Not so long ago, the “Defense Industrial Base” (DIB) was usefully understood as a distinct category of organizations: primes, subcontractors, and an ecosystem of suppliers defined by specialized involvement in defense-specific technologies and industry. But that model is increasingly obsolete. Across sectors that have not conventionally considered themselves defense industry participants, organizations are being recruited into national security compliance, contracting, and security expectations, and they are encountering those expectations without the institutional infrastructure that traditional defense contractors have built over decades.

This is not simply a story about more regulation. It is a story about the expansion of the perimeter at remarkable speed. Three converging dynamics are driving the shift. First, defense procurement reform is deliberately reaching past legacy primes and engaging conventionally “commercial” technologies and companies directly, creating a new category of defense participant that inherits export control, cybersecurity, contracting, and conflict-of-interest obligations, often without warning. Second, the digitization revolution and technological convergence are pulling AI, data, and infrastructure companies into defense-grade trust expectations, as advanced compute becomes a premier national security trade sector, and access is conditioned on verifiable controls. Third, everything is national security now: investment, trade, data, and supply chains are increasingly governed through a national security lens that compresses timelines and raises enforcement stakes for companies and investors operating across borders.

The practical result is a growing compliance and opportunity infrastructure gap. This article provides a structured framework for understanding how this dynamic operates, three examples showing how it appears in practice, and a guide to what it means for leaders, investors, and advisors.

The Three Vectors

The Department of War’s (DoW) November 2025 Acquisition Transformation Strategy opened with a declaration that the defense acquisition system “as you knew it, is dead.” The strategy’s explicit objectives (“Go Direct-to-Supplier,” “Accelerate Commercial Preference,” and “Expand and Rebuild the Industrial Base”) describe an acquisition posture designed to move around the traditional prime contractor tier and engage commercial industry directly.^[1] The FY2026 National Defense Authorization Act (NDAA) codified additional elements, including the Civil Reserve Manufacturing Network, which preregisters commercial manufacturing capacity for wartime surge activation, and an expansion of the Defense Industrial Base Consortium (DIBC) Other Transaction Agreement (OTA) framed as “minimizing barriers to entry” for nontraditional contractors. ^[2]

The practical result is a new category of defense participant: companies that accepted a DoW contract, won a DIBC solicitation, or received a direct investment inquiry and found themselves subject to International Traffic in Arms Regulations (ITAR) jurisdiction analysis, Cybersecurity Maturity Model Certification (CMMC) compliance requirements, government contracting rules, and conflict-of-interest obligations they had not previously managed and did not budget to address. The compliance infrastructure required to participate in defense programs, built over decades by traditional primes, does not come standard with a contract award.

The technology convergence dynamic is restructuring a different sector. Executive Order 14320, issued in July 2025, established the American AI Exports Program (AAEP) and defined “full-stack AI technology packages” to include hardware, networking, data pipelines, AI models, security measures, and applications. The order’s logic, that access to US-origin AI systems at scale should be conditioned on adoption of US security and governance standards, has moved commercial AI companies into a compliance framework that previously applied only to licensed exporters and defense contractors. ^[3] The State Department’s Pax Silica initiative extends this logic to the supply chain. ^[4]

The third dynamic is structural. Our prior analysis of the America First Investment Policy and the 2025 US National Security Strategy documented the core posture: economic and technology security are now treated as national security priorities, and market access is increasingly conditioned on alignment, assurance, and enforcement capacity. The Committee on Foreign Investment in the United States (CFIUS), ITAR, the Export Administration Regulations (EAR), the Information and Communications Technology and Services (ICTS) regime, and industrial base programs have converged on a population of companies that were not historically governed by any of them. ^[5] This convergence is not temporary, and its scope continues to widen.

The Inventory: Risk and Opportunity

Before turning to practical examples, it is useful to briefly inventory the emergent risk and opportunity vectors that tend to appear when commercial organizations are recruited into defense-adjacent participation.

The risk vectors include:

Export controls and diversion risk. Commercial companies entering defense-adjacent activity often discover that their products, technology, or services may be subject to ITAR or EAR controls, including through third-country intermediaries or end users that can create liability for the original exporter. As the enforcement record makes clear (see sidebar), corporate structures, subsidiary relationships, and the passage of time do not provide protection.

