If you’re a government contractor handling controlled unclassified information (CUI) for the Department of Defense (DoD), here’s what you need to know: The DoD’s 2023 Cyber Strategy revealed a critical vulnerability in subcontractor compliance across the Defense Industrial Base (DIB). In response, they’re rolling out stricter security measures that affect the entire supply chain. 

However, there’s good news for contractors. While strengthening security requirements, the DoD is actually streamlining its acquisition process. Through its Commercial Solutions Openings program and FAR Part 12, it has created faster pathways for bringing in commercial products and services. 

This dual approach – enhanced security with simplified procurement – transforms how companies work with the DoD. Tech firms that previously avoided defense contracts due to bureaucracy now have a more straightforward path forward provided they meet the necessary security standards for protecting sensitive defense information. Let’s explore this roadmap. 

What is DFARS compliance? 

For defense contractors and suppliers, complying with DFARS requirements is essential to winning and maintaining Department of Defense contracts. These cybersecurity regulations, known formally as the Defense Federal Acquisition Regulation Supplement (DFARS), set the security standards your organization must meet to protect sensitive defense information. 

Simply put, if you want to work with the DoD, your company must demonstrate that it can safeguard CUI according to these requirements. Whether bidding on new contracts or maintaining existing ones, meeting DFARS standards isn’t just about checking boxes—it’s the price of admission for your organization to be regarded as a trusted partner in the defense supply chain.

Who needs to comply with DFARS? 

For anyone overseeing defense contracts, understanding the full scope of DFARS cybersecurity compliance requirements for federal agencies is non-negotiable for protecting Controlled Unclassified Information (CUI).  

But the thing to remember is the DIB supply chain extends beyond prime contractors, creating a complex web of security responsibilities your agency needs to monitor. 

DoD guidelines require DoD agencies to ensure DFARS compliance verification for: 

• Prime Contractors – Main DoD partners 
• Subcontractors – Including small firms, like IT providers, within the contractor’s network 
• Technology Providers – Handling or touching defense-related data 
• Research Partners – Working on DoD-related projects 
• Manufacturing and Logistics Partners – Integral to the supply chain

A breakdown of the DFARS compliance requirements 

Understanding the DFARS compliance framework is essential for federal contractors. DFARS (covering covered information) clause 252.204-7012 and NIST SP 800-171 establish 14 security requirement families. They form the core compliance criteria and include controls for access management, incident response, and data integrity, which contractors must meet to protect CUI.  

1. Access Control 
2. Awareness and Training 
3. Audit and Accountability 
4. Configuration Management 
5. Identification and Authentication 
6. Physical Protection 
7. Incident Response 
8. Maintenance 
9. Media Protection 
10. Risk Assessment 
11. Security Assessment 
12. System and Communications Protection 
13. System and Information Integrity 
14. Personnel Security 

Recent DoD cybersecurity assessments show that breaches commonly occur when contractors have gaps across multiple requirement families. The most challenging regions for contractors typically include System and Communications Protection, Audit and Accountability, Configuration Management, Access Control, and Incident Response capabilities.  

These areas are critical for ensuring compliance with standards such as NIST SP 800-171, which outlines stringent requirements for protecting CUI. 

Five steps to help your organization achieve DFARS compliance 

Understanding and implementing contract flow-down requirements is crucial for DFARS cybersecurity compliance as a DoD contractor. To ensure compliance, it’s your duty to ensure all the subcontractors involved meet DFARS requirements, particularly regarding cybersecurity and CUI protection.  

Here are the five steps you’ll need to achieve this:

1. Start with a practical security assessment of your organization

Think of NIST SP 800-171 as your gap analysis roadmap. By comparing your current security practices to these requirements, you can identify areas needing improvement to meet DoD standards.  

Begin by pulling out those DoD contracts. Each one might have specific DFARS requirements you need to address. Pay special attention to DFARS clause 252.204-7012. It tells you exactly what types of controlled unclassified information (CUI) you’re responsible for protecting. If you’re unsure if something applies to you, your contracting officer can help clarify.  

Next, identify what parts of your business need to meet these standards. Take inventory of your hardware, software, systems, and processes that handle DoD information. This step helps you focus your compliance efforts – and budget – exactly where they’re needed.

