Andrew Swick and Margaret M. Cassidy
The final part of our FY26 NDAA review examines changes related to how the U.S. defense ecosystem operates globally while protecting sensitive U.S. technologies and mitigating the risk of adversaries impacting U.S. national security. We organized our review into five subcategories:
- ITAR AUKUS Exemption Implications
- Streamlining Foreign Military Sales (FMS)
- Reforming Technology Transfer and Foreign Disclosure
- Limiting Outbound Investment – COINS Act Codification
- New Foreign Partner Acquisition Office
Bottom Line:
Through the NDAA, Congress:
- Accelerated cooperation with trusted U.S. allies and partners
- Tightened guardrails around outbound investment
- Revamped some export control regulations
- Streamlined foreign military sales.
Given Congress’ actions—for contractors operating globally, looking to go global, or looking to sell dual-use or military technologies and products to the Department of Defense (DoD). This is where opportunity and risk are tightly coupled. (Full bill: S.1071 — National Defense Authorization Act for FY2026).
1. ITAR AUKUS Exemption Implications (§ 1085)
What Changed:
Although the ITAR has relaxed export control requirements, to include lifting license requirements in some instance—for defense articles related to AUKUS, Section 1085 directed DoD and the Department of State to develop more streamlined defense trade among Australia, the U.K., and the U.S.
Congress is effectively carving out a “trusted corridor” within ITAR for AUKUS related activities. As provided in the AUKUS ITAR sections, Section 1085 authorizes license exceptions when exporting or transferring certain defense articles between the Australian and British governments. (ITAR at 22 CFR § 126.7, Exemptions for defense trade and cooperation among Australia, the United Kingdom, and the United States).
Congress also mandates the Department of State (State), in collaboration with DoD, to provide Congress a report within 180 days and then annually thereafter for five years, on items State has listed on the ITAR Excluded Technology List—which lists the items that cannot be exported under the AUKUS exception—to include describing why items are on the list.
Why It Matters:
AUKUS is reshaping the global defense industrial landscape as innovation may be more readily shared between the Australians, the British and the U.S. These flexibilities are intended to accelerate trilateral cooperation on undersea capabilities, advanced munitions, autonomy, and other sensitive technologies. According to State, these AUKUS exceptions may facilitate “billions of dollars in secure license-free defense.” U.S. Department of State DDTC AUKUS ITAR Fact Sheet 2024
But the compliance stakes rise accordingly. Misclassification or overapplication of these exemptions could jeopardize program timelines, trigger enforcement actions, or undermine diplomatic relationships. Contractors must navigate a narrower, faster lane that rewards precision and punishes sloppiness.
What To Do Now:
Contractors should review their technology and products to determine which may be eligible for the ITAR AUKUS exemptions. Then, update export compliance programs accordingly to incorporate AUKUS specific pathways and development documentation to support exception eligibility. BD teams, program teams, and supply chain should be trained on the nuances of these exemptions. Build internal control safeguards to prevent misapplication of these exceptions. Treat AUKUS exemptions as accelerators, not shortcuts.
2. Streamlining Foreign Military Sales (FMS) (§§ 1211-1215)
What Changed:
Sections 1211-1215 direct DoD to streamline FMS processes, improve coordination of international arms transfers, and share FMS data across DoD, industry, and with partners. Congress is pushing DoD toward faster case development, clearer timelines, and more predictable partner engagement. It is also demanding more engagement with foreign partners by requiring that the FMS acquisition force respond to partner needs, timelines, and requirements. To facilitate FMS, prime contractors can now enter agreements with manufacturers to acquire long-lead Government-furnished equipment before having a DoD contract or before a letter agreement for FMS. FMS will also be able to acquire non-program-of-record systems.
Why It Matters:
FMS delays have long undermined U.S. competitiveness, especially against adversaries who offer faster, less encumbered alternatives. These reforms aim to strengthen alliances by accelerating delivery of critical capabilities and by being more responsive to partner needs. FMS is now required to align priorities with the global threat environment. Non-program-of-record purchases will now be permitted in FMS which opens the door for commercial buys. Contractors will likely have more opportunities for global sales.
What To Do Now:
Contractors should align proposal timelines with new FMS expectations and strengthen foreign partner vetting. Business development teams should focus on regional and country priorities to understand partner needs and timelines to build a case with DoD FMS for the sale. Opportunities for providing commercial solutions should be analyzed to see if commercial options can meet FMS demands.
Developing a strategy for long-lead supply agreements to include updating subcontracts to reflect the risk of possibly performing without a DoD contract in place will result in opportunities. DoD will increase scrutiny of how contractors manage foreign interactions .