Remote access and compute jurisdiction. The ability of foreign persons to access controlled compute is an active and rapidly evolving area of export control enforcement. BIS has issued guidance warning that providing access to advanced computing ICs for AI model training can trigger licensing requirements under the EAR's Part 744 catch-all controls, where the exporter has knowledge that the model will support a weapons of mass destruction or military-intelligence end use, even when no hardware crosses a border. ^[6] On May 31, 2026, BIS issued further guidance confirming that, under the regional stability controls at EAR Section 742.6(a)(6)(iii)(A) and on a strict-liability basis, export licenses are required for advanced computing items destined for any entity whose ultimate parent company is headquartered in a Country Group D:5 nation, including China, regardless of where the entity itself is located; addressed what observers had described as a loophole allowing Chinese-headquartered technology companies to acquire controlled chips through overseas subsidiaries. ^[7] The Remote Access Security Act (RASA), which passed the House 369-22 in January 2026, would formalize this posture by extending BIS's statutory authority under ECRA to regulate remote access, cloud-based exposure, and provision of access to controlled items by foreign persons. ^[8] For companies operating GPU clusters, cloud inference endpoints, or AI development platforms with international customers, the compliance question is not whether remote access controls are coming. It is whether current operations can withstand the enforcement framework that is already forming.

Cybersecurity baselines. DIB participation typically triggers NIST and CMMC requirements that commercial companies have not previously managed. The CMMC program rule took effect in December 2024, and the DFARS contract clause extending these obligations across the full contractor supply chain took effect in November 2025; Phase 2 third-party certifications are required beginning November 2026, and reaching certification readiness can take six to twelve months. ^[9]

Government contracting and accounting. Defense contracts carry Federal Acquisition Regulations (FAR)/Defense FAR (DFAR) requirements, Cost Accounting Standards (CAS), and cost/price structuring obligations that differ materially from commercial contracting practice. Companies that price defense work using commercial margin models, without accounting for allowable/unallowable cost analysis and bid-and-proposal obligations, risk compliance exposure and margin erosion. For most commercial entrants, the gap is structural: they lack government-compliant indirect rate structures, have none of the six DFAR-mandated contractor business systems, and have no experience with the Defense Contract Audit Agency (DCAA) or Defense Contract Management Agency (DCMA) audit expectations. ^[10]

Foreign ownership, control, and influence (FOCI). Organizations with foreign investors, international board members, or cross-border ownership structures may face eligibility bars to defense participation that require governance restructuring before contracts can be awarded or licenses can be obtained.

The opportunity vectors are equally real.

The same policy dynamics that create compliance risk are creating genuine commercial opportunity for nontraditional participants. The DoW Acquisition Transformation Strategy explicitly includes expanding the industrial base, stabilizing demand signals for private investment, and going direct to suppliers. The DIBC OTA is designed to lower the barriers that have historically kept commercial companies out of DoW procurement. Industrial policy tailwinds are creating durable new revenue streams for companies that can meet the associated compliance and security requirements. The winners will be those who build the scalable compliance and trust infrastructure early enough to convert opportunity into sustained market access. ^[11]

The FY2026 NDAA introduces reforms aimed at lowering barriers to entry and expanding the DIB.. By raising thresholds for certified cost or pricing data and CAS, the act reduces compliance burdens and shifts more awards toward streamlined, commercial-style contracting. Beginning June 30, 2026, contracts under $10 million will no longer require certified cost or pricing data, and higher CAS thresholds will further narrow the scope of full CAS coverage. ^[12] Contractors should prepare by reassessing pricing strategies, acquisition processes, compliance systems, supply-chain controls, and cybersecurity practices.

Section 1826 is arguably the most consequential provision. It immediately exempts nontraditional defense contractors (NDCs) from FAR Part 31 cost principles, DFARS business-system requirements, and Truthful Cost or Pricing Data obligations. The section effectively makes commercial-style acquisition the default for NDCs unless a contracting authority issues a written waiver imposing additional requirements. ^[13] An NDC is defined as an entity that is not currently performing, and has not performed within the preceding year, any DoW contract or subcontract subject to full CAS coverage. The George Mason University Baroni Center for Government Contracting found that the current legal definition of "nontraditional defense contractor"  excludes only about 7.5 percent of firms in the defense market. For Section 1826, that breadth means the exemptions reach almost the entire industrial base. ^[14] Although implementation guidance is still forthcoming, Section 1826 is expected to significantly reshape DoW contracting for new entrants.

The Enforcement Environment

The accidental DIB problem is not abstract. The enforcement environment has shifted materially, and it is shifting against companies that have acquired defense-adjacent compliance obligations without building the infrastructure to manage them.

