What You Need to Know

• Key takeaway #1: Contractors should continue monitoring DoD’s annual updates to the 1260H list.
• Key takeaway #2: Contractors should also be aware of any 1260H-listed entities in their supply chains and implement supply chain screening procedures to ensure compliance with the Entity Prohibition and Goods and Services Prohibition from Section 805 of the FY 2024 NDAA well before their respective effective dates of June 30, 2026 and June 30, 2027.

Client Alert

On January 31, 2024, the Department of Defense (DoD) updated the 1260H List of entities identified as “Chinese military companies” operating in the United States, as it is required to do at least annually by Section 1260H of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021.  Section 1260H defines a “Chinese military company” as an entity that is:

• directly or indirectly owned, controlled, or beneficially owned by, or in an official or unofficial capacity acting as an agent of or on behalf of, the People’s Liberation Army or any other organization subordinate to the Central Military Commission of the Chinese Communist Party or identified as a military-civil fusion contributor to the Chinese defense industrial base and
• engaged in providing commercial services, manufacturing, producing, or exporting.

DoD first published the 1260H List in 2021 with 47 entities and updated it to include 13 more entities in 2022.  DoD did not issue an updated 1260H List in 2023. 

This most recent 1260H List update added 16 entities, including subsidiaries.  For the first time, DoD also removed three entities, finding that those entities either lacked a U.S. nexus or had a change in ownership structure.

While Section 1260H does not itself implement any prohibitions for identified companies, Section 805 of the FY 2024 NDAA prohibits DoD from entering into a contract with an entity on the 1260H list (Entity Prohibition) or purchasing, directly or indirectly, goods and services that include goods or services sourced from an entity on the 1260H list or any entity subject to the control of an entity on the 1260H list (Goods and Services Prohibition).  Section 805’s Entity Prohibition becomes effective on June 30, 2026, and its Goods and Services Prohibition becomes effective on June 30, 2027.  The prohibitions do not extend to purchases of goods, services, or technology that connect goods or services to third party services (e.g., interconnection) or to components, defined broadly as items supplied to the federal government as part of an end item or of another component.  This last exception is a significant exception, as it means the prohibition only applies to the extent the goods, services, or technology produced or developed by the 1260H entity are the end items being acquired by the DoD customer; i.e., to the extent a component produced or supplied by one of the entities is incorporated into a higher-level assembly or product, it would not be within the scope of the restriction.