Considerations for Automotive Suppliers Looking to Enter Defense Market in Light of Recent Federal Procurement Overhaul

Pursuant to Executive Order (EO) 14275, titled “Restoring Common Sense to Federal Procurement”, the Federal Acquisition Regulation (FAR) is currently undergoing a significant modernization and overhaul effort (currently in the rulemaking phase) which will impact the Defense Industrial Base (DIB), including those suppliers in the automotive sector seeking to enter the defense industry. Overall, the EO aims to simplify and streamline the federal procurement process by reducing regulatory complexity and aligning the FAR more closely with operational needs.  This overhaul, along with several other significant changes, including the rollout of the Cybersecurity Maturity Model Certification (CMMC) and certain provisions in the FY2026 National Defense Authorization Act (NDAA), bear directly on the ability of non-traditional defense contractors to enter the marketplace.

Below is a summary of key changes and considerations relevant to companies looking to supply to the Government:

Streamlining of Commercial Product and Service Determinations

The FAR modernization includes efforts to simplify the requirements surrounding the determination, acquisition, and compliance requirements for purchasing commercial products and services. The proposed changes to the  FAR Part 12, which governs the acquisition of commercial goods and services, will potentially make  it easier for those in the automotive industry, who already provide commercial goods and services, to also supply those goods and services to the Department of Defense (DoD) (also known as the Department of War). The overhaul of this section of the FAR is intended to encourage broader participation from commercial entities to sell the DoD.

Automotive manufacturers and suppliers may benefit from these changes, as their stated goal is to reduce administrative burdens and facilitate faster procurement processes for commercial products and services.

Increased Cost Accounting Standards (CAS) Thresholds

Certain prime contractors and subcontractors are required to follow CAS over a certain threshold. Under Section 1806(a) of the 2026 NDAA, the per-contract threshold for CAS coverage for applicable contracts was raised from $2.5 million to $35 million. This meaningful change to CAS coverage—a complex issue for even the most experienced federal contractors—reduces the compliance burden for new entrants, such as automotive manufacturers and suppliers, to compete for defense contracts without being subject to stringent CAS requirements.

Expansion of Cybersecurity Requirements

DoD has implemented the CMMC Program, which establishes baseline cybersecurity requirements for contractors handling Federal Contract Information (FCI) or Controlled Unclassified Information (CUI). The Defense Federal Acquisition Regulation Supplement (DFARS) CMMC clauses started appearing in solicitations late last year, and they require contractors to implement cybersecurity measures at progressively advanced levels based on the sensitivity of the information and project requirements. Suppliers whose contracts require CMMC certification of Level 2 may need to obtain third-party certification. Thus, while the trend is towards encouraging entrants into the federal marketplace, potential new contractors should be mindful of DoD’s increased prioritization of cybersecurity.

Overall Potentially Increased Opportunities for Automotive Companies

The ongoing “FAR Overhaul,” and related reforms, aim to expand and diversify the DIB by creating opportunities for non-traditional defense contractors—including automotive manufacturers and suppliers. By leveraging commercial capabilities and aligning with the streamlined procurement processes, automotive clients can position themselves as competitive players within the growing defense sector.

Key Recommendations for Automotive Clients

• Monitor Regulatory Changes: Stay informed about phased FAR updates and their implications for defense contracts.
• Leverage Commercial Status: Explore opportunities to qualify your products or services as commercial under the revised FAR framework to open the door to sales to the DoD and benefit from streamlined procurement processes.
• Cybersecurity Compliance: Begin preparations for CMMC certification by assessing current cybersecurity practices and addressing gaps to meet the required level of compliance.
• Supply Chain Management: Strengthen supply chain security measures to ensure compliance with CMMC and FAR requirements.

By proactively addressing these changes, automotive manufacturers can navigate the evolving regulatory landscape and capitalize on opportunities in the defense industry.

Please contact the authors of this Client Alert or your Butzel attorney for more information.

Beth S. Gotthelf
248.258.1303
gotthelf@butzel.com

Anthony Scalise
248.258.2612
scalise@butzel.com

Derek Mullins
313.983.6944
mullins@butzel.com