Federal Contractors Must Report Security Flaws, But Who Pays? New Rules Hit Businesses Above $250K Threshold.

The aptly named Federal Contractor Cybersecurity Vulnerability Reduction Act of 2025 is a straightforward attempt to secure the government’s supply chain. The bill mandates that federal contractors must establish a clear process for reporting security weaknesses—or vulnerabilities—in any system they use to perform government work. Within 180 days of enactment, the Office of Management and Budget (OMB) and other key agencies must recommend updates to the Federal Acquisition Regulation (FAR) to enforce this, aligning the new rules with existing standards like the IoT Cybersecurity Improvement Act of 2020 (Sec. 2).

The Mandate: Closing the Digital Back Door

This new reporting requirement applies to a huge swath of companies: any contractor whose contract meets or exceeds the simplified acquisition threshold (currently around $250,000) or any company that manages a federal information system. Think about it: if you’re a mid-sized IT firm managing a cloud platform for the Department of Energy, or a construction company using specialized software to track a military base project, you’re in. You’ll be required to actively look for and report security flaws in your own systems that touch that federal work (Sec. 2). This is a good move for national security, standardizing the process so we don’t have critical data exposed because a vendor used outdated software.

The bill tries to keep the new rules consistent by requiring them to follow the government’s existing coordinated disclosure process and internationally recognized standards (ISO 29147 and 30111). Essentially, Uncle Sam wants contractors to report flaws the same way the government reports them—in a structured, responsible manner. There is an escape hatch, though: an agency head can grant an exception for a specific contract if their Chief Information Officer deems it necessary for national security or research purposes, though Congress must be notified within 30 days (Sec. 2).

The Catch: Compliance Without the Cash

Here’s where the rubber meets the road, and the biggest potential headache for those impacted. Section 3 of the Act is brutally clear: no additional funding is authorized to carry out this law. That means the agencies responsible for updating the FAR and enforcing compliance—and the contractors who have to implement new monitoring and reporting systems—must absorb all the costs using their existing budgets.

For a major defense contractor, this might be a drop in the bucket. But for a small or medium-sized business that just crosses that $250,000 threshold, this new mandate means allocating staff time, purchasing new software, or hiring consultants just to comply with the reporting rules. They can’t ask the government for reimbursement or special grants to get compliant; they have to figure it out themselves. This creates a real financial strain, especially for smaller players in the federal supply chain who are already juggling tight margins. While the goal is better security, the reality is a new, unfunded administrative burden that could push some smaller, specialized contractors out of the running.