OCI Compliance Pressures Expand: What DFARS Case 2025-16206 Means for High-Risk Industries

Defense contracts depend on two things: fair competition and unbiased accountability. The government must be able to trust when contractors provide advice, oversee programs, or access sensitive data, those roles are carried out impartially. If the same company later competes for the work, it helped define or evaluate, accountability breaks down.

That is the purpose of DFARS Case 2025-16206. Published on August 25, 2025 (the same day the government announced the 48 CFR update was coming), the OCI rule slipped in quietly, overshadowed by the 48 CFR headlines. While most headlines focused on the 48 CFR changes, DFARS 2025-16206 quietly extended conflict-of-interest protections deeper into defense contracting.

Together, these updates show a coordinated push: one making compliance enforceable across all defense contractors, and the other strengthening accountability for defense contractors by addressing OCI at the company level, not just the individual level.

What is the Purpose of DFARS Case 2025-16206?

DFARS Case 2025-16206 aligns with the recent FAR reforms on Organizational Conflicts of Interest (OCI), extending those principles into defense-specific acquisitions. While the FAR update set the baseline for federal contractors, the DFARS rule applies those same conflict-mitigation expectations to companies competing for Department of Defense contracts.

The purpose of this rule is straightforward: to ensure that defense contractors operate without organizational conflicts of interest that undermine accountability. In practice, it means contractors cannot advise, evaluate, or access sensitive information in ways that also benefit their own business interests.

Key objectives include:

• Protecting impartial advice: Contractors that help define requirements, provide strategy, or shape acquisition plans must do so without positioning themselves to profit from the same work.
• Maintaining objective oversight: Contractors performing evaluations, audits, or program support must not have direct interests in the outcomes they oversee.
• Safeguarding sensitive information: Contractors with access to non-public defense data must not use that information to strengthen their own bids or market position.
• Strengthening accountability at the organizational level: This is not about individual conflicts of interest. It is about whether the company itself is structured in a way that prevents or enables biased outcomes.

Conflict-of-interest controls are no longer best practice. They are now enforceable conditions of contract eligibility.

Real-World Examples of Why These Situations Are Conflicts

Biased ground rules

• Example: A contractor is hired to draft the DoD’s requirements for a new weapons platform, then turns around and bids to manufacture that same platform.
• Why it is a conflict: The contractor is both setting the rules and competing under them. The government cannot hold them accountable if the requirements were tilted in their own favor.

Impaired objectivity

• Example: A company is contracted to test and evaluate cybersecurity software for the DoD while also selling its own competing cybersecurity product.
• Why it is a conflict: The contractor is supposed to act as an independent evaluator but has a direct stake in the outcome. The government loses confidence that the evaluation is unbiased.

Unequal access to information

• Example: A consulting firm supporting the Pentagon’s acquisition planning has access to confidential cost data from multiple defense contractors, then uses that information to sharpen its own bid strategy.
• Why it is a conflict: The contractor is expected to use information only for the government’s benefit, not to give itself an inside edge. When it does, accountability is undermined.

The bottom line: You cannot audit your own work and call it objective. Many firms try to manage this by segmenting advisory and implementation teams, but if direction from the top is blurred, true accountability disappears.

How OCI Risks Will Be Addressed in Defense Contracts

To address these risks, the new DFARS rule gives contracting officers sharper tools than ever before. Among the most significant are the ability to:

• Demand disclosure of all relevant relationships, affiliates, and past government involvement.
• Require mitigation plans such as firewalls, role separation, and independent review teams.
• Restrict future opportunities when conflicts cannot be fully mitigated.
• Disqualify firms outright if OCI risks undermine accountability or procurement integrity.

This is not a procedural fine print change. It is a major shift in how defense acquisitions will be governed. For contractors in the Defense Industrial Base (DIB) and the wider National Technology and Industrial Base (NTIB), the message is unmistakable: when advisory and delivery roles overlap, contracting officers will challenge eligibility, limit participation, or even remove firms from competitions altogether.

