Supply chain security: the subcontractor risk

Vendors that don't fully understand federal cybersecurity contracting standards along with the inability of large defense contractors to monitor into their own supply chains have led to widespread targeting and theft of U.S. economic and national security secrets by nation-state hackers, industry experts told Congress.

Less than 60 percent of small and medium-sized defense contractors responding  to a survey conducted by the National Defense Industrial Association said they read the Defense Federal Acquisition Regulation Supplement (DFARS) that lays out minimum security standards for contractor information systems. Nearly half of those who did said they found it hard to understand. About 45 percent of respondents hadn't read National Institute of Standards and Technology guidelines for protecting controlled unclassified information.

The research found that many small and mid-sized contractors tend to have "uneven awareness of cybersecurity risks and prevention" and are more likely to view requirements as just another regulatory box to check to win government business. There is also a perception of uneven enforcement of DFARS regulations, with complaints that poor metrics for measuring compliance do not do enough to reward companies that align their practices to DFARS over those that don't.

Christopher Peters, CEO of the Lucrum Group and co-author on the NDIA report, told lawmakers at a March 26 Senate Armed Services Committee that while large defense contractors typically have "robust" security measures in place, the smaller and medium-sized companies with whom they subcontract do not, making them "prime targets" for nation states. This is particularly true when it comes to industrial control systems and software that run machinery on the plant or shop floor.

"Manufacturers have to have confidence that their investments in cybersecurity are going to meet DOD requirements," Peters told the committee. "Large manufacturers also need a means to quickly and cost effectively assess the cybersecurity readiness of each manufacturer in their supply chains. That requires the establishment of meaningful metrics that can be readily certified, whether by a customer, the government or an independent third party."

The big five defense contractors -- Boeing, General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon -- frequently subcontract out portions of their work to smaller firms, who in turn subcontract further with other entities. At a certain point, prime contractors lose visibility into who their third-, fourth- or fifth-tier subcontractors are, a challenge that the Office of the Director of National Intelligence has encountered while examining supply chain security threats.

Michael MacKay, CTO for defense contractor Progeny Systems, told the committee there were a variety of reasons for that lack of visibility, ranging from a reluctance of prime contractors to lay out the details behind their proprietary supply-chain business strategies to a lack of transparency inherent in a contracting field that is often fluid and opaque.

"If I hand a document over to somebody to create a part, then I have to make -- I have to ask them how they are going to managing that document and who they are going to give it to," said MacKay. "They could lie to me … they could say, yes, we're going to do this and at that last minute, hand it off to somebody that came in at a lower bid and not tell me."

Policymakers have long fretted over the potential for adversarial nations to steal U.S. secrets by targeting contractors. However, two incidents over the past year have spurred greater urgency around the topic: reports that in 2018, Chinese hackers stole "massive" amounts of sensitive data from the unclassified networks of a contractor working for the Naval Undersea Warfare Center, and a 2019 internal review by the Navy that found Chinese hackers were pilfering so much Intellectual property and classified secrets from the defense industrial base that it was "materially eroding" U.S. economic and military advantages.

Sen. Joe Manchin (D-W.Va.) called the lack of visibility down the supply chain "absolutely unbelievable" and said Congress needed to rewrite contracting standards to ensure subcontractors are held to the same security requirements as primes.

"Somebody has to be held accountable," Manchin said. "A blind person can follow this. We wonder why we've been hacked so much, why they've copied everything? You all just explained it. There's no checks and balances .… It looks like to me that we're … protecting a business model more than we are the security of our country."

This article was first posted on FCW, a sibling site to DefenseSystems.