WASHINGTON, Feb. 20, 2026 — The U.S. Defense Department is implementing tougher cybersecurity rules for contractors, and smaller firms warn the new requirements may force them out of the defense sector.

The rules are part of the Cybersecurity Maturity Model Certification program, or CMMC. Companies must meet specific cybersecurity standards before they can handle sensitive but unclassified Pentagon data. Larger defense contractors have long invested in compliance systems, while smaller firms say the new mandates could be too expensive and time consuming.

Pentagon officials stress that the heightened requirements are necessary as cyber threats targeting defense information grow more sophisticated. Adversaries have exploited weaknesses in contractor networks for years, and the new framework is intended to close those gaps. For many small and midsize businesses, however, the cost of compliance may outweigh the value of the contracts themselves.

Compliance Costs Add Up

Under CMMC, contractors must undergo third party assessments to confirm their cybersecurity systems meet federal standards. These assessments can cost tens of thousands of dollars depending on the size and complexity of the company. For businesses with tight margins, that expense can be significant.

Certification and System Upgrades: Beyond assessment fees, companies may need to invest in new software, hire outside consultants and upgrade internal systems. Some owners say they are being asked to build security infrastructures similar to much larger corporations. The resulting financial strain can be difficult to manage for firms that entered the defense sector expecting lighter compliance obligations.

Strain on Smaller Contractors: Industry groups warn that the burden could reduce the pool of eligible suppliers. If smaller contractors decide the costs are too high, the Pentagon could lose access to specialized expertise and niche capabilities. Critics say that would limit competition and slow innovation in the defense industrial base.

Pentagon Stands by the Rules

Defense officials maintain that uniform standards across the supply chain are critical to protecting sensitive technical data. Such information often passes through multiple contractors, including small subcontractors, before reaching its final destination. Weak links in that chain can expose valuable information to hackers.

Officials also note that third party verification replaces earlier self-attestation, where companies merely affirmed, they met cybersecurity benchmarks. Verification creates accountability and reduces the risk of breaches. The Pentagon has phased in the program over several years, but smaller contractors still say the timeline is tight, especially for those without dedicated cybersecurity staff. Many rely on external consultants to interpret requirements and implement controls.

Small Firms Face Hard Choices

For some owners, the decision is existential. Companies that rely heavily on defense contracts may feel compelled to invest in certification, even if it strains finances. Others with more diversified clients may exit the defense market entirely.

Many support stronger cybersecurity standards in principle and acknowledge that breaches can undermine national security. Yet they question whether the current framework balances security with accessibility. Lean workforces make it difficult to divert resources from product development or customer service to compliance tasks. Some executives worry that innovation could slow, and prime contractors may consolidate work among larger, already certified firms, leaving smaller players on the sidelines.

Implications for the Defense Industry

The debate over CMMC highlights broader tensions in the defense industry. The Pentagon depends on a vast network of contractors, from major manufacturers to specialized startups. Large companies typically have robust compliance departments, while smaller firms often build systems incrementally as they grow.

If certification costs prove prohibitive, fewer small businesses may participate in federal contracts, reducing supplier diversity. Lawmakers and industry advocates have urged the Defense Department to provide additional guidance and support to ease the transition.

Some experts say cybersecurity investments may yield long term benefits, such as reducing the risk of costly data breaches and enhancing credibility with government and commercial clients. The upfront expense, however, remains a major hurdle.

As new contracts begin incorporating CMMC requirements, companies must decide whether to adapt or withdraw. Pentagon officials stress that protecting sensitive information is non-negotiable. Smaller contractors are calculating whether the cost of compliance fits their long-term strategy. The next year may determine whether they remain part of the defense supply chain or step aside as regulatory demands grow.