EXECUTIVE BRIEF

DFARS—short for the Defense Federal Acquisition Regulation Supplement—plays a critical role in defense-specific regulatory standards, and it’s a core compliance requirement for companies doing business with the U.S. Department of Defense (DoD) (also known as the Department of War): one that can directly determine your company’s targeted Cybersecurity Maturity Model Certification (CMMC) Level.

Here’s what contractors need to know:

• DFARS was implemented in 2017 to standardize cybersecurity practices for contractors handling Federal Contract Information (FCI) and Controlled Unclassified Information (CUI).
• DFARS 252.204-7012 requires adherence to the National Institute of Standards and Technology’s (NIST) Special Publication (SP) 800-171A Revision 2 (Rev2), the basis for CMMC Level 2.
• The DFARS 7021 interim rule requires prime contractors to confirm their subcontractors have achieved and maintained an appropriate CMMC status.

Dig deeper and continue learning below!

What Is DFARS and Why Does It Appear In Your Contract?

DFARS is a set of contractual clauses that define what the DoD expects from companies that handle certain types of sensitive information while performing defense work. If DFARS appears in your contract, compliance isn’t optional. By accepting the contract, you’re certifying that your organization can meet the requirements outlined in those clauses and that you can demonstrate compliance if asked.

For many contractors, DFARS compliance first becomes visible when:

• A prime contractor includes DFARS requirements as a flow-down
• A new contract award or modification references DFARS clauses
• Legal, contracts, or procurement teams flag DFARS language during review

This blog takes a deeper look at what DFARS is, why it matters, how it relates to CMMC and NIST, and what DFARS compliance actually requires for companies operating in the defense industrial base (DIB).

What Is the Purpose of DFARS?

The purpose of DFARS is simple but critical: to protect national security by ensuring defense contractors safeguard sensitive government data and follow proper acquisition procedures. DFARS adds new DoD-specific rules around procurement, contracting, and compliance to the Federal Acquisition Regulation (FAR) and standardizes compliance expectations to make sure every contractor in the DIB is held to the same cybersecurity, reporting, and performance standards, regardless of size. It helps secure the defense supply chain by ensuring that all contractors handling CUI or FCI follow strict cybersecurity standards to prevent data breaches and cyberattacks.

What Does DFARS Compliance Actually Require?

At a high level, DFARS compliance is about protecting sensitive government information and proving that protection is in place. While the exact requirements depend on which DFARS clauses apply to your contract, most contractors encounter obligations related to the three core areas below.

The Protection of Controlled Unclassified Information (CUI)

DFARS requires contractors to safeguard CUI: data that isn’t classified but is still sensitive and regulated. This includes technical data, contract information, and other materials shared in the course of defense work.

Safeguarding CUI isn’t limited to IT systems alone. It extends to:

• How information is accessed
• Who can view or modify it
• How it is stored, transmitted, and disposed of
• How risks are managed across people, processes, and technology

Demonstrated Security Practices, Not Just Intent

DFARS compliance requires contractors to implement defined security controls and maintain evidence that those controls are operating effectively. This often includes:

• Documented policies and procedures
• Configured systems and access controls
• Defined incident response processes
• Ongoing monitoring and maintenance

Saying you’re secure isn’t enough. You must be able to show how that security is implemented and how it’s sustained over time.

Incident Reporting and Accountability

Certain DFARS clauses require contractors to report cyber incidents within strict timelines. This means your organization must be able to:

• Detect security incidents
• Assess their impact
• Respond appropriately
• Report them in accordance with contractual requirements

For many organizations, this is where DFARS compliance starts to feel operationally heavy. These responsibilities cut across IT, compliance, leadership, and sometimes even HR or legal teams, often without a single owner overseeing the whole picture.

Who Administers DFARS?

DFARS is owned by the DoD, managed through the Defense Acquisition Regulations System (DARS), and enforced via a combination of DoD contracting officers, auditors, and cybersecurity oversight bodies such as the Defense Contract Management Agency (DCMA), the Defense Counterintelligence and Security Agency (DCSA), and the Cyber AB.