Why This Matters for Executives

For executive leadership, DFARS Case 2025-16206 is not just a compliance technicality. It changes the playing field in ways that directly affect revenue, market share, and corporate reputation.

• Eligibility at risk: Firms that fail to identify or disclose conflicts can be excluded from competitions, even after investing significant time and resources in a bid.
• Revenue instability: Long-term contracts may be suspended or terminated if undisclosed OCI issues emerge during performance.
• Leadership accountability: Contracting officers now have clear authority to disqualify firms. That decision will rest not on technical teams but on how well leadership enforces governance, separation of duties, and disclosure protocols.
• Reputational consequences: Being flagged for OCI concerns signals to federal buyers and competitors that a firm cannot be trusted to operate without bias, which can damage standing in future procurements.

At its core, the rule reframes OCI from a niche legal concern into a strategic leadership issue. Executives must ensure that advisory, consulting, and policy support work does not overlap with delivery or bidding activities in ways that could be perceived as biased.

In today’s environment, the question is no longer whether OCI risks will be enforced, but how the defense contractor’s executive leadership team chooses to respond.

Common OCI Risk Drivers

We have already outlined several real-world examples of how organizational conflicts of interest (OCI) show up in defense contracting. Here are a few broader descriptions of where these risks typically come from:

• Dual roles: When the same firm provides advisory or consulting services to the DoD while also competing to deliver related technology, systems, or infrastructure.
• Pre-solicitation involvement: When firms are involved in shaping requirements, cost models, or evaluation criteria for programs they later pursue.
• Foreign ownership, control, or influence (FOCI): When companies with foreign ties participate in advisory or policy roles that could raise national security concerns.
• Complex supply chain structures: When large defense contractors or their affiliates touch multiple tiers of a program, creating blurred lines between advisor, evaluator, and implementer.

OCI risks often stem from the way a company organizes its business, not from any single contract. Recognizing these patterns early makes it far easier to mitigate them before they threaten eligibility for future defense work.

How CUI, ITAR, and FOCI Intensify OCI Risks

For defense contractors, conflicts of interest do not exist in isolation. They intersect with other high-stakes compliance obligations that already carry significant weight in federal acquisitions. Three areas in particular heighten the impact of OCI risks:

Controlled Unclassified Information (CUI)

• Contractors supporting program planning, cost modeling, or technical analysis often gain access to CUI.
• If that same contractor later uses this information to prepare its own bid, the result is an “unequal access to information” OCI.
• Why it matters: CUI is protected by DFARS 252.204-7012 and NIST 800-171 requirements. Misuse not only creates a conflict of interest but also a cybersecurity compliance violation.

International Traffic in Arms Regulations (ITAR)

• ITAR restricts how defense-related technical data and services are shared, especially with foreign nationals or entities.
• When a contractor with foreign ties advises on defense acquisition policy or evaluation criteria, questions arise about impartiality and national security.
• Why it matters: OCI concerns tied to ITAR exposure risk disqualification and reputational damage, even before formal investigations begin.

Foreign Ownership, Control, or Influence (FOCI)

• FOCI occurs when a defense contractor is owned or significantly influenced by a foreign entity.
• Alone, FOCI can be managed with mitigation agreements. But if combined with OCI for example, a foreign-influenced firm advising DoD while also bidding on related programs, it triggers much deeper scrutiny.
• Why it matters: FOCI plus OCI is viewed as a systemic risk to acquisition integrity and national security, making disqualification far more likely.

Executive takeaway: OCI risks are magnified when combined with sensitive information handling (CUI), export-controlled data (ITAR), or foreign influence (FOCI). For leadership teams, this means conflict-of-interest reviews cannot be separated from broader compliance governance.

Specific Industry Implications

The new DFARS rule does not affect all contractors in the same way. Organizational conflicts of interest (OCI) are most acute in industries where companies often serve dual roles: providing advisory or policy support to the Department of Defense while also delivering products, technology, or services.

