Navigating CMMC Compliance in the DoD Supply Chain: Prime Responsibilities, Risks, and Third-Party Governance

As of September 2025, the Department of Defense (DoD) has finalized the Cybersecurity Maturity Model Certification (CMMC) program through its final rule (32 CFR Part 170), with implementation beginning December 16, 2024. While the DFARS updates continue to be finalized, prime contractors are already preparing for heightened supply chain cybersecurity responsibilities. With a phased rollout expected to extend through approximately late 2027, prime contractors face new obligations for ensuring subcontractor compliance. This blog explores subcontractor obligations, potential penalties for primes due to subcontractor failures, and how leading primes are integrating these requirements into third-party risk management (TPRM) frameworks, drawing from regulatory updates and industry analyses.

Subcontractor Obligations Under the CMMC Final Rule: Flow-Down, Verification, and SPRS Affirmations

The CMMC framework includes explicit language on subcontractor obligations to protect the DoD supply chain. Requirements only flow down to subcontractors when they process, store, or transmit Federal Contract Information (FCI) or Controlled Unclassified Information (CUI), ensuring targeted compliance. Subcontractors must post assessment results in the Supplier Performance Risk System (SPRS) and complete annual affirmations of compliance.

For example, DFARS 252.204-7021(f)(2) requires primes to "ensure that the subcontractor has a current CMMC certificate or status at the appropriate level for the information flowed down," emphasizing pre-award verification. Subsection (d)(4) mandates that primes ensure subcontractors maintain annual SPRS affirmations. Primes must (1) insert CMMC requirements into applicable subcontracts and (2) verify compliance before award.

The DoD's CMMC overview and DFARS finalization materials confirm that contractors and subcontractors must maintain CMMC status and submit SPRS affirmations, with results recorded there. A practical nuance: Primes lack direct access to subcontractors' SPRS profiles, so contracts should require subs to provide proof of status (e.g., screenshots or letters) upon request, ensuring verification without relying on DoD systems.

Scenarios Where Primes Could Face Penalties or Lose Contracts Due to Subcontractor Mishandling of CUI

Primes could face severe consequences for egregious subcontractor mishandling of CUI, as CMMC holds them accountable for supply chain oversight under DFARS 252.204-7012 and 252.204-7021. Key scenarios include:

Non-Compliance or Breach Leading to Ineligibility

If a subcontractor's CUI mishandling (e.g., a cyber breach) reveals the prime's failure to verify CMMC status or flow down requirements, the prime may be deemed non-compliant. DoD cannot award contracts to primes with insecure supply chains, risking lost bids or termination for default. Post-award breaches may trigger SPRS reviews, lowering scores and barring future eligibility.

Penalties from Incident Reporting Violations

DFARS 252.204-7012 requires primes to report CUI incidents (including at subs) within 72 hours. Egregious mishandling, like a ransomware attack, could trigger False Claims Act (FCA) liability if prior affirmations were false, with penalties of $14,308–$28,619 per claim (2025 rates) plus treble damages. DoD may impose fines for subcontractor weaknesses as enforcement intensifies.

Reputational and Performance-Based Consequences

A sub's breach can harm the prime's reputation, prompting audits or exclusion from DoD opportunities. Without due diligence (e.g., pre-award checks), primes risk debarment under FAR Subpart 9.4. Supply chain reviews may question reliance on non-compliant subs, leading to lost contracts.

Contractual Flow-Down Breaches and Termination

Primes must embed CMMC clauses in subcontracts and ensure compliance. Sub mishandling could breach the prime contract, enabling DoD termination or payment withholding. Analogous federal cases show breaches cascading to primes, incurring costs or litigation.

Integrating CMMC Compliance into Prime Contractors' Third-Party Risk Governance Policies

Primes are embedding CMMC requirements into TPRM policies, assessing subcontractor CMMC certifications alongside cyber posture. This aligns with NIST SP 800-161r1-upd1 (updated November 1, 2024), which provides cybersecurity supply chain risk management (C-SCRM) guidance, emphasizing multilevel risk assessments (enterprise, mission, operational) for suppliers handling CUI in the Defense Industrial Base (DIB).

Shared Assessments' Standard Information Gathering (SIG) toolset maps to CMMC 2.0 and has included NIST SP 800-171 in it's latest version, enhancing its utility for defense contractors managing CUI. Improved privacy controls facilitate compliance with CMMC and DFARS requirements, aiding due diligence on NIST SP 800-171's 110 security controls. Industry analyses, like Baker Tilly's on CMMC 2.0, underscore TPRM tools for monitoring and risk mitigation. By leveraging questionnaires, audits, and contractual proofs, primes can avoid pitfalls and strengthen cybersecurity.

Conclusion

With CMMC implementation beginning December 2024 and phasing in through approximately late 2027, prime contractors must prioritize robust supply chain oversight as the regulatory framework continues to evolve. Resources like NIST SP 800-161r1 and Shared Assessments' SIG are critical for DIB success. Given the ongoing finalization of DFARS updates and the phased implementation approach, contractors should stay current with regulatory developments. For tailored guidance on navigating these evolving requirements, consult legal or TPRM specialists.

Sources

• Federal Register, "Cybersecurity Maturity Model Certification (CMMC) Program," 89 FR 83106, October 15, 2024.

• DFARS 252.204-7012, "Safeguarding Covered Defense Information and Cyber Incident Reporting."

• DFARS 252.204-7021, "CMMC Requirements," October 2024.

• NIST SP 800-161r1-upd1, "Cybersecurity Supply Chain Risk Management Practices," November 2024.

• Shared Assessments, "2024 SIG Questionnaire Release Notes," 2024.

• Holland & Knight, "CMMC 2.0 Final Rule: Key Takeaways for DoD Contractors," September 26, 2024.

• Baker Tilly, "CMMC 2.0: Supply Chain Cybersecurity Considerations," 2024.

• PilieroMazza, "CMMC 2.0: What Contractors Need to Know," 2024.

• Department of Justice, "Civil Monetary Penalties Inflation Adjustment," January 2025.

• DoD CMMC Overview, dodcio.defense.gov.