Defense Supply Chain Compliance: Critical Minerals Waiver Cessation Takes Effect January 1, 2027

What Happened

On July 20, 2026, President Trump signed Executive Order 14415, "Securing America's Defense Supply Chains and Ensuring Domestic Acquisition of Critical Materials." The order directs the Secretary of War and the Secretaries of the military departments to cease issuing waivers under 10 U.S.C. § 4872(c)(1) for the acquisition of covered materials from covered countries, effective January 1, 2027.

This means that defense contractors who currently rely on waivers to source specialty metals, tungsten, rare earth elements and other covered materials from China, Russia, North Korea, or Iran, including through Tier 2 and Tier 3 suppliers, will lose that pathway in fewer than 100 days.

What 10 U.S.C. § 4872 Requires

Section 4872 prohibits the Department of War from acquiring certain materials sourced from "covered countries." The statute has long provided waiver authority under subsection (c)(1), allowing the Secretary to waive the prohibition when compliant material was unavailable or when national security interests required it.

Executive Order 14415 does not repeal the waiver authority, but it functionally eliminates routine access to it. After January 1, 2027, waivers will only be issued if the contractor submits a formal mitigation plan, accepted by the Secretary or designee, that:

1. Identifies the specific source of non-compliant material;
2. Documents evidence of exhaustive efforts to acquire compliant material, or demonstrates that compliant material was not available; and
3. Describes the steps to be taken to remove the non-compliant covered material from its supply chains;
4. Establishes a strict projected timeline for complete implementation of the mitigation plan.

The FY2026 National Defense Authorization Act, signed in December 2025, further expanded the list of restricted minerals and established phased compliance timelines, broadening the universe of contractors affected. The FY2026 NDAA also introduces phased restrictions on Department of War procurement of advanced batteries linked to foreign entities of concern, with effective dates beginning January 1, 2028 for new acquisitions, January 1, 2029 for standard batteries and January 30, 2031 for existing acquisitions.

In addition, within 180 days of the order, the Secretary must require all prime contractors and subcontractors at any tier to submit a complete indentured Bill of Materials tracing all components, parts, equipment, software and materials back to the origin of raw materials. Contractors must also establish written procedures to proactively vet all suppliers and subcontractors for supply chain risks, including financial distress, foreign ownership or control and manufacturing vulnerabilities. Contractors relying on unreliable foreign suppliers must qualify and use alternative sources or risk suspension or termination of task orders, contract options, or existing contracts.

Who Is Affected

Any company in the defense supply chain whose products or components incorporate:

• Specialty metals (titanium, steel alloys, zirconium, hafnium)
• Tungsten and tungsten heavy alloys
• Rare earth elements (neodymium, dysprosium, terbium and others)
• Molybdenum, gallium, germanium and other materials added by the FY2026 NDAA

This includes not only prime contractors, but subcontractors at every tier. A Tier 3 supplier sourcing rare earth magnets from Chinese processors creates compliance exposure for the entire prime contract.

Sectors with particularly high exposure include aerospace and defense manufacturing, missile and munitions production, semiconductor fabrication, advanced electronics and energy storage systems used in military applications.

The Compliance Risk

Contractors who cannot demonstrate compliant sourcing – or who lack an accepted mitigation plan – face multiple categories of risk:

• Contract performance risk: Inability to deliver compliant material may constitute a material breach or trigger termination for default.
• False Claims Act exposure: Representations and certifications regarding material sourcing compliance are subject to FCA liability if inaccurate.
• Competitive disadvantage: Contractors with established compliant supply chains will be preferred in future source selections.
• Cascading subcontractor risk: Non-compliance at any supply chain tier flows upward to the prime.
• Enforcement exposure: EO 14415 directs the Secretary to take all appropriate contractual remedies for fraud or willful noncompliance with mitigation plans and authorizes referral to the Attorney General for investigation and possible prosecution.

What You Should Do Now

With fewer than 100 days until the waiver cessation takes effect, we recommend the following immediate actions:

Phase 1 – Assessment (Immediate)

• Map your complete supply chain for all covered materials, including Tier 2 and Tier 3 suppliers
• Identify every active contract or subcontract with 10 U.S.C. § 4872 compliance requirements
• Determine whether any current suppliers source covered materials from covered countries
• Assess exposure to the FY2026 NDAA's expanded minerals list

Phase 2 – Mitigation Planning (October – December 2026)

• Develop formal mitigation plans meeting EO 14415's four-part standard for any non-compliant sources
• Document exhaustive efforts to identify compliant alternative suppliers
• Execute alternative sourcing agreements or offtake arrangements with domestic or allied-nation suppliers
• Submit waiver requests with mitigation plans before the January 1, 2027 cessation date
• Update all DFARS representations and certifications

Phase 3 – Ongoing Compliance (2027 and Beyond)

• Monitor Buy American domestic content threshold increases (65% for items delivered through 2028, increasing to 75% for items delivered starting in 2029)
• Track funding opportunities through the Defense Industrial Base Consortium, DPA Title III and DOE programs that may subsidize transition to compliant domestic sources
• Maintain contemporaneous documentation sufficient to defend against FCA inquiries
• Implement supply chain monitoring systems to detect non-compliant sourcing at lower tiers

Federal Funding May Offset Transition Costs

Congress and the executive branch have made substantial capital available to support domestic critical minerals supply chains:

• $7.5 billion through the One Big Beautiful Bill Act (2025), including $5 billion for the Industrial Base Fund, $2 billion for the National Defense Stockpile Transaction Fund, and $500 million through the Office of Strategic Capital for critical minerals investments
• $500 million in DOE funding for critical minerals processing, recycling and manufacturing (awards announced August 2026)
• Defense Industrial Base Consortium proposals may access direct equity investments, convertible notes and revenue-sharing arrangements
• DOE Energy Dominance Financing Program maintains over $300 billion in combined loan authority across four programs, with energy and critical materials infrastructure among eligible project categories
• DPA Title III financing, separately funded with $1 billion through the One Big Beautiful Bill Act, supports grants, loans, purchase commitments and direct investments in domestic critical minerals production capacity

Notably, EO 14415 expressly excludes from its restrictions any materials sourced through the U.S. Strategic Critical Minerals Reserve (“Project Vault”) or from projects financed, guaranteed, or insured by the Export-Import Bank, the U.S. International Development Finance Corporation, or supported by the Departments of State, War, Commerce or Energy. Contractors sourcing through these channels may already have a compliance pathway independent of the waiver process.

In February 2026, EXIM approved a Direct Loan of up to $10 billion to Project Vault, and private sector commitments continue to grow, reinforcing this pathway as an actionable compliance alternative.

Contractors investing in domestic or allied-nation sourcing alternatives may be well-positioned to access these programs, potentially converting a compliance burden into a strategic investment.

How Orrick Can Help

Our team advises at the intersection of critical minerals, defense supply chains and federal investment – the precise convergence point where EO 14415 creates the most urgent and complex questions.

For a confidential assessment of your supply chain compliance posture, contact Young Lee at [email protected] or +1 212 506 5012.