The defense procurement process is the set of rules and steps the Department of Defense follows to buy goods and services from private companies, governed primarily by the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). Competition is the default. Contracts must be signed by an authorized contracting officer. And a company that wants to sell to DoD has to register in federal systems, pick a contract type that matches the work, respond to a public solicitation, and carry compliance obligations that run from cost accounting to cybersecurity long after the award.
The Rulebook and Who Can Bind the Government
Every defense purchase runs through the FAR, which fills Title 48 of the Code of Federal Regulations and covers how solicitations are written, how proposals get evaluated, and how disputes are resolved. DoD layers its own rules on top through DFARS, which occupies Chapter 2 of the same title and addresses defense-specific concerns such as cybersecurity, specialty metals, and sourcing restrictions.
Federal law also sets the presumption in favor of competition. Under 41 U.S.C. § 3301, executive agencies must use competitive procedures unless a narrow statutory exception applies, such as an urgent operational need, a sole capable source, or a national security concern that precludes a public competition.1Office of the Law Revision Counsel. 41 US Code 3301 – Full and Open Competition Outside those carve-outs, opening the bidding to all qualified firms is how DoD is expected to buy.
One detail catches newcomers regularly. Only a contracting officer can legally commit the government to spend money, and even that officer can only act within the spending limits set by the appointing authority. FAR 1.602-1 draws that line clearly.2Acquisition.GOV. FAR 1.602-1 Authority A verbal promise from a program manager or technical lead about extra work or extra money has no contractual weight. Rely on informal assurances from anyone other than the contracting officer and you carry real financial risk.
Getting Registered Before You Can Bid
Before a company can bid on defense work, it has to be visible and verifiable in the government’s systems.
SAM.gov and Your Identifiers
Registration starts at SAM.gov, the single gateway for entities that want to do business with the federal government.3SAM.gov. Entity Registration The system assigns a Unique Entity ID (UEI), which replaced the older DUNS number as the standard identifier across federal databases. Registration also requires a Commercial and Government Entity (CAGE) code and North American Industry Classification System (NAICS) codes describing what your company sells or does. NAICS choices matter more than most first-time registrants realize: many opportunities are restricted by industry code, and small business eligibility is determined on a per-NAICS-code basis.
Accounting System Readiness
If you plan to pursue cost-reimbursement, time-and-materials, or progress-payment contracts, your accounting system must be able to segregate and track government costs. The Defense Contract Audit Agency (DCAA) evaluates systems against the 14 criteria on Standard Form 1408.4Defense Contract Audit Agency. Pre-award Accounting System Adequacy Checklist Fail the pre-award accounting survey and the contracting officer cannot award a cost-type contract to your company. For firms new to government work, this is often the single most time-consuming preparation step, and it is worth starting well before your first cost-reimbursement bid.
Facility and Personnel Clearances
Classified work requires a facility clearance issued by the Defense Counterintelligence and Security Agency, which evaluates ownership structure, physical security, and any foreign ownership, control, or influence.5Defense Counterintelligence and Security Agency. Entity Vetting, Facility Clearances and FOCI Individual employees who will access classified material need separate personal clearances through background investigations. Investigations take months, and a company cannot sponsor employees for clearances until it has a contract or pre-contract letter that requires classified access. That chicken-and-egg problem is why many companies pursue facility clearances early, even before winning classified work.
Contract Types and Who Carries the Risk
How risk gets divided between the government and the contractor depends on the contract type. That choice drives who absorbs overruns and how much financial documentation you have to keep.
Firm-Fixed-Price
A firm-fixed-price contract sets the dollar amount at the start and does not adjust based on what the contractor actually spends. The FAR describes this type as placing “maximum risk and full responsibility for all costs and resulting profit or loss” on the contractor.6Acquisition.GOV. FAR Part 16 – Types of Contracts Bid $10 million on work that costs $12 million and the contractor eats the $2 million. Finish under budget and the contractor keeps the savings. This structure gives the government a predictable price tag and rewards efficient performers.