2. Build your System Security Plan (SSP)

Once you’ve identified your security gaps, it’s time to create a practical plan to address them. Start by comparing your current security practices against NIST SP 800-171 requirements – this is your roadmap to compliance.   

Focus on prioritizing your gaps based on risk level and resource requirements. Maybe you need to strengthen access controls or update your incident response plan. Whatever the case, create a realistic timeline for your organization, keeping in mind that some security measures can be implemented quickly while others may require longer-term planning and investment. 

The plan should clearly outline system boundaries, data flows, and security responsibilities. Lastly, review this document for completeness, technical accuracy, and alignment with federal security requirements. We’ve developed this helpful SSP template to help you start building your system security plan.

3. Develop a Plan of Action and Milestones (POA&M)

A defense contractor’s POA&M demonstrates its commitment to continuous security improvement. This document should clearly outline timelines for addressing gaps identified during the assessment phase.  

A POA&M is a structured plan of the steps you’ll need to take to address any identified security deficiencies. This Plan of Action and Milestones (POA&M) is a core part of your DFARS compliance journey. It’s a demonstration of your agency’s commitment to closing gaps. Feel free to use our user-friendly template POA&M guide to help you create a tailored plan. 

Look for specific completion dates, resource allocations, and designated responsible parties for each action item. The POA&M must include measurable milestones that allow you to track progress effectively. Regular updates and status reports should be part of any contractor’s POA&M management process.

4. Implement continuous monitoring

To stay on top of DFARS compliance, it’s essential to establish a robust, continuous monitoring plan. This plan should leverage tools you developed, such as System Security Plan (SSP) templates, which map out security controls and data flow aligned with NIST SP 800-171 standards. The Plan of Action and Milestones (POA&M) you developed will keep you on track by identifying compliance gaps, timelines, and roles. 

Finally, a continuous monitoring dashboard—such as IPKeys’ CLaaS®—ensures transparency and provides stakeholders with real-time compliance updates, proving your proactive commitment to cybersecurity standards. 

5. Implement contract flow-down requirements

As a prime contractor, you’re legally responsible for ensuring DFARS compliance throughout your supply chain (not just your own). Start by identifying all subcontractors who handle or have access to CUI in your contracts.  

To ensure compliance with DFARS cybersecurity and CUI protection requirements, include the specific language of DFARS clause 252.204-7012 in all subcontracts. This will clearly communicate the necessary security standards and obligations to your subcontractors.  

Document your subcontractors’ acknowledgment and acceptance of these flow-down requirements. Then, establish verification procedures to ensure ongoing compliance throughout your subcontractor network. 

What happens if you’re not compliant with DFARS requirements? 

Maintaining DFARS compliance is the cost of entry for contractors, as it ensures their eligibility for government contracts and upholds trust with stakeholders in the defense supply chain. 

The most immediate repercussion for not complying with DFARS is the DOD issuing a stop-work order. All ongoing work with the contractor stops until the compliance gaps are rectified and security measures are deployed to protect Controlled Unclassified Information (CUI).  

Non-compliance with DFARS can lead to contract termination, suspension of payments, and major financial penalties, including damages for violating the False Claims Act or breach of contract.  

Recent enforcement actions show that contractors found to be non-compliant faced an average of 120 days of contract suspension and required extensive remediation efforts costing upwards of $250,000 before reinstatement.  

The specific details of enforcement actions can vary depending on the non-compliance issue. However, the potential for severe repercussions highlights the severe blow it could make to a contractor’s reputation. 

IPKeys: Your partner for DFARS compliance 

In an era where cyber events like the recent Microsoft Exchange Online breach have exposed vulnerabilities in federal systems, ensuring contractor cybersecurity has never been more critical. Federal agencies overseeing defense contracts face pressure to protect sensitive information across increasingly complex supply chains.  

With the DoD’s updated cybersecurity requirements and the transition to CMMC 2.0, agencies need clear guidance on evaluating contractor compliance. To strengthen your DFARS compliance program, contact us today for a free demonstration and learn how we can help you protect your DoD contracts.  

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