COMMENTARY

Supply chain risk management is now a GovCon necessity

But done right it can be a competitive differentiator

Against a backdrop of highly publicized cyber hacks, ransomware attacks and extended goods shortages, supply chain risk management has taken center stage as a pressing operational and national security concern. This increased focus on strengthening and securing critical U.S. supply chains has already resulted in new requirements appearing in federal acquisitions, obligating federal contractors to identify, assess and mitigate supply chain-related security threats.

At this moment – as cyber and SCRM-related regulatory and contractual requirements are being implemented – there is an opportunity for motivated government contractors to stand out and differentiate themselves with strong SCRM practices. Doing so will better position these organizations to mentor and assist critical suppliers, minimize future cyber and supply chain disruptions, support national resilience and deliver value to agency customers. To put it simply, a short-term focus that fails to consider supply chain risk invites the possibility of new stresses to our national security posture and could expose companies to reputational harm and financial liability.

Here are three considerations for federal contractors that are ready to seize on SCRM as a differentiator.

  1. SCRM is important to the customer

In the face of rising uncertainty over data security and surveillance by foreign adversaries, federal agencies are progressively relying on their industry partners to proactively monitor their third-party ecosystems. It is increasingly important for government that contractors have a solid understanding of the companies that they are working with and the risks that they may present.

In addition to other steps taken by the federal government related to supply chain security, recent executive orders direct agencies to assess the global and U.S. supply chains for specific segments of the industrial base, and to enhance the security of the software supply chain. Legislative acts have also been put into place that emphasize a preference for U.S.-made products and ban government purchases of certain foreign-sourced equipment and services.

The more that contractors align with federal supply chain security efforts, the better that they can protect their government customers (and themselves). Companies should monitor the evolution of top initiatives guiding agency and contractor behaviors and best practices. Several important initiatives to take note of include:

  • National Institute of Standards and Technology’s Special Publication 800-161,Revision 1(slated to be finalized in April 2022) – designed to support federal agencies in identifying, assessing and mitigating supply chain risks associated with information and communications technology (ICT), the draft revision introduces a preliminary maturity model concept meant to improve visibility into and control of the highest impact ICT supply chain risks.
  • Cybersecurity and Infrastructure Security Agency Information and Communications Technology SCRM Task Force – the leading public-private partnership focused on enhancing ICT supply chain security strategies recently published practical resources meant to assist organizations with mitigating threats to the ICT supply chain.
  • DoD’s Cybersecurity Maturity Model Certification – intended to boost cybersecurity within the defense industrial base, the model is under review to ensure it does not unfairly penalize smaller companies.
  • Federal Acquisition Security Council – compelled by the SECURE Technology Act, this interagency body is tasked with developing uniform criteria for a SCRM program across federal agencies, including procedures for information sharing. On Aug. 26, 2021, the body issued a final rule to implement the requirements of the laws that govern the operation of the FASC.
  • Executive Order on Improving the Nation’s Cybersecurity – this ambitious EO directs change in a number of areas. Germane to this topic, it requires – in defined circumstances – vendors to provide a software bill of materials, which is a record of components and supply chain relationships used in building software, effective May 2022.
  1. SCRM is showing up in procurements

The need for improved supplier visibility is impacting the federal procurement process with increasing regularity. Numerous GSA-led procurements have included cybersecurity and SCRM requirements, including ASTRO, GSA 8(a) STARS III, GSA Enterprise Infrastructure Solutions and GSA’s Second-Generation IT BPA, among others.

While CMMC is technically a DoD requirement, the GSA Polaris draft RFP indicates that bidders should expect to participate in CMMC in order to win DoD work through the vehicle. Awardees should also expect to submit a SCRM plan within 30 days of the end of each contract year.

Also highlighted in the Polaris draft RFP, GSA is creating its Vendor Risk Assessment Program to assess and monitor supply chain risks of critical vendors. The VRAP will rely on technology and other means to better understand, continuously monitor and identify risks in vendor supply chains. As part of the program, GSA plans to perform audits of vendor supply chain processes and events.

We are also seeing SCRM requirements in a variety of DoD and intelligence community procurements. Contractors should be aware that – especially for significant or critical IT procurements – the government is articulating a need to understand how vendors are managing their supply chains and mitigating associated risks. SCRM requirements and oversight into SCRM practices will become standard practice for these types of procurements.

Importantly, these early SCRM requirements largely rely on self-attestation: government vendors represent that they comply with or follow best practices. As tools, technologies and processes mature, there is likely to be a movement toward more mature, active monitoring of contractor practices through programs like GSA’s VRAP.

  1. SCRM is a good business practice

For companies who do business with the federal government, even those that may be several tiers down in the supply chain, supply chain risk management is no longer something that is nice to have or that just makes good business sense; it is becoming a necessity. For some organizations, strong SCRM practices can serve as a competitive advantage. We believe that contractors should not wait for these requirements to show up in a procurement or to be included as a contractual requirement; they should be proactive in addressing these risks. 

Organizations with strong SCRM functions are typically anchored in three key capabilities (often bolstered by zero-trust principles): 1) the ability to withstand impacts and ensure business continuity based on a full understanding of the risk landscape, 2) the ability to use data to facilitate quick decision making based on key performance indicators, and 3) the ability to proactively monitor third parties to help anticipate threat vectors and act accordingly. 

Organizations that are beginning the journey to build a SCRM function should consider taking the following actions:

  • Put a SCRM plan in place. Identify internal and external supply chain risks. Establish policies and practices to manage risks across the supply chain life cycle – and to respond to threats and incidents as they occur. Build and engage a SCRM team for oversight and improvement.
  • Assess third-party suppliers. To the extent possible, contractors should map their supply chain. Understand who your suppliers are, where they operate and what your organization needs from them. Identify alternate suppliers in cases where critical inputs are reliant on a single supplier (becoming a single point of failure stemming from an unforeseen disruption).
  • Monitor, evaluate and iterate. Supply chain illumination software can support visibility into suppliers well beyond the first and second tiers, monitor dynamic risks, track supplier performance, incidents and responses, evaluate what is working and where to improve. A good plan will have periodic checks and updates, to ensure that it is being followed and that it is still effective.

We expect that SCRM requirements will continue to evolve and expand. Currently, supply chain security can serve as a differentiator in an area that is receiving a lot of attention. Early adopters who implement SCRM plans and mature themselves based on operational realities will be better positioned to minimize risks in a manner that is best suited to their business, and to demonstrate the value they can bring to their government customers, that others may have difficulty replicating. Government contractors should seize on SCRM now, for tomorrow.

About the Authors

Leo Alvarez is a director at Baker Tilly.

Jeff Clayton is a principal at Baker Tilly.

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