Cost-Reimbursement
Cost-reimbursement contracts pay the contractor for allowable costs plus a fee that serves as profit. That fee can be fixed or tied to performance targets. The structure shifts more financial risk to the government, which is why the FAR limits its use to situations where the work cannot be defined well enough to set a firm price. Research and development programs are the classic example. To receive this type of contract, the contractor must have a DCAA-approved accounting system; without that approval, the award simply cannot go through.
Indefinite-Delivery/Indefinite-Quantity
Indefinite-delivery/indefinite-quantity (IDIQ) contracts set up a framework for buying supplies or services when the government knows it will need them but does not know exactly how much or when. The contract specifies a minimum and maximum quantity or dollar value over a set period, and actual work gets ordered incrementally through task or delivery orders.7Acquisition.GOV. FAR 16.504 – Indefinite-Quantity Contracts The government’s only guaranteed commitment is the stated minimum. Many of the largest defense contracts by ceiling value are IDIQs shared among multiple companies that compete for individual orders over years.
Time-and-Materials
Time-and-materials contracts pay an hourly labor rate plus materials cost. The FAR treats these as a last resort because the contractor has limited incentive to control costs. Before using one, the contracting officer must formally document that no other contract type will work, specifically that “it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work.”8Acquisition.GOV. FAR 16.601 – Time-and-Materials Contracts If the base period plus options exceed three years, the agency head must sign off. Every time-and-materials contract must include a ceiling price that the contractor exceeds at its own risk.
Finding Opportunities and Submitting a Bid
Defense agencies post opportunities on SAM.gov, the centralized, free source for finding and bidding on federal contracts.9SAM.gov. Contracting Solicitations come in several forms. A Request for Proposal (RFP) asks companies to submit a detailed solution evaluated on multiple factors beyond price. A Request for Quote (RFQ) is used when the agency knows what it needs and selection turns more heavily on price and basic qualifications.
Preparing the Proposal
RFPs typically require two separate volumes: a technical proposal explaining how the company will perform the work, and a price proposal detailing costs. The solicitation spells out every evaluation factor and subfactor, and proposals are scored exclusively against those stated criteria.10Acquisition.GOV. FAR Subpart 15.3 – Source Selection The most common mistake first-time bidders make is answering the question they wish the government had asked rather than the one actually in the solicitation. If the RFP tells you to address staffing qualifications in Section L and your response buries that in a management overview, evaluators may never find it.
How the Government Evaluates Proposals
The source selection authority establishes an evaluation team that includes contracting, technical, and legal expertise. The evaluation approach falls along what the FAR calls the “best value continuum.” At one end, a lowest-price-technically-acceptable evaluation awards the contract to the cheapest bid that meets every technical requirement. At the other end, a tradeoff evaluation allows the government to pay more for a proposal that offers superior technical capability, past performance, or other non-price factors. The solicitation must disclose which approach applies.
Technical evaluators document strengths, weaknesses, and risks in each proposal. Separately, the contracting officer conducts a price analysis to determine whether proposed costs are fair and realistic. The source selection authority then makes an independent judgment based on the evaluation record, documented with enough rationale to withstand scrutiny if challenged.
Debriefings and Protests
After award, unsuccessful bidders can request a post-award debriefing. The request must reach the agency within three days of the award notification.11Acquisition.GOV. FAR 15.506 – Postaward Debriefing of Offerors The debriefing explains the basis for the selection and identifies where the losing proposal fell short. Skipping the debrief is a missed opportunity for improving future bids.
A company that believes the award was improper can file a protest with the Government Accountability Office. The filing deadline is 10 days after the debriefing for procurements conducted under competitive proposals, or 10 days after the protester knew or should have known the basis of the protest.12eCFR. 4 CFR 21.2 – Time for Filing Filing within those windows can trigger an automatic stay of contract performance, effectively freezing the award until GAO resolves the protest. Miss the deadline by even a day and the stay is gone, which dramatically weakens the protest’s leverage.
Compliance Obligations That Come With the Contract
Winning an award is the start of a longer relationship. Several bodies of rules attach to the work itself.
