New US Defense Cybersecurity Rules Lock Out Small Suppliers

When Security Becomes a Moat

The Pentagon's new cybersecurity rules are doing something unintended: they're creating the biggest barrier to entry the defense industry has seen in decades. What started as protection against cyber threats is now reshaping who gets to do business with the US military.

Under the Cybersecurity Maturity Model Certification (CMMC) program, any company wanting Pentagon contracts must prove their digital defenses meet strict standards. The price tag? Anywhere from $500,000 to $3 million per certification, depending on the security level required.

The Numbers Don't Lie

Small businesses make up over 60% of defense contractors, but many are now calculating whether they can afford to stay in the game. A typical small supplier with $5 million in annual revenue faces spending 20% of that just on cybersecurity compliance.

"We've been supplying specialized components for 20 years," says one small manufacturer. "Now we're looking at certification costs that could bankrupt us before we even bid on another contract."

Meanwhile, defense giants like Lockheed Martin and Raytheon already have robust cybersecurity infrastructures. For them, CMMC compliance is just another box to check, not a business-threatening expense.

Winners and Losers Emerge

The unintended consequence? A consolidation that makes the defense supply chain less diverse, not more secure. Large contractors are quietly celebrating as competition thins out. Some are even acquiring struggling smaller suppliers at bargain prices.

But here's the twist: the Pentagon specifically wanted to avoid over-reliance on big contractors. Previous supply chain disruptions taught hard lessons about putting too many eggs in too few baskets.

The Innovation Paradox

Small defense contractors often drive innovation precisely because they can't compete on scale. They win contracts by solving problems others can't or won't tackle. When regulatory costs price them out, the military doesn't just lose suppliers—it loses innovators.