Based on the official DoD Regulatory Impact Analysis, current market indicators, and simple math, here are five predictions for how CMMC implementation will reshape the defense contracting landscape for prime and subprime vendors in 2026.
The Baseline: The DoD estimates 221,286 companies currently comprise the defense industrial base, with 74% classified as small businesses (163,987 companies). The official cost analysis assumes zero attrition, projecting that all companies will achieve compliance.
The Reality: Economic analysis suggests otherwise. For small businesses, the total cost of achieving Level 2 certification ranges from $50,000 to $400,000 when you include:
For companies where DoD contracts represent less than 30% of annual revenue, these costs often exceed the economic value of maintaining defense business. A machine shop generating $2 million in annual revenue, with $400,000 from defense contracts, faces an impossible calculation: spend $200,000+ on CMMC compliance to maintain $400,000 in revenue, or redirect that capital toward growing commercial business.
What Will Happen: Between 33,000 and 44,000 companies (15-20% of the DIB) will exit the defense market between 2025 and 2027, with the majority of exits occurring in 2026 as Phase 2 implementation begins. This attrition will concentrate in specific sectors:
The Cascade Effect: This 15-20% reduction creates secondary effects. Prime contractors will lose access to specialized suppliers, forcing them to either bring capabilities in-house (increasing overhead) or find alternative suppliers who may lack the same technical expertise. Some programs will experience schedule delays while primes restructure their supply chains. The DoD's stated goal of increasing small business participation in defense contracting will move in the opposite direction as compliance costs create barriers to entry that favor large, established contractors.
Economic Impact: If 35,000 companies exit the DIB, and each averaged $1.2 million in annual DoD contract revenue (a conservative estimate based on the distribution of contract sizes), that represents approximately $42 billion in annual contract value that must be redistributed to remaining contractors or brought in-house by primes and the government. This redistribution will accelerate market consolidation as surviving contractors absorb the business of exiting firms.
The Capacity Problem: As of August 2025, approximately 80 C3PAOs are authorized to conduct assessments. The DoD's phased rollout plan projects that 16,610 companies will need Level 2 certification in Year 4 of implementation (which includes 2026). Each assessment requires approximately 200 hours of C3PAO time, not including pre-assessment consultations and post-assessment remediation support.
The Math: If each C3PAO averages 2,000 billable hours per year (accounting for business development, training, administrative overhead, and non-assessment activities), and dedicates 75% of that time to conducting assessments, the total market capacity is approximately 120,000 hours annually, or 600 assessments per year across all 80 C3PAOs.
The demand is 16,610 assessments. Even if C3PAO capacity triples to 240 authorized organizations by end of 2025 (an optimistic projection given the rigorous accreditation requirements), total market capacity would still be only 1,800 assessments per year. The supply-demand gap is structural, not temporary.
What Will Happen: By Q3 2026, C3PAOs will be scheduling initial assessments for Q2 2028 or later. Wait times will exceed 18 months for new clients. Companies that haven't already secured C3PAO relationships will find themselves locked out of the assessment pipeline.
This creates a two-tier market structure:
Tier 1: The Certified Companies that began CMMC preparation in 2024 or early 2025, secured C3PAO slots, and achieved certification by mid-2026. These contractors will dominate competitive procurements throughout 2026-2027 as they face limited competition from non-certified firms.
Tier 2: The Queue Companies that delayed CMMC preparation or couldn't secure early C3PAO slots. These contractors will be locked out of bidding on new contracts requiring certification, forced to wait 18+ months for assessment availability while watching market share erode.
Price Implications: C3PAO assessment fees will increase significantly. Current market rates of $31,000 to $76,000 for Level 2 assessments will rise to $75,000 to $150,000 by late 2026 as demand outstrips supply. C3PAOs will prioritize larger clients who can pay premium rates and offer more predictable revenue. Small businesses will face both longer wait times and higher costs.
Government Response: By Q4 2026, the DoD will face pressure to address the bottleneck. Possible responses include:
None of these solutions will resolve the fundamental capacity constraint in 2026. The crisis will persist through 2027 and into 2028 before supply and demand reach equilibrium.
The Documentation Crisis: CMMC Level 2 requires continuous evidence collection for 110 security controls. Each control has multiple assessment objectives. A typical Level 2 assessment requires:
Managing this evidence manually is functionally impossible at scale. Companies attempting manual evidence management spend 500-800 hours annually on compliance documentation, pulling resources away from revenue-generating activities.
