Compliance Analysis

Defense Prime Supply Chains Riddled with NDAA Section 1260H Violations

Defense Prime Supply Chains Riddled with NDAA Section 1260H Violations

Key takeaways

Altana analyzed 6.6 million multi-tier transactions across 609 U.S. defense contractors and sub-contractors. The findings reveal widespread upstream exposure to Chinese military entities flagged under NDAA Section 1260H, putting billions of dollars in Department of Defense contracts at risk.

  • Altana's analysis found 267,338 import transactions in 2024 where Chinese military entities listed under NDAA Section 1260H were present at Tier 3 or further upstream in U.S. defense contractor value chains.
  • 39% of U.S. defense prime contractor imports in 2024 had exposure to suppliers in China or Russia at Tier 3 or beyond, driven largely by China's control of critical minerals and permanent magnets used in military applications.
  • Starting June 30, 2026, the Department of Defense will be barred from direct contracts with entities listed under Section 1260H, and in 2027 the prohibition extends to indirect procurements across defense contractors' upstream supply chains.
  • Upstream exposure to Section 1260H listed Chinese entities touches $7.8 billion in yearly shipment value from nuclear reactors and reactor parts alone, components vital to ballistic submarines and hypersonic weapons platforms.
An analysis from Altana’s product network – built on the world’s most comprehensive body of supply chain data – reveals significant, upstream adversarial dependence and looming National Defense Authorization Act (NDAA) violations for the U.S. defense industrial base (DIB).
In 2024, 39% of total yearly defense prime contractor imports had China or Russia exposure present at Tier 3 or beyond, with 267,338 of the imports containing upstream exposure to Chinese military entities flagged under NDAA Section 1260H. In coming years, this upstream exposure will result in a ban on contracting with the Department of Defense, and a loss of lucrative government contracts.
Learn more about the extent of the defense industrial base's compliance challenges and how Altana's product network offers contractors and sub-contractors the visibility, traceability, and collaboration needed to secure product value chains and avoid NDAA violations.
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Why does NDAA Section 1260H matter for the DIB?

In the last five years, the National Defense Authorization Act (NDAA) has been burnished with a compounding set of provisions that prohibits the Department of Defense (DoD) from engaging with entities linked to Chinese military companies.
A particular challenge for the defense industrial base: Section 1260H, first introduced in 2021, requires the Department of Defense to publish yearly a list of Chinese military companies operating directly or indirectly in the U.S.
Section 805 of the Fiscal Year 2024 NDAA prohibits the DoD from contracting with entities flagged under the 1260H provision, with enforcement becoming more intense every year:
  • Starting on June 30, 2026, the DoD will be prohibited from entering into direct contracts on listed entities.
  • One year later, in 2027, the prohibition extends to indirect procurements, meaning defense contractors must ensure their supply chains are free from goods, services, and technology from these listed Chinese military companies – or they will lose government contracts.
Altana’s analysis indicates that in advance of 2027, defense contractors will struggle to comply with NDAA Section 1260H rules barring Chinese military suppliers in their upstream supply chains.
At a high level, nearly four in 10 U.S. DIB imports have exposure to suppliers in China or Russia at Tier 3 or beyond. Much of this upstream exposure is driven by China's stranglehold on critical minerals and permanent magnets, which are vital for the production of a range of military applications.
China or Russia DIB exposure
This general reliance on China and Russia also applies to upstream dependence on entities flagged by the Department of Defense as Chinese military entities. In 2024, the analysis uncovered 267,338 import transactions in which Section 1260H listed entities were present in Tier 3 or further upstream.
ndaa section 1260H yearly exposed transactions
Given the Gartner finding that only 17% of Chief Procurement Officers have visibility into Tier 3 suppliers, it’s likely that many prime DIB contractors and their sub-contractors don’t presently have an honest accounting of their vast, business-critical Section 1260H exposure.

High-value upstream imports from Section 1260H listed suppliers reverberate across U.S. DIB supply chain

The analysis further reveals that the upstream exposure to Chinese entities listed under Section 1260H of the NDAA affects billions of dollars of yearly imports to U.S. defense contractors.
$7.8 billion of shipment value flowing from nuclear reactors and nuclear reactor parts contains upstream exposure to Chinese military entities. Nuclear reactors are a vital component in ballistic submarines, the warships that transport and stage hypersonic weapons, and other applications.
section 1260H u.s. dib supply chain by application
Listed Chinese entities also exist upstream in the high-value trade lanes of centrifuges and converters ($3 billion yearly); internal combustion engines ($2.9 billion yearly); and air-vacuum pumps ($235 million yearly). These parts are vital for producing missiles, tanks, automotives, pneumatic conveyers, service parts, and other specialized military equipment.

Get DIB value chain visibility, traceability, and collaboration with Altana’s product network

Unlike tired supply chain technology that requires burdensome and inaccurate manual mapping, risk screening tools, and supplier surveys, Altana’s product network makes it possible for DIB contractors and sub-contractors to illuminate, design and collaborate across product-level value chains to identify and mitigate NDAA Section 1260H violations.
risk tier gif
  • Visibility means getting an instant, dynamic map of N-tier relationships at a product level. AI reveals specific multi-tier product value chain connections and uncovers hidden relationships and risks, such as upstream exposure to entities flagged on the Section 1260H list.
  • Traceability means having detailed data and documentation on a product’s lifecycle, as verified by upstream suppliers, to confirm a lack of NDAA violations.
  • Collaboration means closer relationships and more real-time communication with government agencies and regulators. Altana Product Passports can be used to collaborate with upstream and downstream supply chain partners, specifically allowing DIB contractors and sub-contractors to work directly with DoD to validate their suppliers' NDAA compliance

About the Analysis

Altana analyzed the product value chains of 609 U.S. defense contractors and sub-contractors. The analysis evaluated 6.6 million multi-tier transactions in 2024.

FAQs

  • NDAA Section 1260H, first introduced in 2021, requires the Department of Defense to publish a yearly list of Chinese military companies operating directly or indirectly in the U.S. Section 805 of the Fiscal Year 2024 NDAA then prohibits the Department of Defense from contracting with these listed entities. Defense contractors who fail to clear their supply chains of these suppliers risk losing government contracts.

  • The first ban takes effect on June 30, 2026, when the Department of Defense will be prohibited from entering direct contracts with entities listed under Section 1260H. One year later, in 2027, the prohibition extends to indirect procurements, meaning defense contractors must ensure their entire supply chains are free of goods, services, and technology from listed Chinese military companies.

  • Altana's analysis found that 39% of U.S. defense prime contractor imports in 2024 had China or Russia exposure at Tier 3 or beyond. Of those, 267,338 import transactions contained upstream exposure to Chinese military entities flagged under NDAA Section 1260H. This exposure is largely driven by China's control of critical minerals and permanent magnets essential to military production.

  • Most contractors lack visibility into the deep tiers of their supply chains where this exposure hides. According to Gartner, only 17% of Chief Procurement Officers have visibility into their Tier 3 suppliers. Because Section 1260H exposure sits at Tier 3 or beyond, many prime contractors and sub-contractors don't have an honest accounting of their compliance risk.

  • Altana's product network gives defense contractors and sub-contractors visibility, traceability, and collaboration across product-level value chains. It produces a dynamic map of multi-tier supplier relationships that reveals hidden upstream exposure to Section 1260H listed entities, replacing burdensome manual mapping and supplier surveys. Altana Product Passports also let contractors work directly with the Department of Defense to validate their suppliers' compliance.