Waivers end Jan. 1 without a mitigation plan: Army expects 'some impact' from critical-minerals sourcing order

The money

Where are the dollars in the critical-minerals order?

The order carries no appropriation, and it is to be carried out “subject to the availability of appropriations” ^[2]. The money exposure sits in contract terms. Under Section 4 of the order, a contractor’s failure to qualify an alternative to an unreliable foreign supplier is grounds for the Secretary to consider suspending or terminating task orders, declining to exercise options and terminating the contract itself ^[2]. Section 2 lets the Secretary pursue “all actions and exercise all contractual remedies” against a company that misleads the government in a mitigation plan or knowingly fails to carry one out, and to refer the matter to the Attorney General ^[2].

For a capture team, the practical question is which programs carry the risk. The DFARS clause at 252.225-7052 already flows the restriction into contracts for samarium-cobalt and neodymium-iron-boron magnets, tantalum, and tungsten metal powder and tungsten heavy alloy ^[3]. The order’s mapping rules go wider: they reach every Pentagon acquisition that the Secretary decides relates to national security, at every subcontract tier ^[2].

What the House bill would add

The House-passed FY2027 NDAA, H.R. 8800, attaches dollar thresholds that current law lacks. Section 827 would exempt purchases of $250,000 or less from the 10 U.S.C. 4872 ban and bar splitting a larger buy to get under that line ^[5]. Section 1803 would require that at least 50 percent of the cost of Tier 1 material bought from outside covered nations come from domestically owned entities ^[5]. For Tier 2 material, the share sourced outside covered nations would phase up by calendar year: 25 percent in 2028, 50 percent in 2029, 75 percent in 2030 and 100 percent from Jan. 1, 2031 ^[5].

The programs

What changes on Jan. 1, 2027?

The statute moves upstream. Through Dec. 31, 2026, the DFARS bars covered material “melted or produced” in a covered country. From Jan. 1, 2027, it bars covered material “mined, refined, separated, melted, or produced” there ^[3]. For magnets, the restriction then reaches “the entire supply chain from mining” through finished magnets. Tantalum and tungsten get the same treatment, from ore or feedstock (including recycled material) forward ^[3].

That date comes from Congress, not the order. Section 844 of the FY2021 NDAA set the expansion, and Section 854 of the FY2024 NDAA pushed its effective date back one year to Jan. 1, 2027 ^[3]. When the DFARS rule was finalized in May 2024, some commenters warned that compliant domestic sources would not exist by then. The Pentagon answered that it could not set any other date and called the deadline “a clear demand signal and timetable to DoD’s industry partners” ^[3]. The FY2026 NDAA then rewrote Section 844’s operative text so that it bars entering into “a contract for any covered material mined, refined, or separated in any covered nation” ^[4].

The order narrows the way out. Waivers continue after Jan. 1 only if the prime or subcontractor submits a formal mitigation plan that the Secretary accepts ^[2]. The plan has to name the noncompliant source, document “exhaustive efforts” to find compliant material, lay out removal steps and set “a strict projected timeline” ^[2]. A failure to qualify a domestic source does not count as nonavailability unless the company shows “active, adequately funded, and ongoing efforts” to qualify one ^[2].

Supply-chain mapping and source qualification

Two more requirements follow from the order, both on a clock that started July 20 ^[2]:

• Mapping, within 180 days: policy and guidance requiring prime contractors and subcontractors at any tier to map critical supply chains “from raw materials to the end use products.” The rules that follow must require an indentured bill of materials traced to the raw material, supplier vetting for financial, foreign-ownership and manufacturing risk, notice of significant risks within 15 days of vetting, and a corrective action plan within 45 days ^[2].
• Qualification, within 90 days: a strategy to speed testing and qualification of new sources and materials, including steps to rescind rules that slow qualification ^[2].