What Will Happen: By mid-2026, AI-powered compliance platforms will transition from optional efficiency tools to mandatory infrastructure for any company pursuing CMMC certification. The market will consolidate around platforms that can deliver three core capabilities:
Automated Evidence Collection: Platforms that continuously scan infrastructure, collect relevant evidence, timestamp it cryptographically, and organize it by control requirement. The AI identifies what evidence is needed, where to find it, and when to collect it, reducing manual labor by 70-80%.
Real-Time SPRS Score Calculation: Systems that monitor control implementation continuously and calculate accurate SPRS scores in real-time. When a configuration drifts out of compliance, the platform immediately recalculates the score and alerts security teams. This prevents the scenario where companies submit SPRS scores based on outdated assessments that no longer reflect current implementation.
Intelligent POA&M Management: AI that can analyze gap assessment results, understand organizational constraints, and generate realistic remediation plans with achievable milestones. The system tracks progress automatically, identifies dependencies, and predicts completion dates based on historical performance data. When a POA&M item falls behind schedule, the AI recommends resource reallocation or milestone adjustments.
Market Structure: The compliance platform market will consolidate around three dominant players by end of 2026:
These platforms will differentiate based on:
Economic Impact: Companies using AI-powered platforms will complete C3PAO assessments 40-50% faster and achieve higher first-time pass rates (85-90% vs. 45-55% for manual processes). This creates a competitive advantage that compounds over time. Firms using advanced automation will gain market share from competitors still managing compliance manually.
New Insight: The compliance platform market will experience a secondary consolidation as C3PAOs and RPOs acquire or partner with platform providers. By 2027, expect to see integrated offerings where assessment services bundle with platform subscriptions, creating end-to-end compliance solutions. This vertical integration will further accelerate the divide between sophisticated contractors using modern tooling and smaller firms attempting manual compliance management.
The Sectors: CMMC will force unprecedented security maturity in five verticals that have historically operated with minimal cybersecurity requirements:
Current State: Machine shops, metal fabricators, composite manufacturers, and specialty component suppliers typically operate with basic IT infrastructure: a file server, some CAD workstations, email, and maybe a basic ERP system. Cybersecurity often consists of consumer-grade antivirus and a firewall. These companies receive technical drawings, specifications, and quality requirements from defense primes, all of which frequently contain CUI.
The Shock: These manufacturers must now implement:
For a 25-person machine shop that has never had an IT staff person, this represents a fundamental business transformation, not just a compliance exercise.
What Will Happen: Approximately 30-40% of specialized manufacturers serving the defense sector will exit the market rather than undertake this transformation. Those that remain will face 12-24 month modernization timelines, during which they may be unable to accept new CUI-bearing contracts. Prime contractors will experience significant supply chain disruptions as critical suppliers either exit or become temporarily unavailable while attempting to achieve compliance.
Current State: Warehousing, freight forwarding, and logistics coordinators handle documentation about defense shipments: bills of lading, packing lists, delivery schedules, and destination information. Much of this constitutes Federal Contract Information. These companies typically use commercial transportation management systems (TMS) and warehouse management systems (WMS) that aren't designed for CUI protection.
The Shock: Logistics providers must either:
Most commercial TMS and WMS platforms aren't FedRAMP authorized. Companies must either switch platforms (resulting in massive disruption) or implement complex data segregation architectures.
What Will Happen: Regional logistics providers will consolidate into national firms that can absorb compliance costs across larger revenue bases. Companies serving both commercial and defense customers will establish separate business units with isolated systems, effectively creating "defense logistics divisions" with appropriate security controls. Smaller regional providers will likely exit the defense logistics market, forcing primes to work with larger, more expensive national carriers.
Current State: Engineering firms, testing laboratories, technical training providers, and specialty consultants often work on multiple commercial and government projects simultaneously. They typically utilize shared infrastructure (networks, file storage, and communication tools) across all projects, with minimal segregation between commercial and government work.
The Shock: These firms must implement strict data segregation, often requiring:
For a 40-person engineering firm where engineers routinely work on both commercial and government projects, this represents a significant operational change.
What Will Happen: Professional services firms will adopt one of three strategies:
Clients will experience cost increases as professional services firms pass compliance costs through to contract pricing.
Current State: Companies building or maintaining military facilities handle site plans, building specifications, access control systems, utility layouts, and details of communications infrastructure. All of this can constitute CUI. However, these companies primarily view themselves as construction firms, rather than technology companies. IT security is typically minimal.
The Shock: Construction and facilities firms must secure:
The construction industry has been slow to adopt digital security practices. CMMC forces modernization across an industry segment that still frequently operates on paper-based workflows.
What Will Happen: Large, national construction firms with dedicated IT departments will achieve compliance and consolidate market share in defense facilities work. Regional and local construction firms will exit the defense market, focusing on commercial and municipal work. The DoD will face reduced competition on facilities projects, which will drive up costs as fewer contractors bid on work.
