Compliance with the Cybersecurity Maturity Model Certification (CMMC) is no longer an option for companies involved in Department of Defense (DoD) contracts—it’s a necessity. But what if your business doesn’t have a direct DoD contract? Could you still be subject to CMMC requirements?
The answer is likely “yes.” Many businesses, from materials suppliers to parts manufacturers, could be classified as DoD subcontractors without knowing it. This means that even if you don’t handle classified information, your company may still need to implement specific cybersecurity practices to continue working with prime contractors who fulfill DoD contracts. Failure to meet these requirements could put your contracts at risk.
In this guide, we’ll explore how to identify if your business is considered a DoD subcontractor, what CMMC compliance entails, and how companies like Centurion Data Systems (CDS) can help you navigate the compliance process to protect your business.
1. What is CMMC? A Practical Overview
The Cybersecurity Maturity Model Certification (CMMC) is a DoD initiative designed to secure the defense supply chain by ensuring that all companies involved follow rigorous cybersecurity standards. CMMC introduces a tiered system, assigning compliance levels based on the sensitivity of data each company handles. From protecting basic contract details to securing highly sensitive information, the CMMC framework holds both direct and indirect DoD suppliers to consistent standards.
CMMC Compliance Levels:
- Level 1: Basic Cyber Hygiene – Designed for companies handling basic Federal Contract Information (FCI), requiring fundamental security practices.
- Level 2: Advanced Cyber Hygiene – For companies dealing with Controlled Unclassified Information (CUI), with more advanced controls to secure sensitive information.
- Level 3: Expert Cyber Hygiene – For companies handling the most critical defense data, requiring the highest level of cybersecurity protections.
Why is CMMC Important for All Suppliers? The DoD’s commitment to secure its supply chain means that any business handling FCI or CUI—whether directly contracted by the DoD or indirectly supporting a DoD prime contractor—may be required to comply with CMMC. Many companies are unaware of this indirect responsibility, which can put them at risk of non-compliance and contract loss. CMMC compliance not only ensures contract eligibility but also strengthens cybersecurity across the supply chain.
2. Who is Considered a DoD Subcontractor?
Many businesses might assume they’re exempt from CMMC requirements if they don’t have a direct contract with the DoD. However, indirect suppliers are just as crucial in the defense supply chain and may still need to meet CMMC standards. Any business that provides goods or services essential to a DoD contract is considered a subcontractor—even if they’re several layers removed from the prime contractor.
Direct vs. Indirect Subcontractors
- Direct Subcontractors: Companies directly contracted by the DoD or a primary contractor.
- Indirect Subcontractors: Companies further down the supply chain that support DoD-related work but aren’t directly contracted by the DoD. Examples include parts suppliers, logistics firms, and specialized material providers whose products or services contribute to fulfilling DoD contracts.
Indicators of Subcontractor Status
Your business might be considered a subcontractor if:
- Contract terms mention Federal Contract Information (FCI) or Controlled Unclassified Information (CUI).
- You receive flow-down clauses from prime contractors that specify cybersecurity or data handling requirements.
- You supply goods or services integral to a DoD contract’s completion, such as raw materials or specialized parts.
Examples of Indirect Subcontractors
- A parts supplier for a military vehicle manufacturer: This supplier may need to meet CMMC requirements because their components are essential for producing DoD assets.
- A logistics provider transporting equipment for a DoD project: The provider might handle data like routing information or delivery schedules, which could classify as FCI.
- A metals supplier providing raw materials for aerospace components: This business indirectly supports DoD projects and may be required to secure sensitive information about production and delivery schedules.
3. Understanding Federal Contract Information (FCI) and Why It Matters
Federal Contract Information (FCI) is defined as unclassified information generated for or provided by the government under a contract that isn’t meant for public release. FCI may include anything from pricing details to delivery timelines, and it requires basic safeguarding. If a business handles FCI, it must comply with CMMC Level 1, the most basic cybersecurity standard.
Examples of FCI:
- Contract Specifications: Details about order quantities, timelines, and delivery expectations.
- Pricing Information: Sensitive pricing or bid-related data that is not publicly available.
- Operational Documents: Work orders, delivery schedules, and packing lists for shipments linked to a DoD project.
- Quality Assurance Documents: Inspection standards and quality control requirements provided by the DoD or a prime contractor.