The question is not whether OCI applies to their sector, but how it shows up in their specific business model. The following subsections highlight how OCI risks are likely to affect six high-risk industries.

Energy & Utilities

Defense contracts increasingly depend on resilient energy infrastructure, cyber-physical systems, and smart grid technologies. Many energy and utility firms find themselves in dual roles, advising the Department of Defense (DoD) on energy resilience and climate adaptation while also competing to deliver the systems that make those strategies real.

This creates a high risk of biased ground rules and impaired objectivity. For example, a utility consulting on DoD energy strategy could later be in a position to recommend its own microgrid solutions. Even if responsibilities are segmented internally, blurred direction from leadership can undermine accountability.

Executive takeaway: Energy and utilities firms must establish clear structural separation between advisory services and technology or infrastructure delivery. Disclosure alone will not be enough; contracting officers will likely expect proof that advisory teams and delivery teams cannot influence each other.

Telecom

Telecommunications companies play a critical role in defense modernization, from 5G rollout and spectrum planning to network security and resilient communications infrastructure. Many firms support the Department of Defense (DoD) in advisory capacities, shaping spectrum strategies, developing security frameworks, or guiding network architecture, while also selling the equipment and services that bring those plans to life.

This overlap creates a direct risk of biased ground rules and unequal access to information. For instance, a telecom provider advising on spectrum allocation or network design could gain insights that position its own technology as the default solution in later procurements. Even the perception of this dual role is enough to trigger contracting officer scrutiny.

Executive takeaway: Telecom executives must draw firm boundaries between strategy-setting teams and commercial product divisions. Effective mitigation will require both structural firewalls and transparent disclosure of how advisory work is insulated from competitive bidding.

Healthcare & Pharma

Healthcare and pharmaceutical companies are deeply embedded in defense and federal programs, from military health systems to pandemic preparedness and medical logistics. Many firms provide advisory services to agencies on healthcare policy, digital health infrastructure, or pharmaceutical supply chains, while also competing to deliver the platforms, products, and therapies those policies require.

This dual role creates a high risk of impaired objectivity. For example, a consulting arm advising on electronic health record strategy could later bid to implement or integrate its own system. Similarly, a pharmaceutical firm supporting policy development on drug distribution could also be a supplier within that same network.

Executive takeaway: Healthcare and pharma firms must separate policy-advisory work from commercial delivery functions with clear governance. Contracting officers will expect to see not only disclosure of these dual roles but also evidence that decisions made in advisory engagements cannot feed into competitive advantages.

Transportation & Aviation

Transportation and aviation contractors are essential to defense operations, from logistics planning and mobility strategies to aircraft systems and infrastructure projects. Many firms provide advisory services to the Department of Defense (DoD) on acquisition planning, safety frameworks, or logistics optimization, while also supplying the equipment, systems, or maintenance services tied to those very plans.

This creates a risk of both biased ground rules and impaired objectivity. For example, a contractor that develops evaluation criteria for a next-generation aircraft program could later compete as a bidder on the same platform. Similarly, a logistics consulting firm advising on supply chain resilience may also compete to run or secure those networks.

Executive takeaway: Transportation and aviation executives must ensure strict separation between advisory functions and operational delivery. Transparency with contracting officers will be critical, as any overlap in planning and implementation roles can quickly be viewed as a disqualifying conflict.

Food & Agriculture

Food and agriculture contractors support the Department of Defense (DoD) in areas such as food security, supply chain continuity, and emergency readiness. Many provide advisory input on resilience planning and logistics frameworks, while also serving as suppliers or distributors within defense food programs.

This overlap creates a risk of impaired objectivity and unequal access to information. For example, a contractor advising on food supply chain resilience could later bid to provide warehousing or logistics services under the very framework it helped design. Even if advisory and delivery teams are segmented internally, questions about accountability will surface if the organization’s leadership structure allows influence across both functions.

