isn’t new, the programs have changed their focus to concentrate on technology that has immediate utility; rather than diving into speculative technology or early research, they’re targeting proposals that can be produced and tested in the field quickly, and then queued up for production. They’re particularly interested in technology with existing commercial interest and investment, in order to benefit from public-private partnerships.
Investing in American production
These changes are backed up by heavy government investment. The US has sought to eliminate Chinese batteries, magnets, and rare earth minerals from the American defense industry, and build up domestic supply. To this end, they’ve invested billions into onshoring battery and magnet production, and developing mines in the US and allied countries.
Additionally, the military is boosting longstanding efforts to source from American companies, like the Buy American Act of 1933, which requires the government to buy American made goods in most circumstances. The Act now requires that 65% of an item’s production cost must go to American or Five Eyes (Canada, UK, US, Australia, and New Zealand) manufacturing and components, and the number will increase to 75% in 2029.
Increasing Scrutiny
While the DoW is creating a lot of opportunity for business, it is also tightening requirements — particularly around supply chain visibility and the elimination of foreign adversaries in sourcing. The biggest changes were proposed by the Government Accountability Office (GAO) under the document GAO-25-107283. While the government has various mechanisms for vetting suppliers, there is no centralized governance agency for overseeing supply chain compliance in the DoW.
The military is working on an ambitious plan to change this, combining commercial supply chain illumination practices with new demands for vendors to disclose their upstream suppliers. When the program is fully realized, vendors will be required to eliminate materials and components from China and other foreign adversaries down to the component level.
A more immediate concern is a new proposed DoW rule, tightening Foreign Ownership, Control, and Influence (FOCI) disclosures. Previously, only classified DoW contractors had to disclose and mitigate FOCI risk; but under the proposed rule, the requirements will apply to anyone with a DoW contract worth over $5 million. And it’s not just for primes, either; upstream contractors providing over $5 million of goods and services will have to meet the new requirements as well, analyzing everyone with an ownership stake in the company for risk, and putting mitigation measures in place.
How Will DoW Changes Impact Companies?
The DoD is driving small-business production, onshoring, and commercial-style contracts; tying military and civilian production more closely together; and significantly increasing the compliance burden of primes and upstream providers. While individually these changes might not seem that significant, together they’re likely to impact the entire commercial market.
For military primes, this is a significant change, since they’ll need to compete like commercial companies, while also upping their controls and visibility, both internally and for their upstream vendors. However, the most substantial change will be for companies which currently do little to no business within the military supply chain. As the military becomes more deeply involved in commercial industries, these companies will need to adapt to supply chain illumination and sourcing requirements, or risk being sidelined and losing out on lucrative downstream deals.
How Can I Prepare for the DoW Supply Chain?
To prepare for this new reality, companies need to modernize their vendor due diligence and monitoring. That could be a short trip or a long journey, depending on your current supply chain practices. Here’s what you should be doing:
Technology and workflow
Building and maintaining strong supplier relationships still plays a crucial role in vendor management, but it’s no longer enough. Between the current risk environment, regulatory standards and supply chain complexity, you really can’t do your due diligence with outdated manual processes and spreadsheets. Without a vendor intelligence platform and the right combination of data, functionality, and AI to support your team, there aren’t enough hours in the day.
The three elements work together to power supplier intelligence and illumination. Your data foundation illuminates your vendors, from demographic and firmographic basics to in-depth financial and compliance details. That supports your platform functionality, enabling you to gain a complete and up-to-date view into the vendor, covering all major risk areas. Meanwhile, AI works behind the scene, sorting and updating data and empowering you to report on supplier risk at a glance.
Together, they make the rest of the process possible.
Vendor vetting
Your vendor vetting needs to cover all major risk areas with the most objective and up-to-date information available. That means looking at financial viability; regulatory compliance record; cybersecurity rating; Foreign Ownership, Control & Influence (FOCI) rating; supplier Operations; ESG; and even public news sentiment.
Set standards based on vendor criticality and your risk appetite. Generally speaking, you can accommodate a greater level of risk for commodity vendors to cut some cost, without compromising your overall stability. However, as your vendor vetting process progresses, you need to start keeping an eye on the risk categories that will matter to the military and downstream primes — especially FOCI risk and compliance.
To meet DoW standards, you’ll need to be able to show that everything that your products and components are at least 65% made in America or Five Eyes countries, and have no sources from foreign adversaries. That will require you to either eliminate them from your supply chain or segment them off from products flowing to a downstream prime.
Tier-2 vetting
While the military will require all vendors to trace products all the way back to raw materials eventually, at the moment, even the leading defense primes don’t have that level of supply chain illumination. As a first step, inventory your tier-2 vendors, starting with critical suppliers. Vet them the same way you did for tier-1.
Once you’ve done that, you can use your vendor intelligence platform to track down risk clusters. A platform like Craft lets you spot shared ownership patterns, such as parent-child relationships, so you’ll be able to see if your supply chain depends heavily on one company or a small set of businesses. You can use that data to diversify your supply chain and lower risk or, alternately, to consolidate low risk suppliers in exchange for bulk rates.
Continuous monitoring
Risk profiles change rapidly. Vendors switch suppliers, gain new investors, undergo mergers and acquisitions, and run into new compliance and security challenges. In order to control risk, you need to continuously monitor vendors for all these risk signals.
For most types of risk, your vendor intelligence platform can keep you up to date, flagging new risks by vendor and vendor category as they come out. Configurable alerts help you triage effectively, addressing high-priority indicators like new FOCI risks among critical suppliers quickly, and leaving less critical signals for your normal workflow.
Keep in mind that vendor intelligence platforms can’t tell you when your suppliers switch their vendors (although most aren’t forthcoming about this.) Your suppliers may change their own upstream from order to order, or batch to batch. It’s up to you to keep on top of it. However, once you do get that information, your platform enables you to use it to uncover new risks.
Upstream or Prime, Get Ready for the DoD
Wherever you are in your supply intelligence journey, Craft can help. Our cutting-edge supplier intelligence platform helps multiple government agencies stay on top of compliance, and powers supply chain illumination in some America’s biggest defense and government primes.
Contact us today to get ready for the federal supply chain.