Example Scenario
A textile company providing fabric for military uniforms receives detailed order specifications, delivery schedules, and testing standards from a DoD prime contractor. This contract-related information qualifies as FCI, meaning the company must implement CMMC Level 1 requirements to continue working with the prime contractor and protect these basic contract details.
4. What is Controlled Unclassified Information (CUI)?
Controlled Unclassified Information (CUI) is a category of unclassified but sensitive information that requires safeguarding due to its potential impact on national security. Unlike FCI, CUI is more sensitive and requires compliance with CMMC Level 2 or higher, depending on the type and criticality of the data. Companies that handle CUI must implement more advanced cybersecurity measures to protect this information.
Examples of CUI:
- Technical Drawings: Detailed schematics or engineering designs for parts used in defense systems, such as turbine blades.
- Testing and Evaluation Data: Results from durability tests or stress tests conducted on materials like protective coatings.
- Proprietary Manufacturing Processes: Unique techniques or formulas that are integral to producing DoD-specific products.
- Personnel Data: Sensitive payroll or contact information for employees working on a DoD contract.
Example Scenario
A metals processing company handles proprietary processes for coating military vehicle parts to enhance durability. Because these processes are classified as CUI, the company needs to meet CMMC Level 2 requirements, which include more advanced access control, encryption, and incident response practices to protect sensitive information.
5. CMMC Levels and Compliance Requirements
CMMC compliance levels vary based on the sensitivity of the information being handled. The requirements escalate from basic controls for FCI (Level 1) to advanced cybersecurity measures for CUI (Levels 2 and 3).
CMMC Compliance Levels:
- Level 1 – Basic Cyber Hygiene: Basic practices like access control, data disposal, and physical security to protect FCI. Requires annual self-assessment and affirmation in the Supplier Performance Risk System (SPRS).
- Level 2 – Advanced Cyber Hygiene: Requires 110 cybersecurity controls aligned with NIST SP 800-171 for protecting CUI. Depending on data sensitivity, it may require self-assessment or third-party assessment.
- Level 3 – Expert Cyber Hygiene: The highest security level, incorporating advanced controls aligned with NIST SP 800-172, often assessed by government-led bodies for companies handling the most critical DoD information.
Why Each Level Matters
Each level of CMMC compliance is crucial for securing the DoD’s supply chain, ensuring that sensitive data is protected across every supplier and contractor. Even if a business only handles FCI, compliance with Level 1 requirements is essential to continue supporting DoD projects and to meet legal obligations.
6. How Vendor Consolidation Can Impact Subcontractors Who Aren’t CMMC Compliant
Vendor consolidation is a growing trend in the defense industry, as prime contractors and large suppliers streamline their operations by reducing the number of vendors they work with. Through consolidation, they aim to work with fewer suppliers who can handle a wider range of products and services, making it easier to manage security requirements and compliance standards across their supply chains. For subcontractors, however, this trend means that falling behind in CMMC compliance can directly lead to lost business.
What is Vendor Consolidation?
Vendor consolidation occurs when a prime contractor combines multiple supply needs—such as raw materials, manufacturing, and logistics—under a single vendor or supplier. This reduces complexity for the prime contractor, as they only need to manage and verify compliance for one vendor instead of several. But for subcontractors, this consolidation means they must meet all relevant CMMC requirements across the services they provide, especially if those services involve handling Federal Contract Information (FCI) or Controlled Unclassified Information (CUI).
Compliance Challenges in a Consolidated Environment
When prime contractors consolidate their vendors, they tend to favor suppliers who are already CMMC compliant across all applicable levels. Subcontractors that lag behind in achieving CMMC compliance—particularly those that haven’t yet met even basic Level 1 requirements—risk being dropped from consideration in favor of more compliant competitors. This trend increases the pressure on subcontractors to proactively achieve compliance to stay competitive.
Example Scenario
Imagine a metal parts manufacturer that supplies fasteners and specialized components for a military vehicle contract. The fasteners themselves might only require CMMC Level 1 compliance because they don’t involve sensitive information. However, the specialized components use proprietary designs and data classified as CUI, requiring CMMC Level 2 compliance.
If this subcontractor hasn’t taken steps to secure CMMC Level 2, the prime contractor may choose a different vendor who can handle both parts at the necessary compliance levels. By consolidating these roles under a compliant vendor, the prime contractor reduces risk and ensures the entire contract meets DoD security standards. In this scenario, the original parts manufacturer loses out on future contracts due to lack of proactive CMMC compliance.
