Update for UK Entities in the Supply Chain for U.S. Defence

At a Glance

• The FAR rewrite upends almost 50 years of procurement policy and stability of the U.S. government acquisition system. Note that the compliance and other flowdowns are unlikely to change. Getting these right is crucial, as a compliance mis-step or prosecution makes further contracting in the U.S. potentially difficult.
• EO 14265 directs the Department of Defense to consider cancelling programs exceeding 15% cost overruns or schedule delays, elevating the importance of timely delivery for contractors. Federal contractors should also consider highlighting their most innovative and efficient commercial offerings in their proposals. Commercial off-the-shelf (COTS) products could be particular winners.
• Generally speaking, U.S. Department of Defense practise in relation to intellectual property (IP) aligns with UK Ministry of Defence practise, but the U.S. has stricter, codified procedures with IP. Enormous care needs to be taken with legends applied to software and IP; make sure you use DFARS-compliant legends.
• Once AUKUS-authorised user status is in force, UK firms should face less friction in handling U.S. technology subject to ITAR; but the Cadence case shows compliance will be strictly enforced, whether it involves ITAR or EAR.
• UK companies operating in the U.S. supply chain must operate like U.S. ones: Strong compliance procedures, automated export-control screening, proper classification and jurisdictional determinations, board-level oversight, insider-threat planning and response, and rapid incident-reporting need careful consideration and procedures in place, which are then adhered to.
• While the Unicat case is fact specific, it does bring to the fore the importance of early violation reporting and how this is viewed by regulators in the context of their own policies.

It is fair to say that since President Trump’s inauguration to his second term in January 2025, the news-wire services have been “busy”.

The United States’ policies on tariffs are a recurring headline. Policies continue to move; and while the United Kingdom appears not to suffer as much as other jurisdictions, not all UK entity products have the UK as their country of origin, which can confuse the tariffs picture. In addition to the tariff piece, the U.S. government is even more focused on compliance with domestic sourcing requirements, which are related but not identical to country of origin.

There have also been a number of announcements relating to federal regulatory and procurement policy, as well as legislative and regulatory updates affecting defence contractors which, by definition, impact the defence industry in the UK.

Rumours around AUKUS continue to swirl. However, unless and until something changes, the Royal Navy’s exhortation to “obey the last pipe” is the right one: being an authorised user under AUKUS can be a powerful tool.

The exotically named One Big Beautiful Bill Act (OBBBA) impacts the U.S. federal contracting landscape, with knock-on effects for UK entities within, or seeking to enter, the U.S. defence supply chain. Not all of these changes are bad; some may even be very good. But in view of their number and the different supply-chain entry points that may be relevant to different businesses, they make a strategic review a prudent first step: early consideration of them could drive material benefits. Coupled with all of the changes to procurement policy and regulation — including the rewrite of the Federal Acquisition Regulation (FAR) — contractors, especially potential entrants into the U.S. market, must also be mindful of both new and existing compliance obligations in the face of escalated enforcement.

Set out below is a summary of some key developments affecting the U.S. defence industry over the past few months. Being lawyers, the authors could not help but squeeze in a salutary tale (see Cadence, below); but as we like to balance the bad with the good, we level things up with the happier tale of Unicat. Careful handling is needed in both scenarios.

Tariffs

While the UK situation is broadly stable in relation to U.S. tariffs, issues such as country of origin and item classifications can cause confusion and inefficiencies.

What This Means to UK Companies

Legal counsel as to the optimisation of supply chains and proper classification and origin of items should be taken where there is doubt.

Federal Acquisition Regulation (FAR) Overhaul Initiative

Pursuant to U.S. Executive Order (EO) 14275, “Restoring Common Sense to Federal Procurement”, the U.S. federal government has begun a “Revolutionary FAR Overhaul” (RFO) to “return the FAR to its statutory roots, rewritten in plain language, and remove most non-statutory rules.”

The FAR Council has been issuing model deviation guidance on a rolling basis to be adopted by agencies until the FAR is officially revised through formal rulemaking in the coming year. These deviations have typically involved the elimination of certain FAR provisions.

Each “streamlined” page also includes a “practitioner album” link with an overview of the changes made, “accelerators” to assist contracting officers in navigating the relevant FAR part, and supportive resources from Defence Acquisition University and other training centres.

Notably, legislative proposals in support of the RFO have been transmitted to Congress for consideration in upcoming legislative sessions. The 16 legislative proposals include more substantive and significant changes to the FAR, including increasing the Simplified Acquisition Threshold to $10 million for commercial purchases and $50 million for Special Simplified Procedures, increasing the micro­purchase threshold from $10,000 to $100,000, and increasing the task and delivery order protest threshold for civilian multiple award contracts to $35 million (on par with the Department of Defense’s (DoD) threshold).