3. Reforming Technology Transfers and Foreign Disclosures (§ 1086)
What Changed:
Section 1086 requires DoD to develop a new framework for the military to manage technology transfers and foreign disclosures related to defense. Congress specifically directs DoD on ten key elements that the framework must include. Some significant requirements include streamlining approvals; consolidating governance; and developing a structured process to incorporate input from other Federal agencies and industry. (See pages 339-340 of the NDAA for the complete list.). Again, as in other sections of the NDAA, DoD is required to submit reports to Congress on this new framework.
Why It Matters:
A more efficient, transparent technology transfer and foreign disclosure process that incorporates insight from industry will likely be transformative. The new framework will significantly impact exports and cross-border research and development, among other things. These changes should enable defense contractors to engage more with partners and allies as well as have more access to the global marketplace.
But tighter disclosure controls mean contractors must be more disciplined in how they handle foreign partner engagement; how rigorous due diligence will need to be; and, how the secure technical data and controlled information.
What To Do Now:
DoD must engage with industry on this. Contractors can use this as an opportunity to provide input on what they need to facilitate cross-border innovation and sales. Assessing technology to identify export-controlled items and the countries for which the technology is controlled is an imperative to avoid compliance missteps. Review DoD program schedules, then build internal processes that synchronize technical data release decisions with program schedules. Make sure BD teams, proposal, and pricing teams are prepared for a faster decision out of DoD.
4. Limiting Outbound Investment – COINS Act Codification (§ 8521)
What Changed:
Section 8521 codifies elements of the Outbound Security Investment Program designed to limit when U.S. persons and entities, including U.S. controlled foreign entities, may invest or engage in other transactions involving countries of concern and “prohibited technologies.” Investing with prohibited contractors may result in being forced to divest from the transaction. The devil is in the details; and those details will be in the regulations implemented to enact the requirements in Section 8521. The concerning countries are China, Russia, Cuba, Iran, and North Korea and the broadly the prohibited technologies includ advanced semiconductors, quantum technologies, AI, and advanced manufacturing.
Additionally, DoD is charged with developing plans to work with allies and partners to secure these technologies and to report to Congress on investments needed for the U.S. to reduce its dependency on countries of concern for technology.
Why It Matters:
This is a major shift for how all organizations need to manage global investment, and innovation, as outbound investment is now considered a national security risk for certain technologies. All companies, not just contractors, now must evaluate, for example, their supply chain investments, JV structures, licensing agreements, venture funding, and M&A activity. These requirements will make foreign investment deals more expensive to execute, slower to close or possibly even prohibit them.
What To Do Now:
Companies should review corporate structures, investment portfolios, R&D partnerships, and their supply chains for investments that require disclosure. As part of this, enhanced due diligence should be developed to screen investment opportunities as well as the technology involved. Outbound investment compliance should be a board level responsibility. Legal, finance, and engineering teams must coordinate closely to avoid prohibited investments and to make decisions on when disclosure is required.
5. New Foreign Partner Acquisition Office (§ 903)
What Changed:
Section 903 creates an Assistant Secretary of Defense for International Armaments Cooperation reporting directly to the Under Secretary of Defense for Acquisition and Sustainment. This new office consolidates functions previously spread across multiple DoD organizations. This office will set policies, advise the Secretary and integrate a global defense industrial base by:
- Driving industrial base collaboration with allies and partners
- Working with allies and partners to develop and produce critical technologies and products
- Integrating and securing global supply chains
- Facilitating technology transfers outside the U.S.
- Aligning international armaments programs
Why It Matters:
This is a major bureaucratic realignment that should bring efficiencies to the international defense industrial base. Unifying international R&D, acquisition, production, and supply‑chain efforts should provide opportunities for both U.S. and non-U.S. companies to participate more efficiently in a global market by:
- Establishing a clear focal point for foreign partner engagement
- Providing more coordinated FMS and cross-border R&D and production opportunities
- Integrating the U.S. defense industrial base with those of its allies and partners.
What To Do Now:
Contractors should develop strategic plans for taking their capabilities by mapping where the U.S. and allies have needs. To move technology across borders, assess how intellectual property will be transferred internationally and understand the export controls for technology and products. Then, develop procedures to protect intellectual property and comply with export regulations. Engagement with the new office will be vital to success in the international market so consider this office as an opportunity while preparing for heightened scrutiny when operating globally.
Final Thoughts:
The FY26 NDAA provisions related to how DoD and contractors engage globally is a strategic pivot: enabling closer cooperation with partners and allies while tightening guardrails around where U.S. investment can go overseas. It also mandates more transparency out of DoD on some of its international programs, to include for example, more reports to Congress on its work.
For contractors, opportunity lies in expanded markets and possible global partnerships. Along with those opportunities, contractors face increased risks of not only damaging national security but exposure to government investigations, loss of export privileges, and suspension or debarment. Cross-functional teams, engineering, business development, strategy, and legal should work together to modernize export programs, development speedier internal go/no-go procedures, and strengthen due diligence to be positioned to grab these opportunities while managing risk.