Why Lack of Compliance Means Missed Opportunities
In a consolidated vendor environment, prime contractors expect their suppliers to be ready to meet CMMC requirements across all relevant data levels. Non-compliant subcontractors are seen as liabilities, as any lapse in security can jeopardize the prime contractor’s entire contract with the DoD. Suppliers that proactively achieve compliance are more likely to secure long-term contracts, while those who delay risk losing business to competitors who have already met CMMC standards.
The Importance of Proactive Compliance
For subcontractors, being proactive about CMMC compliance isn’t just about meeting government regulations—it’s essential to staying competitive. Prime contractors are increasingly unwilling to work with vendors who aren’t CMMC certified because non-compliance poses risks that could affect the prime’s own contract eligibility. By ensuring compliance, subcontractors position themselves as reliable partners, more likely to retain and grow their role in consolidated vendor relationships.
7. Why Prime Contractors Are Responsible for Ensuring Supply Chain Compliance
The CMMC framework places responsibility on prime contractors to ensure that their entire supply chain is compliant with the appropriate cybersecurity standards. This approach, known as “flow-down,” is designed to prevent weak links within the defense supply chain that could compromise sensitive DoD information. Here’s how it affects subcontractors.
Understanding Flow-Down Requirements
“Flow-down” refers to the obligation of prime contractors to pass on specific requirements to subcontractors, especially around cybersecurity. This means that if a prime contractor’s DoD contract includes CMMC requirements, these obligations must flow down to all subcontractors who handle FCI or CUI, even if they’re indirect suppliers several layers removed from the DoD.
Implications for Subcontractors
For subcontractors, flow-down means that compliance is not optional. Prime contractors have an incentive to vet each supplier’s cybersecurity practices, as any non-compliance within the supply chain can jeopardize the prime’s contract eligibility and expose them to penalties.
Example Scenario
A logistics provider is hired by a DoD prime contractor to transport specialized equipment. Although the provider may not handle CUI directly, the operational details—like delivery routes and schedules—could be classified as FCI. The prime contractor would need to ensure that the logistics provider meets CMMC Level 1 standards, including basic security controls for data handling and regular self-assessment in SPRS.
8. Steps to Determine If Your Business Needs CMMC Compliance
For businesses unsure of their subcontractor status or cybersecurity obligations, a few essential steps can clarify their responsibilities. Taking the time to evaluate contracts, data handling practices, and communication with prime contractors can help companies make an informed decision about CMMC compliance.
Self-Assessment Checklist
- Review Contract Language: Look for terms like FCI, CUI, or references to data security clauses such as FAR 52.204-21 or DFARS 252.204-7012. These clauses typically indicate that cybersecurity protections are required.
- Evaluate Data Handling Practices: Determine if any data received, stored, or shared could qualify as FCI or CUI. Examples include shipping records, production schedules, and technical drawings.
- Check Flow-Down Requirements: If the contract specifies flow-down clauses or mentions “supplier compliance,” these are strong indicators that CMMC compliance applies.
- Consult with Prime Contractors: Contact the prime contractor to confirm the level of data sensitivity in your contract and clarify whether compliance is required.
Practical Examples
- A textile supplier reviewing its contract notices references to FAR 52.204-21, suggesting that it must meet CMMC Level 1 for basic data protection.
- A precision parts manufacturer supplying DoD-specific parts with technical drawings should confirm if these designs are classified as CUI. If so, CMMC Level 2 would be necessary.
By conducting a self-assessment and clarifying obligations, businesses can determine their CMMC responsibilities and prepare for any needed compliance steps.
9. How to Comply with CMMC Level 1: Step-by-Step Implementation
CMMC Level 1, or “Basic Cyber Hygiene,” requires companies to implement foundational cybersecurity practices to safeguard FCI. For many small businesses and non-IT companies, these controls are manageable and designed to protect essential data without overwhelming resources.
Overview of CMMC Level 1 Requirements
CMMC Level 1 comprises 15 practices across several security domains, including access control, data disposal, and basic data protection measures. Here’s how companies can achieve Level 1 compliance, step-by-step:
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Access Control:
- Limit Access to Authorized Users: Create individual accounts for authorized employees and require login credentials for any system handling FCI.
