In January 2025, Covington issued a client alert noting that the National Defense Authorization Act (“NDAA”) for Fiscal Year (“FY”) 2025, which sets annual spending and policy for the Pentagon, introduced new China-related prohibitions on defense contractors and their consultants. The provision is finally set to take effect on June 30, 2026. This client alert provides an update on the new restriction and suggested compliance steps defense contractors, and consultants who work with defense contractor clients, might consider taking before the end of the month.
Section 851 of the FY 2025 NDAA, titled “Prohibition on Contracting with Covered Entities that Contract with Lobbyists for Chinese Military Companies,” banned the Department of Defense from contracting with any company (or its subsidiaries or parent company) that contracts with a person that engages in lobbying activities on behalf of certain Chinese entities. This prohibition is now codified at 10 U.S.C. § 4663.
Congress is keeping a watchful eye on the enforcement of the provision. On June 16, 2026, Chairman John Moolenaar (R-Mich.) of the House Select Committee on China and Chairwoman Elise Stefanik (R-N.Y.) of House Republican Leadership sent a letter to the Department of Defense urging strict implementation of the new restriction on defense contractors.
At the time of our original client alert on the prohibition, we noted an apparent typographical error in the legislation that created some ambiguity as to the scope of the disqualifying activities. The statutory language has since been amended and now clearly states that the “Secretary of Defense may not enter into a contract with an entity, a parent company of such entity, or a subsidiary of such entity if such entity is a party to a contract with a covered lobbyist.” A “covered lobbyist” is defined as “an entity that engages in lobbying activities for any entity determined to be a Chinese military company listed in accordance with section 1260H.”
10 U.S.C. § 4663(d)(2) ties its definition of “lobbying activities” back to the Lobbying Disclosure Act of 1995 (“LDA”), meaning defense contractors will need to conduct due diligence to ensure their outside consultants are not engaged in federal lobbying activities for 1260H-listed Chinese military companies, even where those lobbying activities are entirely unrelated to the defense contractor itself. Significantly, the Department of Defense is prohibited from entering into a contract with a company if the company’s outside contractors engage in any lobbying activities for a Chinese military company, even if that work is behind-the-scenes or does not trigger LDA or Foreign Agents Registration Act (“FARA”) registration requirements.
The new prohibition will apply to defense contractors that retain a “covered lobbyist,” defined as any entity that engages in federal lobbying activities on behalf of an entity designated by the Pentagon as a Chinese military company.
The list of Chinese military companies is supposed to be updated at least annually, in accordance with a provision first passed as section 1260H of the FY 2021 NDAA, and it currently includes more than 80 parent companies and dozens of subsidiaries. The most recent version of the list, published in the Federal Register on June 10, 2026, can be found here.
Under the relevant statutory definitions, the Department of Defense will be prohibited from contracting with entities that retain consultants who separately engage in even behind-the-scenes lobbying activities for 1260H-listed companies—such as advising the company on certain strategies for influencing U.S. policy.
The term “lobbying activities” in 10 U.S.C. § 4663 has the same meaning as the term in Section 3 of the LDA, found in 2 U.S.C. § 1602. The LDA defines lobbying activities as “lobbying contacts and efforts in support of such contacts, including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others.” (Emphasis added.)
With certain exceptions, the term “lobbying contact” means any oral or written communication (including an electronic communication) to a covered federal executive branch official or legislative branch official that is made on behalf of a client with regard to federal legislation, rules, regulations, procurement, executive orders, nominations and confirmations, “or any other program, policy, or position of the United States Government.” The term “program, policy or position of the United States Government” is very broad and is not limited to legislation or regulations.
Last year, the Department of Defense began the process of developing a Defense Federal Acquisition Regulation Supplement (“DFARS”) rule to implement the new prohibition through Case Number 2025-D007. But that rulemaking has not progressed very far. Submission of the draft rule has been delayed multiple times, most recently to July 15, 2026—more than two weeks after the statutory prohibition takes effect. Defense contractors and their consultants should therefore continue to monitor the Federal Register for release of the relevant DFARS rule and ensure their compliance program is consistent with its provisions.
The language of 10 U.S.C. § 4663(b) creates a safe harbor, specifically stating that the prohibition shall not apply to defense contractors “that made reasonable inquiries regarding the lobbying activities of another entity and determined such entity was not a covered lobbyist.” Although the statute does not offer any clues on what constitutes a reasonable inquiry in this context, it seems clear that defense contractors will be expected to take some action to evaluate their outside lobbyists and other consulting firms, prior to the June 30 effective date, to ensure those outside consultants do not qualify as covered lobbyists. This due diligence should capture not only outside lobbyists, but also consultants, public relations firms, law firms, business consulting firms, and others. Otherwise, absent a waiver, contractors risk imperiling future business with the Department of Defense.
As part of this diligence, defense contractors may be expected to review the LDA and FARA disclosures (if any), along with other publicly available information, of both current and prospective outside lobbyists, lobbying firms, and consultants to determine whether the LDA or FARA databases reflect that consultants were retained by 1260H-listed Chinese military companies. However, defense contractors should be aware that this review alone may not be sufficient. The new prohibition in 10 U.S.C. § 4663 targets “covered lobbyists” regardless of whether they make lobbying contacts and regardless of whether their lobbying contacts meet the thresholds required to trigger registration under the LDA. Also, particularly with respect to FARA, some consultants may not be registered even though they should be. Therefore, absent further guidance from Congress or the Department of Defense, companies should not rely solely on the absence of FARA or LDA filings when conducting due diligence related to this new prohibition. Rather, defense contractors should consider collecting written certifications or other artifacts from their consultants and prospective consultants confirming that those outside consultants do not engage in lobbying activities for any Chinese military companies. Defense contractors should also consider adding provisions to consulting contracts and other retention agreements prohibiting outside consultants from engaging in lobbying activities for Chinese military companies.
If you have any questions concerning the material discussed in this client alert, please contact these members of our Election and Political Law and Government Contracts practices.
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