• The DARS is the policy brain behind DFARS. They’re responsible for updating DFARS to reflect law, policy, and evolving threats and coordinating public comment periods and finalizing rules.
• DoD Contracting Officers ensure that DFARS clauses (like 252.204-7012) are included in new DoD contracts, and they check for compliance in vendor proposals and performance.
• The DCMA monitors contractor performance and compliance by conducting audits and reviews of contractor systems and verifying that cybersecurity measures are implemented.
• The DCSA handles Facility Clearance (FCL) and Personnel Clearance (PCL) processes and ensures contractors comply with the National Industrial Security Program (NISP).
• The Cyber AB runs the CMMC ecosystem, training assessors, certifying companies, and ensuring DFARS clauses like 252.204-7012 are tied to measurable cybersecurity standards.

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Who Needs To Be DFARS Compliant?

Any company in the DoD supply chain that handles CUI must be DFARS compliant. This includes not only direct DoD prime contractors, but also subcontractors and vendors in the supply chain, such as IT service providers, software developers, manufacturers, and cloud hosting companies.

DFARS compliance is triggered when a company stores, processes, or transmits CUI or FCI, making it essential even for small businesses working indirectly with the DoD.

Noncompliance can result in lost government contracts, audit failures, or even False Claims Act liability.

What Is CUI?

CUI (Controlled Unclassified Information) is data created or possessed by the government (or by entities working on its behalf) that isn’t classified, but that still requires protection according to applicable laws, regulations, or government-wide policies. CUI encompasses a wide range of information types, such as trade secrets and intellectual property (IP), controlled technical information (CTI) used in military or federal operations, critical infrastructure information (CII) vital to national security, or even just personally identifiable information (PII) or protected health information (PHI).

DFARS Compliance Does Not Stand Alone

One of the most common misconceptions about DFARS is that it can be addressed in isolation—handled as a single requirement, checked off, and set aside.

In reality, DFARS functions as a gateway requirement. It establishes the obligation to protect sensitive information, but it doesn’t fully define how that protection must be implemented or sustained. To meet DFARS requirements in practice, contractors must align with additional standards that define the “how” in detail.

This is where many organizations realize that DFARS compliance isn’t a standalone task, but part of a larger security and compliance ecosystem.

How DFARS Compliance Relates to NIST 800-171

DFARS compliance is closely tied to NIST Special Publication 800-171, which outlines a set of security controls designed to protect CUI in non-federal systems.

NIST 800-171 sets the benchmark for how CUI should be safeguarded. While DFARS establishes the contractual requirement, NIST 800-171 defines the specific expectations around access control, system configuration, monitoring, incident response, and more.

This is often where DFARS compliance starts to feel more complex than expected. Many contractors discover that:

• Compliance extends beyond IT into policies, procedures, and workforce behavior
• Responsibilities are split across departments with no single owner
• Existing tools or managed IT services do not fully address the required controls

As a result, organizations may believe they’re DFARS compliant in principle, but struggle to demonstrate alignment with NIST 800-171 in practice. This gap—between contractual obligation and operational reality—is one of the most common sources of risk for defense contractors.

How DFARS Compliance Connects to CMMC

DFARS compliance is also a stepping stone toward CMMC, the DoD’s Cybersecurity Maturity Model Certification program.

CMMC introduces a formal certification requirement that determines whether contractors can compete for and perform certain defense contracts going forward. Importantly, CMMC builds directly on the same security foundations that DFARS references—particularly those tied to NIST 800-171.

For contractors, this means:

• The work required for DFARS compliance overlaps significantly with CMMC readiness
• Gaps left unaddressed today can become certification barriers tomorrow
• Treating DFARS as a temporary or one-time effort often leads to rework

Organizations that approach DFARS compliance strategically—by aligning security, compliance, and operational ownership early—are better positioned to adapt as CMMC requirements come into force. Those that do not may find themselves scrambling to close gaps under tighter timelines and increased scrutiny.

Important DFARS Clauses to Understand

DFARS regulations are organized into subparts, each addressing a specific area such as pricing, cost accounting standards, copyrights, and sustainment. These subparts help ensure that all stages of the procurement process — from solicitation to post-award performance — are handled transparently and in accordance with national security interests.

Let’s consider some of the most essential DFARS clauses for DoD contractors to understand.

DFARS Clause 252.204-7012

The cornerstone of DFARS compliance is Clause 252.204-7012, “Safeguarding Covered Defense Information and Cyber Incident Reporting.” This clause mandates that contractors implement security measures sufficient to protect Covered Defense Information (CDI). (Note that CDI encompasses CUI.)