The consistent message across all five signals is that the enforcement posture is calibrated for a harsher penalty environment than the one that governed the prior decade. DOJ’s National Security Division has adopted a corporate enforcement policy that applies to technology companies as explicitly as it applies to traditional defense exporters. For companies that have entered the defense perimeter without recognizing it, the question is no longer whether enforcement risk exists. It is whether the compliance infrastructure is adequate to manage it.

Three Examples

The Industrial Manufacturer

A specialty metals and precision components manufacturer with decades of commercial history had no prior defense business when it was approached about supplying components for DoW-prioritized munitions programs. The timing was compelling: the DoW publicly identified the relevant manufacturing category as a priority, committed multi-year funding, and signaled a preference for commercial suppliers. The opportunity was real. So was the compliance burden the company had not anticipated.

The entry point was not a deliberate pivot to defense. The company’s core product line, engineered for commercial farming equipment and industrial trucking, was compatible with military while platforms. The company was recruited into the DIB by product compatibility, not by strategy.

Entering defense work at even a basic tier required a DFARS specialty metals compliance analysis, a NIST 800-171 cybersecurity implementation the company had not undertaken, and a GSA schedule registration it had not pursued. Moving to a higher tier required CMMC Level 2 certification, a FOCI confirmation (the company had a minority foreign investor), and potential ITAR registration. Compliance investment ranged from the low-to-mid six figures at the entry tier to seven figures at higher tiers, over timelines of 12 to 36 months before first revenue. These were not deterrents, but they were material to the return model the company had initially constructed without accounting for them. A four-workstream decision package, covering commercial diligence, USG sales pathways, DIB compliance sequencing, and cybersecurity implementation, addressed the problem in parallel and produced an integrated go/no-go recommendation.

The AI Infrastructure Company

A global technology company building advanced AI infrastructure (GPU clusters, networking, and associated software) for international enterprise and research customers found itself managing two national security dynamics simultaneously. On one side: the opportunity to become a trusted supplier to US government AI programs, including through the emerging AAEP qualification framework. On the other: the risk that its investor base and overseas operational footprint would attract CFIUS scrutiny of pending transactions.

The challenge was structural. CFIUS risk mitigation required immediate action: ownership and control analysis, foreign national access controls, insider threat program design, and board-level governance changes needed to be in place before any transaction closed. USG partnership eligibility required a security-by-design architecture, including NIST-aligned information security, zero-trust network access, AI compute access governance, and an independent verification capability, which would take longer to build. The two tracks required the same underlying infrastructure, but on different timelines, for different audiences, with different evidence standards.

A phased approach structured the complexity: a domain-by-domain gap assessment across CFIUS, personnel security, AI access governance, information security, and FOCI, followed by prioritized infrastructure build and conversion of the compliance investment into a quantified business case. The company entered subsequent transactions with a credible compliance posture and a foundation for trusted engagement with the US government.

The Research Institution

An internationally prominent research university deployed one of the most powerful AI supercomputing systems deployed under a US technology export license to date. The project was not simply a technology deployment. It was entry into an ongoing US government compliance relationship with commitments and relationships that reach forward across the life of the system and broader engagement with US policy objectives.

The license conditions required the institution to implement layered security controls across the full technology stack: physical access management, network segmentation, compute usage monitoring, user identity and affiliation verification, and mandatory reporting protocols. An independent, third-party consultant was required to help design and verify the control environment and report to the relevant regulatory authority on an ongoing basis. The institution was operating a compliance program calibrated to US national security expectations, with architecture requirements, audit obligations, and government reporting relationships it had not previously managed.

For research institutions and AI technology companies pursuing advanced compute, this is increasingly the default condition of access, not an exception. Organizations that build for compliance in advance avoid the delay, costs, stakeholder strain, and enforcement risks that follow from deployment without governance.

What This Means for Stakeholders

Leaders and boards. The compliance gap is a strategic risk, not just a legal one. Boards of commercial companies should ask explicitly whether their organization has conducted a threshold analysis of its national security regulatory exposure: where in operations, supply chain, customer base, and investor structure has the company crossed into the national security perimeter without recognizing it? The enforcement record suggests the government will not wait for companies to catch up.

Investors and deal teams. National security regulatory exposure and government contracting compliance are now routine diligence categories. A portfolio company that has entered a DoW program, deployed AI infrastructure for international customers, or accepted foreign investment without a FOCI analysis may be carrying undisclosed liability. Deal teams that treat ITAR, CMMC, CFIUS, AAEP, and complex indirect rates as applicable only to “defense companies” in the traditional sense are systematically undercounting risk in a broad range of commercial technology, industrial, and infrastructure transactions. ^[16]

Advisors and counsel. The clients who are not asking about national security compliance are often the clients who most need to. Early engagement, before a contract is awarded, a transaction closes, or a license condition is imposed, is materially better for outcomes than reactive compliance triage. The perimeter is not contracting. The time to build for it is now.