- Define Transaction Permissions: Set user permissions to limit access to only the data and functions employees need for their roles.
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Media Protection:
- Sanitize or Destroy Media: Properly destroy or erase any media containing FCI before disposal. This applies to hard drives, flash drives, or other digital media used for contract-related information.
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Physical Protection:
- Limit Physical Access: Control physical access to systems storing FCI. Implement basic security measures, such as locked storage for hard copies or restricted access areas for computers.
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System and Information Integrity:
- Protect Against Malicious Code: Use antivirus software on all devices that access FCI. Regularly update and monitor antivirus systems for protection.
- Perform Regular Scans: Schedule regular scans to detect and address any vulnerabilities in your systems.
Example Scenario
A shipping company working with a DoD prime contractor restricts access to computers that store FCI, requires unique user IDs, and installs antivirus software to protect operational data. By implementing these controls, the company meets Level 1 requirements, safeguarding contract information and maintaining eligibility.
10. Introduction to SPRS and Compliance Affirmation
The Supplier Performance Risk System (SPRS) is the DoD’s central database for tracking and affirming CMMC compliance. Companies subject to CMMC Level 1 requirements must submit an annual self-assessment affirmation in SPRS to confirm their compliance. This provides the DoD and prime contractors with visibility into each supplier’s cybersecurity readiness.
What is SPRS?
SPRS is used to collect, manage, and track self-assessment results from companies within the DoD supply chain. By affirming compliance, businesses demonstrate their commitment to safeguarding FCI, which helps primes and the DoD assess the security posture of their suppliers.
How to Submit Your CMMC Level 1 Self-Assessment
- Complete the Self-Assessment: Conduct a self-assessment using the CMMC Level 1 guidelines, ensuring all 15 practices are in place.
- Document Compliance: Record your assessment results, listing each control and evidence of its implementation.
- Log into SPRS: Submit your affirmation of compliance, including key details like company name, contract information, and a summary of the assessment results.
To simplify the process of self-assessment, you can also work with a company like Centurion Data Systems, that is a registered DoD contractor, understands this process intimately, and offers assistance services to take the burden of having to do this off the business principals.
Example Scenario
A packaging company working with a DoD prime contractor completes its CMMC Level 1 self-assessment, implementing basic cybersecurity controls. The company then submits its affirmation in SPRS, allowing the DoD and its prime contractor to verify their compliance status and maintain a secure supply chain.
11. CMMC Level 2: Requirements for Subcontractors Handling CUI
For companies that handle Controlled Unclassified Information (CUI), CMMC Level 2 compliance is mandatory. CUI is more sensitive than Federal Contract Information (FCI) and may include technical schematics, proprietary manufacturing techniques, or testing data that support national security. Achieving Level 2 requires 110 specific cybersecurity controls, as outlined in the NIST SP 800-171 framework.
Overview of Level 2 Compliance Requirements
Level 2 builds upon the basic protections of Level 1, adding more stringent measures for access control, data encryption, incident response, and system monitoring. To comply, companies must address each of these areas thoroughly, creating multiple layers of protection around CUI.
Examples of Required Controls for CUI
- Access Restrictions: Limit CUI access strictly to authorized personnel. Implement role-based access controls to ensure employees only view data relevant to their job.
- Data Encryption: Encrypt all CUI, both in storage and during transmission, to protect it from unauthorized access.
- Incident Response and Monitoring: Establish an incident response team and document incident response plans. Implement continuous monitoring tools to detect suspicious activities in real-time.
Example Scenario
A manufacturer of specialized components for defense aircraft handles technical data on their proprietary designs, which qualifies as CUI. To comply with Level 2, they encrypt all design files, limit access to a restricted group of engineers, and install monitoring software to track unauthorized access attempts. By adhering to Level 2 standards, the company protects its contract eligibility and ensures that sensitive information stays secure.
12. Plan of Action and Milestones (POA&M) for Conditional Certification
Not every company achieves full compliance immediately, especially when transitioning to the more demanding Level 2 and Level 3 requirements. For subcontractors close to compliance but needing time to implement all controls, CMMC allows for a “conditional” certification status through a Plan of Action and Milestones (POA&M).
