Audit & Compliance Awareness

How CMMC Impacts Subcontractors and Supply Chain Risk

by Lazarus Alliance 0 Comment
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While most of the focus of CMMC is on primary contractors, subcontractors (especially small and mid-sized firms) play an equally critical role in ensuring information security across the supply chain. As such, they are increasingly in the spotlight, both in terms of compliance requirements and as focal points for supply chain risk.

However, their smaller size and limited resources often make them more vulnerable to cyber threats. Attackers have long targeted the weakest links in the supply chain, and subcontractors usually serve as such entry points. The DoD’s implementation of CMMC aims to address this by enforcing standardized cybersecurity practices at every tier of the supply chain.

 

Understanding CMMC Flowdown Requirements

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The most immediate and direct impact of CMMC on subcontractors stems from flowdown obligations established by DFARS clauses such as 252.204-7012, 7019, 7020, and 7021. These clauses require prime contractors to ensure that their subcontractors meet applicable cybersecurity requirements if those subcontractors process, store, or transmit FCI and CUI.

CMMC introduces a tiered certification model. At Level 1, organizations must meet the 15 basic safeguarding requirements of FAR 52.204-21, which pertain to FCI. Level 2, which addresses CUI, incorporates all 110 requirements from NIST SP 800-171. 

Prime contractors are required not only to achieve the appropriate CMMC certification themselves but also to flow down these requirements to all relevant subcontractors. This is not optional. If a subcontractor handles CUI, it must achieve Level 2 certification. If it only handles FCI, a Level 1 self-assessment is sufficient; however, this must also be documented and affirmed annually.

 

Certification and Assessment Obligations

A common misconception among subcontractors is that CMMC compliance is something only prime contractors need to concern themselves with. In reality, subcontractors must be equally prepared. The DoD has specified that once CMMC requirements appear in a solicitation, they expect certification for both the primary contractor and any subcontractor in their operation that handles relevant data.

Subcontractors must understand whether they are required to undergo a third-party assessment (C3PAO-led) or if they can fulfill the requirement through a self-assessment. As of the final CMMC rule, Level 1 assessments may be conducted internally and affirmed in the Supplier Performance Risk System (SPRS). In contrast, Level 2 requires a third-party certification assessment for contracts involving sensitive CUI. Without this certification, a subcontractor can be excluded from work, regardless of its technical or operational capabilities.

 

Resource Constraints and Awareness Gaps

Subcontractors often face challenges in meeting CMMC requirements. Many operate on tight budgets and have small IT teams or even a single system administrator. They may lack the in-house expertise to implement controls without outside support.

Compounding this is a widespread knowledge gap. Many subcontractors have limited visibility into how their work fits into the broader cybersecurity obligations of their prime contracts. Some receive CUI without realizing it, placing them in a bad position. Others may mistakenly believe that having a cybersecurity policy on paper is sufficient, when in fact, CMMC requires not just documentation but evidence of technical implementation and ongoing monitoring.

 

Addressing Supply Chain Risk Holistically

CMMC addresses these risks by driving consistent cybersecurity hygiene across all organizations participating in defense contracts. The model is designed to enforce not only policy presence but also operational maturity, requiring companies to implement, manage, and continually improve their controls over time.

For the DoD, the benefit is greater assurance that sensitive information is protected throughout its lifecycle, regardless of whether it resides with a prime contractor or a subcontractor at the fourth tier. However, these benefits only materialize if the requirements are enforced and understood across the supply chain. That puts an onus on prime contractors to engage their subcontractors proactively, clearly communicating CMMC expectations and offering support where possible. Primes are increasingly instituting pre-award compliance screenings and requiring evidence of CMMC progress as part of their supplier onboarding processes.

 

Best Practices for Subcontractors

For subcontractors, the path to compliance begins with a clear understanding of their cyber risk exposure and contractual responsibilities. The following practices can help organizations align with CMMC requirements:

  • Classify Data Correctly: Determine whether your organization handles FCI, CUI, or both, and identify the applicable CMMC level.
  • Perform a Comprehensive Gap Assessment: Evaluate your current cybersecurity posture against the applicable CMMC level, identifying all areas that require remediation.
  • Develop a System Security Plan (SSP): Document your information system environment, detailing how each required control is implemented and how boundaries and data flows are managed.
  • Create and Maintain a Plan of Action and Milestones (POA&M): Define steps and timelines for addressing any deficiencies found in the gap assessment, ensuring continuous progress toward compliance.
  • Strengthen Technical Defenses: Implement key security controls, such as encryption, logging, vulnerability assessments, and robust access controls.
  • Document and Maintain Evidence: Keep accurate, up-to-date documentation of your SSP, POA&M, policies, procedures, and technical configurations.
  • Prepare for External Scrutiny: Be prepared to provide CMMC-relevant documentation to primes or assessors, such as SPRS scores, policies, and records of control implementation.

 

Prime Contractor Responsibilities and Strategic Considerations

Prime contractors must take an active role in supporting and monitoring their subcontractors. This includes ensuring that all sub-tier vendors understand whether they are handling FCI or CUI, and what level of CMMC applies. Leading organizations are developing supplier compliance tracking systems, providing joint training, and incorporating cybersecurity criteria into supplier selection and performance reviews.

This approach serves not only to meet compliance obligations but also to enhance overall supply chain resilience. In a threat environment increasingly dominated by nation-state actors and supply chain attacks, primes cannot afford to treat subcontractor cybersecurity as an afterthought.

 

Manage Your Place in the CMMC Supply Chain with Lazarus Alliance

CMMC represents a transformative shift in how the DoD secures its information and evaluates its suppliers. For subcontractors, the message is clear: compliance is no longer optional, and cybersecurity readiness is now directly tied to business opportunity. 

To learn more about how Lazarus Alliance can help, contact us. 

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