Ethics and False Claims Exposure
Procurement integrity rules set strict boundaries on both sides. FAR 3.104 restricts government employees from disclosing non-public bid information or seeking employment with companies involved in procurements they oversee.13Acquisition.GOV. FAR 3.104-2 General Post-employment restrictions under 18 U.S.C. § 207 prevent former officials from representing contractors on matters they handled while in government. Contractors themselves must maintain a written code of business ethics and conduct under FAR 52.203-13 when the contract exceeds certain dollar thresholds.14Acquisition.GOV. FAR 52.203-13 Contractor Code of Business Ethics and Conduct
The government’s primary enforcement weapon against contractor fraud is the False Claims Act. A company that knowingly submits inflated invoices, misrepresents qualifications, or charges for work it did not perform faces treble damages plus civil penalties for each false claim.15Department of Justice. The False Claims Act As of July 2025, per-claim penalties range from $14,308 to $28,619 after the most recent inflation adjustment.16Federal Register. Civil Monetary Penalties Inflation Adjustments for 2025 Beyond the financial hit, a company found liable can be debarred from all future government contracting. The Act’s whistleblower provision lets private individuals sue on the government’s behalf and collect a share of any recovery, so the enforcement risk often comes from inside a contractor’s own workforce.
DCAA adds another layer of oversight. Auditors verify that costs billed to the government are allowable (not on the prohibited list), reasonable (a prudent business would incur them), and allocable (they actually relate to the contract being charged). Cost-reimbursement contractors face the most scrutiny, including annual incurred-cost audits where every dollar must be justified.
Domestic Sourcing
Defense procurement layers multiple domestic sourcing restrictions that go well beyond the general preference for American-made goods. The Buy American Act, implemented through FAR Part 25, requires executive agencies to prefer domestically produced supplies.17Acquisition.GOV. FAR Subpart 25.1 – Buy American-Supplies
The Berry Amendment, implemented through DFARS 252.225-7012, goes further for defense purchases. Food, clothing, textiles, and related materials delivered under a DoD contract must be grown, produced, or reprocessed in the United States.18eCFR. DFARS 252.225-7012 – Preference for Certain Domestic Commodities This is not a price-comparison preference that can be waived; it is a hard restriction with very limited exceptions.
Specialty metals add another layer. DFARS 252.225-7009 requires that certain high-performance metals, including high-alloy steels, titanium, zirconium, and certain nickel and cobalt alloys, be melted or produced in the United States or a qualifying allied country.19Acquisition.GOV. DFARS 252.225-7009 – Restriction on Acquisition of Certain Articles Containing Specialty Metals For a subcontractor supplying components that incorporate these metals, the sourcing obligation flows down the supply chain. Fixing this after production has started is expensive.
Cybersecurity and CMMC
Protecting controlled unclassified information (CUI) has become one of the most consequential compliance requirements for defense contractors. The Cybersecurity Maturity Model Certification (CMMC 2.0) program is rolling into contracts in phases. Phase 1 runs from November 2025 through November 2026 and focuses on CMMC Level 1 and Level 2 self-assessments.20Department of Defense Chief Information Officer. About CMMC
Level 1 covers basic safeguarding of federal contract information and applies to contractors who do not handle CUI. Level 2 is significantly more demanding, incorporating the 110 security requirements from NIST Special Publication 800-171 across 17 control families including access control, incident response, risk assessment, and supply chain risk management.21Computer Security Resource Center. Assessing Security Requirements for Controlled Unclassified Information Depending on sensitivity, Level 2 may require either a self-assessment or a certification assessment by an accredited third-party organization. Assessment results and a senior official’s affirmation must be submitted through the Supplier Performance Risk System (SPRS).
The practical impact is substantial. A machine shop that handles drawings marked as CUI needs network segmentation, multi-factor authentication, encryption, audit logging, and more before it can bid on new contracts that include CMMC Level 2 requirements. Companies that have been putting off these investments are running out of runway as CMMC clauses appear in more solicitations through 2026.
