On September 25, 2026, the U.S. Court of Appeals for the DC Circuit upheld the Department of War's (DOW) designation of Anthropic as a supply chain risk under 41 U.S.C. § 4713 of the Federal Acquisition Supply Chain Security Act (FASCSA). The court found that the DOW had the authority to exclude Anthropic's products, in particular the Claude suite of artificial intelligence (AI) models, from its supply chain and that DOW properly exercised that authority. The DC Circuit's decision stands in contrast to an August 27, 2026, order from the U.S. District Court for the Northern District of California, where the court granted Anthropic's request for a permanent injunction prohibiting enforcement of the supply chain risk designation under a different authority, 10 U.S.C. § 3252, in DOW contracts and subcontracts.

The Dispute: Anthropic as a Supply Chain Risk?

In government, as in the commercial sector, AI is becoming an increasingly important and prominent tool. The dispute between Anthropic and the DOW illustrates the potential contractual and operational consequences of disagreements over permissible AI uses.

Previously, the DOW used Anthropic's Claude products through other contractors, agreeing to revise its standard use restrictions to facilitate national security use cases. However, Anthropic maintained prohibitions on the use of its products for mass surveillance of Americans and lethal autonomous warfare. The DOW then began direct contract negotiations with Anthropic in the fall of 2025. During those negotiations, the DOW requested revisions to Anthropic's standard terms and conditions to enable it to utilize Claude for "all lawful uses." As it had done previously, Anthropic agreed to relax certain use restrictions but resisted removing prohibitions on use for lethal autonomous warfare or mass surveillance of Americans. The dispute escalated in early 2026, culminating in Secretary of War Pete Hegseth designating Anthropic as a supply chain risk and directing the removal of its products from DOW systems. The DOW did so under two different statutory authorities: 41 U.S.C. § 4713 and 10 U.S.C. § 3252. Anthropic then filed suit in the DC Circuit, challenging the designation under 41 U.S.C. § 4713, and in the Northern District of California, challenging the designation under 10 U.S.C. § 3252. 

Similar Cases, Different Outcomes

Although arising from the same underlying dispute, the two cases, again brought under different statutory authorities, came to different conclusions. The DC Circuit opinion upheld the DOW's designation, while the Northern District of California did not. 

The DC Circuit, noting that 41 U.S.C. § 4713 is a broader statute than 10 U.S.C. § 3252, focused on Anthropic's ability to theoretically control or influence its products or services through values-based training and operational restrictions, thereby potentially impacting the DOW's use of those products. In doing so, the court focused on the heightened need for operational certainty in defense-related activities, the risk that Anthropic's future models may restrict government use cases or predictability, and the significant deference given to the executive branch in national security matters. The Northern District of California, instead, found that Anthropic did not meet the definition of a supply chain risk under 10 U.S.C. § 3252, which focuses on preventing exploitation of DOW systems by malicious code or other defects. Anthropic's use restrictions, the court stated, merely reflected its contracting position, a subject beyond 10 U.S.C. § 3252's scope. 

How Are Government Contractors Affected?

Supply chain risk designations made under 10 U.S.C. § 3252 are implemented contractually through Defense Federal Acquisition Regulation Supplement (DFARS) 252.239-7017 and 252.239-7018, which require contractors to mitigate such designated risks. These clauses are to be included in all DOW solicitations, including solicitations using Federal Acquisition Regulation (FAR) part 12 procedures for the acquisition of commercial products and commercial services, for information technology, whether acquired as a service or as a supply, that is a covered system, is a part of a covered system, or is in support of a covered system, as defined at DFARS 239.7301. 

Designations made through the issuance of FASCSA orders under 41 U.S.C. § 4713, on the other hand, are implemented through Revolutionary FAR Overhaul (RFO) clauses 52.240-90 and 52.240-91, which are to be included in all solicitations and contracts; under the legacy FAR, they are implemented through FAR 52.204-28, 52.204-29, and 52.204-30. In this regard, FASCSA orders are posted to SAM.gov or identified on a solicitation-by-solicitation basis. As of September 29, 2026, there is no FASCSA order targeting Anthropic on SAM.gov, meaning no government-wide ban on using Anthropic products or services is currently in place. However, because FASCSA orders can be issued by the DOW, contractors should review their existing contracts and future solicitations and contracts to determine whether an Anthropic FASCSA order is included. For contracts that have already been awarded and do not have an Anthropic FASCSA order, such an order only becomes operative and enforceable if a contract is modified to incorporate the FASCSA order.

The FAR and RFO clauses implementing 41 U.S.C. § 4713 require contractors to conduct a "reasonable inquiry," including checking SAM.gov and the solicitation or contract for applicable FASCSA orders prior to submitting bids or offers. Additionally, FAR 52.204-30 and RFO 52.240-91 require contractors to review SAM.gov at least once every three months to see if any of the contractor's services or products are covered by a new FASCSA order or are supplied by a source subject to a FASCSA order. If an applicable FASCSA order is posted, contractors are required to inform the government if they have provided or used a FASCSA-covered product or service during contract performance. 

Ultimately, going forward and in light of the DC Circuit upholding the DOW's authority to designate Anthropic as a supply chain risk under its FASCSA authority, contractors should carefully review solicitations, contracts, and contract modifications for FAR 52.204-28, 52.204-29, and 52.204-30, and the relevant RFO clauses to determine whether the Anthropic (or any other) FASCSA order has been incorporated into their contracts. 

For contractors that are bidding on or have been awarded Other Transaction Agreements (OTAs), the above RFO, FAR, and DFARS clause citations may not be included. However, the substance of the clauses may still be. As such, these contractors should take particular care to review solicitation and agreement documents to ensure whether any Anthropic prohibitions are included. 

What's Next?

On April 2, 2026, the DOW appealed the Northern District of California's preliminary injunction order in favor of Anthropic to the Ninth Circuit. The appeal was stayed while the separate but related litigation proceeded at the DC Circuit. The stay order remains valid and allows the DOW 21 days after resolution of the DC Circuit proceedings on September 25, 2026, to file a motion for appropriate relief. Additionally, the DOW has 60 days after the Northern District of California's permanent injunction order, issued August 27, 2026, to appeal the injunction to the Ninth Circuit. However, because the Ninth Circuit's prior stay order was based on the DC Circuit's determination, and because the DOW ultimately secured a judicial endorsement of its supply chain risk designation, it is unlikely that the DOW will pursue an appeal in the Ninth Circuit. That said, the DC Circuit allows parties to petition for a rehearing en banc within 14 days after judgment is entered. As such, contractors should remain on the lookout for further developments from the DC Circuit, at least until October 9, 2026. 

If you have any questions regarding how Anthropic's or other supply chain risk designations affect your government contracts, please contact:

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Alex L. Sarria, asarria@milchev.com, 202-626-5822

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Ashley Powers, apowers@milchev.com, 202-626-5564

Matteo de Laurentiis,* mdelaurentiis@milchev.com, 202-626-5858

*Law clerk

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