What This Means to UK Companies

While the rewrite results in the elimination of a number of requirements, what is seemingly procedural may turn out to be more substantive and is unprecedented in scale. It upends almost 50 years of procurement policy and stability of the U.S. government acquisition system. Expect significant changes to the FAR and the Defense Federal Acquisition Regulation Supplement (DFARS), the latter being an agency-specific supplement to FAR. We expect more changes to come.

Increases to the Simplified Acquisition Threshold (SAT) and Special Simplified Procedures could be positive for UK companies, but such changes will not dramatically change contractors’ compliance obligations.

Supply opportunities are listed on SAM.gov, the Defence Logistics Agency Internet Bid Board Service and individual service-buying sites (NAVSUP, Army CHESS, Air Force NETCENTS). Many opportunities are below the existing SAT; and should the thresholds increase, so should the opportunities. Consider also becoming a supplier on GSA Advantage.

Note that the compliance and other flowdowns are unlikely to change. Getting these right is crucial, as a compliance mis-step or prosecution makes further contracting in the U.S. potentially difficult.

Defence Industry Developments

The Trump administration has also sought to reshape and streamline the federal defence procurement process by rolling back regulations and leveraging commercial acquisition strategies. Congress also allocated significant increased funding to the DoD as part of the OBBBA, presenting new opportunities for defence manufacturers and technology contractors in the coming years. Certainly, there are longstanding initiatives to promote technology and technical innovation in the U.S. and related partnerships between government and industry with varying success. There is no indication as to how some of the “new” efforts are different from those already in place.

On April 9, 2025, President Trump issued Executive Order 14265, “Modernizing Defence Acquisitions and Spurring Innovation in the Defence Industrial Base”. The EO directs the DoD to expedite acquisition pathways by utilizing preferences for commercial solutions, using its Other Transactions Authority (OTA), reviewing internal functional support roles, and reviewing internal regulations to eliminate or revise “unnecessary supplemental regulations” to promote expedited and streamlined acquisitions. The EO also calls for the review of all “major defence acquisition programs” and directs the DoD to consider cancelling programs exceeding 15% cost overruns or schedule delays, elevating the importance of timely delivery for contractors. Federal contractors should also consider highlighting their most innovative and efficient commercial offerings in their proposals, going forward, to align with the priorities outlined in EO 14265.

What This Means to UK Companies

This is highly significant for UK suppliers into the U.S. defence supply chain.

Commercial off-the-shelf (COTS) products could be particular winners, although there have always existed a number of regulatory exemptions for COTS products.

OTAs are usually accessed through joining consortia — for example, Consortium Management Group, Advanced Technology International, and National Security Technology Accelerator (NSTXL), to name a few. UK companies can join these, but note there may be merit in teaming up with a U.S. entity.

Rapid Capabilities Offices (the U.S. Navy, U.S. Army and U.S. Air Force all have their own) also have a part to play. These showcase their requirements on their own sites, so keeping abreast of them would be necessary.

Consider whether or not you could register as an authorised user under AUKUS Pillar II. Being an authorised user is likely to be beneficial in relation to OTAs etc.

The above is nonexhaustive in relation to routes into the U.S. defence supply chain. There are very many!

Impact of the OBBBA Reconciliation Bill

In addition to significant changes to various tax provisions, employer programs and higher education, the OBBBA, signed into law by President Trump on July 4, 2025, includes approximately $150 billion in increases for defence and national security agencies. In particular, Sections 20001-20013 of the OBBBA include significant funding for shipbuilding and munitions programs, increases in funding for cybersecurity initiatives at the DoD, and enhanced resources related to DoD readiness more generally (e.g., modernization and capacity initiatives, equipment upgrades, operations funding, etc.).

Importantly, the increased defence funding is available for obligation through FY 2029, reducing time-limit restrictions and expanding potential opportunities for contractors. Federal defence contractors — along with those in related technology, manufacturing and logistics roles — should prepare for additional contracting initiatives in the coming years.

What This Means to UK Companies

Again, it is likely to be significant to UK companies in the context of the U.S. defence supply chain. If you are either in or thinking about entering that supply chain, you might want to develop a detailed strategy that takes advantage of the various thresholds, AUKUS and acquisitions methodologies.

Intellectual Property Guidebook for DoD Acquisition

On April 30, 2025, the DoD released its Intellectual Property (IP) Guidebook for DoD Acquisition. The IP Guidebook provides direction on the implementation of IP laws and regulations in the context of DoD contracts, explains legal and operational challenges in acquiring IP and associated IP rights, and promotes partnerships between the DoD and industry actors. The Guidebook is divided into several sections that trace the timeline of IP development and management in DoD contracts, outline fundamental concepts of IP and special categories of DoD data, describe developing and implementing a complete and executable IP strategy, and discuss managing and maintaining an IP strategy following project delivery.