Data Rights
Who owns the technical data and software produced under a defense contract depends almost entirely on who paid for the development. DFARS 252.227-7013 establishes three tiers of data rights based on funding source.22eCFR. DFARS 252.227-7013 – Rights in Technical Data – Other Than Commercial Products and Commercial Services
- Unlimited rights. When the government funds development entirely, it gets unrestricted rights to use, reproduce, and distribute the technical data for any purpose. This includes data on items developed exclusively with government funds and data needed for operation, maintenance, and training.
- Government purpose rights. When development uses mixed funding, the government receives rights to use the data for government purposes for five years, or another negotiated duration. During that window, the contractor retains the exclusive right to use the data commercially. After the period expires, the government’s rights become unlimited.
- Limited rights. When development is funded entirely with private money, the government receives only limited rights. It can use the data within the government but generally cannot release it to third parties for manufacturing or competitive reprocurement.
These categories matter at negotiation. A contractor who develops a component with its own R&D funds and then sells it to the government retains control over the underlying design data. If the government funds even a portion of the development, the data rights shift. Negotiate the data rights clause carefully rather than assuming the default rules will protect proprietary technology.
Small Business Pathways
DoD sets annual goals for the share of contract dollars awarded to categories of small businesses. For fiscal year 2025, the department targeted 5% each for women-owned small businesses, service-disabled veteran-owned small businesses, and HUBZone businesses at the prime contracting level.23Department of Defense. Small Business Program Goals and Performance Those goals translate into real contracting actions: agencies routinely set aside competitions so that only qualifying small businesses can bid.
Small business eligibility is not a single revenue or employee threshold. The SBA assigns size standards to each NAICS code, measured either by average annual receipts over the prior five fiscal years or by average employee count over the prior 24 months. A company must also count the receipts and employees of any affiliates when determining its size.24U.S. Small Business Administration. Size Standards
The SBA’s 8(a) Business Development program offers additional advantages for firms owned by socially and economically disadvantaged individuals, including sole-source awards up to certain dollar thresholds without a full competition.25U.S. Small Business Administration. 8(a) Business Development Program Smaller firms can also punch above their weight through the SBA’s Mentor-Protégé program. A large company serving as mentor can form a joint venture with a qualifying small business protégé, and that joint venture is treated as a small business for bidding purposes. The SBA must approve the arrangement and confirm that the mentorship provides genuine developmental value rather than serving as a pass-through for set-aside contracts.26U.S. Small Business Administration. SBA Mentor-Protege Program
When the FAR Does Not Apply: Other Transaction Authority
Not all defense procurement follows the FAR. Other Transaction Authority (OTA) allows certain defense officials to enter into agreements for prototype projects without the full burden of standard acquisition regulations. Under 10 U.S.C. § 4022, officials including the directors of DARPA and the Defense Innovation Unit can fund prototypes “directly relevant to enhancing the mission effectiveness” of DoD personnel or improving military systems and components.27Office of the Law Revision Counsel. 10 USC 4022 – Authority of the Department of Defense to Carry Out Certain Prototype Projects
OTAs are designed to bring in companies, particularly commercial technology firms, that would not otherwise navigate the traditional process. Competitive procedures are still required to the maximum extent practicable, but the agreements do not require FAR-compliant cost accounting systems, certified cost or pricing data, or many of the contract clauses commercial companies find burdensome. Prototype projects exceeding $100 million require written certification by the agency head that OTA is essential to the project’s success. Projects exceeding $500 million require senior procurement executive approval and 30-day advance notice to congressional defense committees. Agreements involving total payments over $5 million must include a clause granting the Comptroller General access to examine the records of the parties involved.
OTAs have become increasingly popular as the Pentagon has sought faster access to commercial innovation in artificial intelligence, autonomous systems, and advanced manufacturing. For companies coming from the commercial tech world, this pathway avoids the years-long process of building FAR-compliant infrastructure. The tradeoff is that OTAs typically cover only the prototype phase; transitioning to production usually requires a traditional FAR-based contract, and that transition is where many OTA-originated programs stall.