By this brief’s count, the 90-day mark falls on Oct. 18 and the 180-day mark on Jan. 16, 2027. The order also says the mapping rules should spare small businesses, nontraditional defense companies and new entrants undue burden ^[2].

Pentagon-backed producers get an explicit carve-out. Nothing in the order affects a contractor’s purchase of minerals or components from a company or project receiving grants, loans or equity from the Departments of State, War, Commerce or Energy, or from the Project Vault critical minerals reserve ^[2]. That covers firms such as the magnet maker in the Office of Strategic Capital loan brief.

The politics

How ready is the supply base?

Miranda, Army Materiel Command’s executive deputy to the commanding general, said the order’s requirement to map supply chains to the raw-material level “is no easy task” ^[1]. She told Breaking Defense she does not expect “off the cliff” outcomes, but rather “a gradual holding all of us accountable to mitigating those areas where we know we we have risk because we’re dependent on foreign adversaries” ^[1].

The Army is building a test of its own. On Oct. 12, Acting Army Secretary Adam Telle announced what he called a “manufacturing rodeo.” “Early next year, we will conduct what I’m calling a manufacturing rodeo, a race between our industrial base partners,” he said ^[7]. Miranda pointed to the event when asked about the minerals deadline and said the Army “cannot insource all of the parts that are required” ^[1].

Industry wants more room. The Aerospace Industries Association (AIA) has argued that waivers will be needed for years after January 2027, Breaking Defense reported, and its September report found that “Significant domestic processing, refining, and magnet production capacity for aerospace-grade materials is not expected to be available until 2028 or later” ^[1]. Dak Hardwick, AIA’s vice president of international affairs, said: “Industry is still looking for clarity around the mitigation-plan standard and processing timelines” ^[1]. In July, Michael Cadenazzi, the assistant secretary of defense for industrial base policy, told the outlet the Pentagon would work with companies making a good-faith effort, and asked: “how are you going to go ahead and resolve this problem through friendshoring, through domestic shoring, through changes in suppliers?” ^[1]

Will Congress change the January 2027 critical minerals rule?

The two NDAA bills diverge sharply. Section 1803 of the House bill, which passed the chamber as described in the House NDAA brief, would rewrite 10 U.S.C. 4872 into two tiers ^[5]. Tier 1 covers the restricted magnets, tungsten powder and heavy alloy, neodymium and praseodymium oxides and metals, and tantalum, with molybdenum, gallium and germanium added on and after Dec. 18, 2027 ^[5]. Tier 2 covers other rare earth oxides and alloys, tungsten precursors and niobium ^[5].

The House text would also repeal Section 844 of the FY2021 NDAA, effective on Dec. 31, 2026, or the date of enactment, whichever comes first ^[5]. The new tiered law would take effect 180 days after enactment, and the Tier 2 phase-in would not apply to contracts awarded before Jan. 1, 2028 ^[5]. House-written waivers would last up to two years, renewable without limit, with 30 days’ notice to the defense committees ^[5]. Section 1803 would also require the Pentagon to finish qualifying a new domestic or allied source within 12 months of a complete package ^[5].

The Senate Armed Services Committee’s S. 4784 does none of that. Its Section 836 asks the Under Secretary for Acquisition and Sustainment to report by May 1, 2027, on every domestic nonavailability determination issued over five years for materials covered by 10 U.S.C. 4863 and 4872 ^[6].

Next milestone

By this brief’s count, the order’s 90-day source-qualification strategy is due Oct. 18 ^[2]. The upstream ban and the end of routine waivers both arrive Jan. 1, 2027 ^[2, 3]. The supply-chain mapping guidance follows by this brief’s count on Jan. 16. Every six months until Jan. 1, 2028, the Secretary must also report to the national security adviser on waivers still in use and mitigation plans accepted ^[2]. Whether conferees keep the House rewrite, and whether a final NDAA is signed before Dec. 31, decides which version of 10 U.S.C. 4872 contractors are bidding against on Jan. 1.