The Guidebook emphasizes the importance of early and tailored development of an IP strategy to align with program objectives, including identifying primary engineering and business goals with the relevant agency. The Guidebook also encourages defining specific use cases to determine what technical data and software rights are needed, when these items are needed, and what purposes they will serve. Defence contractors should closely review the Guidebook and should be prepared to justify restrictions on technical data and software with detailed marking and substantiation, while communicating openly and frequently with their government counterparts.

What This Means to UK Companies

Generally speaking, U.S. Department of Defense practise aligns with UK Ministry of Defence practise, but the U.S. has stricter, codified procedures with IP. Enormous care needs to be taken with legends applied to software and IP to protect your position; make sure you use DFARS-compliant legends.

Also bear in mind that simply because you have a licence in place with the DoD does not remove ITAR/EAR requirements on a re-export to the UK.

Export Violations

Cadence Design Systems, a multinational electronic design automation (EDA) technology company, was found to have violated U.S. export controls by selling EDA hardware, software and semiconductor design IP technology to a Chinese university that had been restricted (“entity listed”) by the U.S. government from receipt of controlled technology.

Specifically, Cadence, and a wholly owned Chinese subsidiary, evaded the export regulations by selling the restricted technology to a different Chinese entity that Cadence knew to be an alter ego of the listed Chinese university.

On 28 July 2025, Cadence agreed to plead guilty to criminal violations of the Export Control Reform Act (ECRA), the International Emergency Economic Powers Act (IEEPA) and corresponding export regulations for this conduct. The plea included nearly $118 million in criminal penalties.

On the same day, the U.S. Department of Commerce’s Bureau of Industry and Security announced a $95 million civil penalty in a separate but coordinated enforcement action.

Cadence is also subject to a five-year compliance probation period.

What This Means to UK Companies

No Safe Harbour: Generally speaking, U.S. export regulations apply to any goods that are exported from the United States, re-exported, or if there is an “in-country transfer” in violation of the regulations for the item in question. Note also that goods that are the “direct product” of U.S.-origin technology may also be subject to U.S. export laws and regulations even where entirely manufactured outside the United States.

AUKUS May Help: Once AUKUS-authorised user status is in force, UK firms should face less friction in handling U.S. technology subject to ITAR; but the Cadence case shows compliance will be strictly enforced, whether it involves ITAR or EAR.

UK Companies Must Operate Like U.S. Ones: Strong compliance procedures, automated export-control screening, proper classification and jurisdictional determinations, board-level oversight, insider-threat planning and response, and rapid incident-reporting need careful consideration and procedures in place, which are then adhered to.

The Benefits of Early Violation Reporting

The National Security Division (NSD) of the DOJ declined the prosecution of private equity firm White Deer Management LLC and its affiliates after the firm discovered and voluntarily self-disclosed criminal violations of U.S. sanctions and export laws committed by a company it acquired, Texas-based Unicat Catalyst Technologies LLC.

The NSD Voluntary Self-Disclosure Policy, which includes a related policy on self-disclosure of misconduct discovered during an M&A transaction (the “M&A Policy”), provides that when a company (1) completes a lawful bona fide acquisition of another entity, (2) voluntarily and timely self-discloses to NSD potentially criminal violations of laws affecting U.S. national security committed by the acquired entity, (3) fully cooperates with NSD’s investigation, and (4) timely and appropriately remedies the misconduct, NSD generally will not seek a guilty plea from the acquiror, and there is a presumption that NSD will decline to prosecute the acquiror. The NSD M&A Policy further provides that while a presumption of declination is not available to the acquired entity, NSD will credit the acquiror’s timely voluntary self-disclosure to the acquired entity and will consider whether the acquired entity otherwise satisfies the NSD Enforcement Policy’s requirements to obtain the benefits of the policy.

What This Means to UK Companies

While the Unicat case is fact specific, it does of course bring to the fore the importance of early violation reporting and how this is viewed by regulators in the context of their own policies. This is particularly the case where misconduct is discovered during the due-diligence process associated with an acquisition or merger of another company.

Although voluntary disclosure led to a good result for the company in this case, whether (and when) to disclose potential misconduct to U.S. government authorities is a complex decision that involves several different risks and considerations. Proper professional advice should be taken.

For More Information

Our U.S. government contracts practitioners are in the process of analysing all the recent regulatory and procurement changes and their impacts on UK contractors. For further information, you may contact the authors.