Current State: Small software companies and IT service providers that build custom applications or provide technical support for defense systems often operate with startup-typical security: cloud infrastructure in AWS or Azure commercial regions, commercial SaaS tools for development and collaboration, and minimal formal security processes.
The Shock: These companies must migrate their entire development and operations infrastructure to FedRAMP Moderate cloud regions, implement formal SDLC security practices, and demonstrate continuous monitoring of production systems. This requires architectural redesigns, not just configuration changes.
What Will Happen: Defense-focused software companies will separate into two categories:
Innovation in defense software will slow as smaller, more agile companies exit the market, leaving defense acquisition dependent on larger, slower enterprise vendors.
Cross-Vertical Impact: Across all five verticals, expect to see:
The Legal Framework: Under 32 CFR § 170.22, companies must submit affirmations to SPRS signed by a "senior official" attesting that their contractor information systems comply with CMMC requirements. These affirmations are subject to the False Claims Act (31 U.S.C. §§ 3729-3733), which provides for:
The False Claims Act defines "knowingly" to include:
A senior official signing a CMMC affirmation without adequate verification of the underlying controls meets the "reckless disregard" standard.
What Will Happen: Between Q2 and Q4 2026, the Department of Justice will bring the first False Claims Act case against a defense contractor and its senior officials for false CMMC affirmations. The case will likely involve a company that:
The case will establish several precedents:
Individual Liability: The DOJ will name the CEO, CFO, or other senior official who signed affirmations as individual defendants alongside the corporation. This represents a shift from focusing solely on corporate liability to pursuing personal accountability of executives.
Knowledge Standard: The case will establish that senior officials cannot claim ignorance of technical implementation details when they sign attestations about cybersecurity controls. If you sign an affirmation, you're responsible for verifying its accuracy, not just trusting subordinates.
Whistleblower Incentives: The False Claims Act provides whistleblowers 15-30% of recovered amounts. In a case involving multiple contracts with false affirmations, whistleblower rewards could reach $2-5 million, creating strong financial incentives for employees to report suspected non-compliance.
The Insurance Crisis: Within 60 days of the first False Claims Act indictment, Directors & Officers (D&O) insurance carriers will begin excluding CMMC affirmation liability from standard policies. New endorsements will appear, requiring:
Market Response: By Q4 2026, defense contractors will implement new internal controls around affirmations:
Broader Impact: The liability exposure will drive behavioral change more effectively than DoD enforcement alone:
New Insight: The first False Claims Act case will fundamentally change how defense contractors approach CMMC compliance. Current approaches treat it as a procurement requirement managed by contracts and business development teams. The liability exposure will transform it into an enterprise risk issue requiring board oversight, legal review, and executive accountability. Companies still treating CMMC as a checkbox compliance exercise will face existential legal risk.
The insurance market response will create a forcing function: companies that can't obtain D&O coverage excluding CMMC liability (because they can't demonstrate adequate verification processes) will find themselves unable to bid on contracts or attract qualified executives willing to serve in exposed roles. This will accelerate exits from the defense market beyond the 15-20% predicted in Prediction 1.
These five predictions share a common theme: CMMC represents a fundamental market restructuring, not a compliance evolution. The defense industrial base that emerges from 2026 will be smaller, more consolidated, more expensive, and more technologically sophisticated than the DIB of 2024.
Companies that recognize these trends early and position themselves accordingly will survive and potentially thrive. Those who treat CMMC as a temporary compliance burden or hope for delayed enforcement will find themselves locked out of the defense market with no clear path back in.
The question for defense contractors is no longer whether these changes will happen, but whether they'll be positioned to survive them.
In a market where CMMC is no longer a checkbox but an existential business requirement, the difference between surviving and exiting the defense market will come down to execution.
Strike Graph was built specifically for this moment. Our CMMC compliance platform combines continuous evidence collection, real-time control validation, and defensible audit readiness to help contractors move faster, reduce cost, and eliminate executive risk.
Instead of scrambling for documentation, guessing at SPRS scores, or relying on point-in-time assessments, Strike Graph provides always-on visibility into your CMMC posture and a clear, provable path to certification. See how Strike Graph's CMMC features like Level 1 and Level 2 self-assessments, System Security Plan builder, and Plan of Action & Milestones (also known as Action Items) ensure you meet regulatory requirements.
For defense contractors navigating shrinking competition, C3PAO bottlenecks, and escalating legal exposure, Strike Graph doesn’t just help you comply – it helps you stay eligible, competitive, and in business as the DIB reshapes itself in 2026 and beyond.