Executive takeaway: Food and agriculture firms must proactively disclose any dual roles and implement clear separation of teams. Contracting officers will expect to see that advisory insights cannot be used to position the company’s distribution or logistics capabilities for competitive advantage.

Financial Services

Financial services firms engage with the Department of Defense (DoD) in areas such as financial management policy, audit readiness, and investment oversight. Some provide advisory support on issues like accounting standards, compliance frameworks, or program cost modeling, while also participating in contracts or activities tied to those same policies.

This creates risks of impaired objectivity and biased ground rules. For example, a financial services firm advising on DoD’s audit or accounting policies could later serve as an auditor under those same standards. Similarly, an investment advisor helping the government shape capital allocation strategies might also compete to manage or distribute those funds.

Executive takeaway: Financial services executives must recognize that even traditional financial roles (e.g., audits, advisory engagements, or investment services) can present OCI risks. Contracting officers will expect proof that advisory and oversight functions are structurally separated from any commercial or financial roles that could benefit from those decisions.

Executive-Level Actions to Mitigate OCI Risks

The new DFARS rule makes one point clear: organizational conflict-of-interest (OCI) controls are now a condition of contract eligibility. For defense contractors, this shifts responsibility squarely to executive leadership. Effective governance will determine whether a company remains competitive.

Key actions include:

• Conduct an OCI risk assessment: Map current advisory, oversight, and delivery roles across the business to identify where conflicts may exist.
• Disclose proactively: Provide contracting officers with full transparency around affiliates, foreign ownership, and any advisory engagements tied to defense acquisitions.
• Implement structural firewalls: Establish clear separation between teams handling advisory or oversight work and those pursuing related contracts.
• Document mitigation plans: Formalize policies, reporting chains, and internal controls so that separation is provable, not assumed.
• Integrate with compliance governance: Ensure OCI oversight aligns with existing CUI, ITAR, and FOCI obligations, reinforcing a single governance framework.
• Prepare for scrutiny: Expect contracting officers to test whether controls are real. Be ready to demonstrate accountability at the organizational level, not just on paper.

OCI is no longer a background compliance concern. It is a leadership issue that demands visible governance, structural discipline, and active oversight. Firms that cannot prove separation between advisory and delivery roles risk losing eligibility altogether.

Closing Takeaway

DFARS Case 2025-16206 is more than a technical acquisition update. It is a signal that the Department of Defense (DoD) expects defense contractors to prove impartiality, not simply claim it. Advisory, oversight, and delivery functions can no longer overlap without consequence.

The challenge is straightforward but non-negotiable: organizational conflict-of-interest (OCI) controls must be visible, enforceable, and embedded in governance. The risk is not theoretical. Contracting officers now hold the authority to restrict opportunities, exclude firms from competitions, or disqualify contractors entirely if accountability is in doubt.

Defense contractors that act now by disclosing, separating, and documenting their roles will safeguard contract viability and preserve trust with the government. Those that wait risk revenue loss, reputational damage, and exclusion from future defense programs.

Next Steps

DFARS Case 2025-16206 raises new questions for defense contractors:

• Do existing advisory and delivery roles create hidden OCI risks?
• Are disclosure and mitigation plans strong enough to satisfy contracting officers?
• Is leadership governance clear, documented, and defensible under the new rule?

These are not questions to leave to chance. StrategiX Security provides executive-level advisory and consulting support to help contractors evaluate organizational risks, align governance structures, and prepare for heightened scrutiny under DFARS 2025-16206.

To discuss how these changes may affect your organization, contact us at:

📅 Ready to talk strategy? Book a time that works for you: strategixsecurity.com/consult
📞 Prefer to call? 470-750-3555
📧 Or email us at: hello@strategixsecurity.com

Accountability isn’t optional under DFARS 2025-16206, it’s a condition of doing business.