This designation is usually reserved for foreign adversaries/companies, and so this is crazy to apply it to US company over a sudden contract dispute... that was previously agreed upon by all parties.
This should make any US company nervous about entering into an agreement with the government. Or any US company that already has a contract with the government. If they one day decide they don't like that contract, they can designate you a supply chain risk.
Not 1) rip up the existing contract and cease the agreement or 2) continue (but not renew) the existing contract or 3) renegotiate terms upon renewal but instead a full on ban of doing any business with an entire industry/sector.