What Organizations Should Do Now

In practice, the capabilities below organize into two parallel tracks: strategic engagement (where is the opportunity, and what does the company need to do to position for it?) and compliance readiness (what contracting, accounting, cybersecurity, and regulatory capabilities must be in place to convert opportunity into revenue?). The two tracks should run concurrently, not sequentially.

The three vignettes map to a consistent set of capabilities. The specific sequencing varies by starting point, but the picture is consistent:

A threshold analysis and requirements definition: mapping national security regulatory exposure across business lines, supply chains, customer base, and investor structure, then defining what compliance looks like across CFIUS, export controls (ITAR/EAR/AAEP), cybersecurity (NIST/CMMC), government contracting (FAR/DFARS/CAS), and FOCI.

A gap assessment and integrated roadmap: a domain-by-domain inventory with maturity ratings and a prioritized remediation sequence, structured as a decision package for executive leadership with decision gates, cost estimates, and explicit off-ramps.

A value creation track running in parallel: opportunity sizing, partnership and contracting pathways, policy incentives, and the strategic business case for the compliance investment.

Organizations that build these capabilities early move faster, with less friction, and with better outcomes than those that engage compliance after the government has already established its expectations. The accidental DIB is not a new phenomenon. The speed and breadth of the current expansion are.

The views and opinions expressed in this article are those of the authors.

Read Past Raising the Bar Issues

1. Department of War, Acquisition Transformation Strategy: "Rebuilding the Arsenal of Freedom" (November 2025). 
2. FY2026 National Defense Authorization Act, Public Law 119-60, signed December 18, 2025. 
3. Executive Order 14320, "Promoting the Export of the American AI Technology Stack" (July 2025). 
4. US Department of State, Pax Silica Initiative (December 2025).
5. Randall Cook, Vincent Mekles, and Albert Liguori, "America First Investment Policy: Disruption and Opportunity," A&M (March 19, 2025); Randall Cook and Vincent Mekles, "What the 2025 US National Security Strategy Means for Transnational Companies, Investors, and Advisors," A&M (January 12, 2026).
6. Bureau of Industry and Security (BIS), "Policy Statement on Controls that May Apply to Advanced Computing Integrated Circuits and Other Commodities Used to Train AI Models" (May 13, 2025).
7. BIS, "Guidance Regarding Enforcement of License Requirements for Advanced Computing Items for Entities Headquartered in Country Group D:5 and Macau" (May 31, 2026).  
8. Remote Access Security Act, H.R. 2683, 119th Congress (2025–2026), passed the House January 12, 2026. Senate companion: S. 3519 (McCormick, Wyden, Cotton, and Coons).
9. CMMC Final Rule, 32 CFR Part 170, effective December 16, 2024; DFARS 252.204-7021 (CMMC Contract Clause), effective November 10, 2025.
10. FY2026 NDAA, Section 1826 (Exemptions for Nontraditional Defense Contractors); DFARS Business Systems requirements (DFARS 252.242-7006, 252.234-7002, 252.215-7002, 252.242-7004, 252.245-7003, 252.244-7001).
11. Department of War, Acquisition Transformation Strategy: "Rebuilding the Arsenal of Freedom" (November 2025); Defense Industrial Base Consortium (DIBC) OTA. 
12. FY2026 NDAA, Sections 1804 and 1806(a) (Threshold Increases for Certified Cost or Pricing Data and Cost Accounting Standards). See also Polsinelli, "FY2026 NDAA: A Commercial Reset for Defense Contracting" (January 21, 2026). 
13. PilieroMazza, "Warfighting at Warp Speed, Part 3: Tracking the 2026 NDAA and DoW's Acquisition Overhaul" (January 6, 2026). Federal News Network, "A sweeping NDAA change could strip away decades of cost rules for most defense contractors" (December 24, 2025) 
14. Greg and Camille Baroni Center for Government Contracting, Government Contracting Trends and Performance Index (George Mason University, 2025).
15. Randall Cook, Louis Conde, and Caitlin McKibben-Golub, "AI Technology Export Enforcement: 5 Signals Companies Cannot Afford to Miss," A&M (April 7, 2026). 
16. Randall Cook, Vincent Mekles, and Albert Liguori, "America First Investment Policy: Disruption and Opportunity," A&M (March 19, 2025).