A new provision in Section 815 of the United States Senate’s National Defense Authorization Act is very concerning to businesses competing for large government defense contracts. The defense contractors are focused on loosening provisions that would effectively blacklist global suppliers from being included in government contracts.
Lockheed Martin and Northrup Grumman are among the large corporations arguing against proposals that would block certain global suppliers without providing any reason for doing so. The Pentagon would have the ability to declare any supplier a “security risk” and exclude them from all contracts. Companies argue that they must know what these decisions are being based on if they are expected to abide by the rules.
Section 815 is a preventative measure related to fears that increased global outsourcing of technology may expose the Department of Defense and other large businesses to infiltration by terrorist groups. As recently as this May, the FBI seized $143 million of counterfeit hardware. Some of these products were intended for military systems. The government of India has acted on similar fears by reducing their reliance on imported technologies from China and other global suppliers in sensitive industries.
The biggest fear of contractors looking to do business with the United States is that the Pentagon would not be responsible for revealing reasons why certain suppliers were made ineligible for contracts. Otherwise strong suppliers would not be given feedback to improve and become eligible again. This would put a great strain on the defense industry to provide multiple contingencies for all major suppliers.
This discussion raises many questions that revolve around the import strategies of global businesses. Is technology the next platform to be attacked by terrorist organizations? At what point is the risk of fraud too great to justify working with global partners? How can the government monitor products sourced through a complex global supply chain?
While the risks of global business relationships are relevant in all industries, the defense industry may put the spotlight on concerns that are not as urgent in other instances. Major corporations will be expected to take responsibility for all products that they sell, so they must keep close tabs on all aspects of the supply chain from start to finish.