What POA&M Entails
A POA&M is a formal plan documenting any outstanding compliance requirements and detailing steps to achieve full compliance within a specified timeframe. Companies must demonstrate at least 80% compliance to qualify for conditional status. The remaining 20% must be completed within 180 days to maintain eligibility.
Steps in a POA&M
- Identify Gaps: Conduct an internal assessment to identify which specific controls are not yet fully implemented.
- Set Milestones: Outline a clear timeline for achieving each remaining control, with specific milestones and completion dates.
- Commit to Monitoring: Regularly review progress toward each milestone and update the plan as necessary to stay on track.
Example Scenario
A machine parts manufacturer aiming for Level 2 compliance has implemented 85% of the required controls but needs more time to secure all access points. They submit a POA&M detailing their remaining steps, including encryption upgrades and additional employee training. This conditional status allows them to retain their contract temporarily, but full compliance must be achieved within 180 days to avoid penalties or potential contract termination.
13. Risks of Non-Compliance for Subcontractors
The consequences of failing to achieve CMMC compliance can be serious, especially for subcontractors in competitive fields. Non-compliance can jeopardize existing contracts, restrict future business opportunities, and damage relationships with prime contractors, who are increasingly focused on cybersecurity due to their own contractual obligations to the DoD.
Immediate Consequences
- Contract Termination: If a subcontractor cannot meet the required compliance level, a prime contractor may need to find an alternative supplier who can meet DoD standards.
- Loss of Competitive Advantage: As CMMC compliance becomes standard across the defense industry, non-compliant subcontractors are at risk of losing out on bids to compliant competitors.
- Liability for Security Incidents: In cases where non-compliance leads to a security breach, the subcontractor may be held liable, facing potential fines, legal costs, or reputational damage.
Example Scenario
A supplier providing coatings for military vehicles fails to complete their CMMC Level 1 self-assessment. When the prime contractor discovers the lapse, they are forced to look for an alternate vendor to protect their DoD eligibility. The original supplier loses their contract and risks future business with the prime contractor due to their non-compliance.
14. Why CMMC Compliance Benefits Extend Beyond DoD Contracts
While CMMC is a DoD-specific requirement, achieving compliance offers advantages that extend well beyond defense contracts. Strong cybersecurity practices can improve a business’s resilience to cyber threats, enhance customer trust, and create new opportunities within other regulated industries that value robust security measures.
Enhanced Cybersecurity Resilience
Implementing CMMC controls protects a business from common cyber threats like malware, phishing, and ransomware attacks. By establishing a foundation of security best practices, companies can minimize downtime, avoid costly data breaches, and prevent loss of proprietary information.
Increased Business Credibility and Trust
Compliance with CMMC standards demonstrates to all clients, not just DoD primes, that a company is committed to cybersecurity. This credibility can help attract customers in industries such as aerospace, energy, and healthcare, where data protection is a priority.
Example Scenario
A small manufacturing firm specializing in sensor technology adopts CMMC Level 2 standards to comply with a DoD contract. This cybersecurity focus helps them stand out in the commercial aerospace sector, where secure data handling is critical, opening new business opportunities and strengthening relationships with non-defense clients.
15. Proactively Securing Your Business with CMMC Compliance
The DoD’s CMMC framework has set a new standard for cybersecurity within the defense industry supply chain, impacting businesses across sectors, including those that may not have initially realized they qualify as subcontractors. For companies handling FCI or CUI, compliance is more than a regulatory requirement—it’s a competitive advantage and a long-term investment in business continuity.
Next Steps for Subcontractors
- Start with a Self-Assessment: Identify your current cybersecurity controls, assess where they align with CMMC requirements, and address any gaps.
- Seek Expert Assistance: For companies new to compliance, working with experts like Centurion Data Systems (CDS) can simplify the compliance process. CDS provides tailored assessments, POA&M development, and ongoing support to help subcontractors meet and maintain CMMC standards.
- Commit to Long-Term Compliance: Cybersecurity is an ongoing effort. Regularly review and update your practices to stay aligned with evolving CMMC requirements and protect your position in the DoD supply chain.
By taking proactive steps toward compliance as soon as possible, subcontractors ensure that not only their contracts are secure but also position themselves as trusted partners well outside strictly the defense sector. Working with a trusted partner like Centurion Data Systems can ensure that your compliance efforts are thorough, efficient, and sustainable, allowing you to confidently continue or expand your role within the defense industry.
