The Department of War has begun enforcing Section 851 of the FY2025 National Defense Authorization Act, a provision that bars Pentagon contracts with firms that retain lobbyists, consultants, law firms, or public relations firms representing companies on the Department's Section 1260H "Chinese military companies" list. The ban took effect June 30, 2026, adding a new compliance obligation for defense contractors and the outside advisers they retain.
Background
Congress wrote Section 851 into the FY2025 NDAA to choke off a specific workaround: firms designated as Chinese military companies under Section 1260H hiring Washington lobbyists, consultants, law firms, or PR shops to soften their standing with federal buyers even while barred from direct contracting. The 1260H list itself has existed for several years as the Pentagon's official roster of companies it judges to operate on behalf of China's military-civil fusion strategy. Section 851 extends the consequences of that designation outward, targeting any contractor that keeps a lobbying or advisory relationship with a listed firm.
The Department of War's June 2026 update expanded the 1260H list to more than 180 entries, adding Alibaba, Baidu, BOE Technology, BYD, and WuXi AppTec for the first time. Alibaba has since sued the Department over its designation, a sign of how consequential the list has become for companies that do substantial business in the United States. Each new name on the list widens the circle of lobbying and consulting relationships that now carry contracting risk, and it forces contractors to treat the 1260H roster as a living document rather than a fixed reference they can check once and set aside.
Key Details
Section 851 bars the Department of War from entering into contracts with companies that retain consultants, law firms, or public relations firms that also lobby for entities tied to the Chinese military. The prohibition reaches beyond registered lobbyists: it covers any firm engaging in lobbying activity as defined under the Lobbying Disclosure Act on behalf of a 1260H-listed company, whether or not that firm is required to register as a lobbyist.
A related but distinct provision, Section 805 of the FY2024 NDAA, separately bars the Department from procuring goods, services, or technology directly from 1260H-listed companies, and it is being phased in on its own schedule. A direct-procurement prohibition took effect June 30, 2026, barring the Department from buying from 1260H-listed firms outright. An indirect-procurement prohibition follows June 30, 2027, extending the ban to companies that do business with 1260H-listed firms, separate from any lobbying relationship. Michael Cadenazzi, Assistant Secretary of Defense for Industrial Base Policy, urged contractors not to wait for that 2027 deadline to sort out their exposure under the indirect ban. "People need to get ahead of it," Cadenazzi said, "because if you're starting to ask for a waiver starting in 2027, I think that's going to be a painful process for everyone."
To administer these rules, the Department launched an implementation website, businessdefense.gov, hosting timelines, compliance guidance, and a waiver process for contractors seeking additional time to come into compliance with the indirect-procurement restrictions; the waiver process requires a phase-out plan for eliminating goods, services, or technology tied to 1260H firms.
Pressure to enforce Section 851 aggressively has come from Capitol Hill as well as from the Pentagon's own policy office. Reps. John Moolenaar and Elise Stefanik wrote to Secretary of War Pete Hegseth urging the Department to apply Section 851 not just to companies already holding Pentagon contracts but to prospective contractors bidding on new work, and to ensure the rule captures U.S.-based subsidiaries of companies on the 1260H list.
What It Means for Contractors
The immediate exposure under Section 851 sits with any firm that retains outside lobbyists, consultants, law firms, or communications shops without first checking those advisers' client rosters against the 1260H list. A single lobbying or consulting relationship tied to a newly designated company — Alibaba, Baidu, BOE Technology, BYD, or WuXi AppTec, all added in the June 2026 update — can now put a Pentagon contractor's own eligibility at risk, even if the contractor's core business has nothing to do with China.
Contractors also need to track the separate, related timeline running under Section 805. Its direct-procurement ban on buying from 1260H-listed firms is already in force, and its indirect-procurement ban arrives June 30, 2027, meaning a company can have no lobbying exposure at all under Section 851 and still lose Pentagon eligibility a year from now because a subcontractor, supplier, or business partner does business with a 1260H-listed firm. Cadenazzi's warning about waiting until 2027 points to the scale of that task: mapping supply chains and business relationships for indirect 1260H exposure takes considerably longer than auditing a company's own lobbying and consulting contracts, and firms that start that work only after the deadline approaches will be racing a compliance clock with real revenue at stake.
The waiver process the Department stood up alongside these rules gives contractors an escape valve, but it requires a compelling justification and a phase-out plan rather than functioning as a routine substitute for early compliance. Companies that treat the waiver as a fallback rather than get ahead of their own exposure — auditing lobbying and consulting relationships now under Section 851, and beginning supply-chain review well before the 2027 indirect-ban deadline under Section 805 — are the ones most likely to face the "painful" outcome Cadenazzi described.
Bidding on new Pentagon work adds another wrinkle given Moolenaar and Stefanik's push to apply Section 851 to prospective as well as current contractors. Firms preparing proposals should expect compliance with both Section 851 and Section 805 to factor into responsibility determinations even for companies with no existing Department of War contracts, meaning the rule's reach extends beyond the incumbent contractor base to any company hoping to enter the defense market.