If DFARS 252.204-7012 is in your contract, you’re legally required to implement NIST SP 800-171. To ensure compliance with NIST 800-171, defense contractors must implement 110 security controls across 14 control families. These controls cover areas such as access control, incident response, and system and information integrity.

Contractors are also required to provide notifications of cyber incidents affecting CUI to the DoD within 72 hours, preserve and protect data related to the incident, and submit their security status via a Supplier Performance Risk System (SPRS) score. Rapid reporting helps mitigate potential damage and allows the DoD to respond promptly to threats.

DFARS Interim Rule

Introduced in September 2020, the DFARS Interim Rule was a game-changer for defense contractors. It added teeth to cybersecurity compliance by introducing new requirements to verify contractor implementation of NIST SP 800-171 before CMMC was fully rolled out.

The DFARS Interim Rule added the following three new clauses to enhance cybersecurity requirements:

DFARS 252.204-7019 - Notice of NIST SP 800-171 DoD Assessment Requirements

This clause established a system for self-assessment so contractors could report their compliance with NIST 800-171 by submitting a Supplier Performance Risk System (SPRS) score to the DoD.

DFARS 252.204-7020 - NIST SP 800-171 DoD Assessment Requirements

This clause ensures that the DoD can evaluate contractor compliance by conducting its assessments. These assessments are categorized as “Basic,” “Medium,” and “High” based on the sensitivity of the information handled.

DFARS 252.204-7021 – Cybersecurity Maturity Model Certification Requirements

This clause sets the stage for the implementation of CMMC and was published in January 2024. This clause details the subcontractor flow-down requirement which stipulates that prime contractors must include DFARS 7021 requirements in subcontracts to ensure subcontractors also meet the necessary CMMC level.

Common DFARS Compliance Mistakes Contractors Make

Most DFARS compliance failures don’t stem from negligence or indifference. In fact, many government contractors believe they’re meeting DFARS compliance requirements until a contract review, incident, or third-party inquiry exposes gaps they didn’t realize were there.

Below are the most common mistakes contractors make, and why they create real risk.

1. Treating DFARS Compliance as a One-Time Exercise

DFARS compliance isn’t a one-and-done effort—something to address at contract award or renewal and then move on from. It requires ongoing information security and risk management, not a static snapshot in time. Security requirements evolve as systems change, personnel roles shift, and threats emerge. Without continuous oversight, even previously compliant environments can drift out of alignment.

2. Assuming General IT Support Equals Adequate Security

Another common mistake is assuming that having a Managed Services Provider, internal IT team, or basic cybersecurity tools automatically satisfies DFARS requirements.

While IT support is essential, DFARS compliance extends beyond uptime and troubleshooting. It includes:

• Documented security controls
• Authentication and access management practices
• Policies governing contractor information systems
• Evidence that safeguards are implemented consistently

Many contractor information systems function well operationally but fall short when evaluated against DFARS compliance requirements during a security assessment or review.

3. Lacking a Formal Risk Assessment or Gap Analysis

To be fully compliant, contractors need to understand their risk posture, not guess at it. Organizations often skip a formal risk assessment or gap analysis, relying instead on assumptions about their environment. Without structured analysis, it’s difficult to determine whether existing controls provide adequate security or where remediation is required.

Federal agencies and prime contractors increasingly expect defense contractors to demonstrate that they:

• Understand their risks
• Have a System Security Plan (SSP) in place
• Have assessed control gaps
• Are actively managing remediation efforts

Without this foundation, compliance claims are difficult to defend.

4. Signing Attestations Without Verifiable Evidence

DFARS clauses require contractors to certify compliance as part of contract performance. A significant risk arises when organizations attest to compliance without sufficient documentation, system evidence, or operational proof.

This creates exposure not only during audits or reviews, but also if:

• A cyber incident occurs
• A subcontractor relationship is examined
• A federal agency requests validation

DFARS requires demonstrable information security practices that can withstand scrutiny.

5. Fragmenting Ownership Across Teams

DFARS compliance touches multiple functions, including IT, compliance, legal, HR, and executive leadership. When ownership is fragmented, gaps emerge.

Common symptoms include:

• IT managing controls without policy oversight
• Compliance teams lacking visibility into systems
• Leadership unaware of unresolved risks

Effective DFARS compliance requires coordinated risk management, clear accountability, and shared understanding across the organization—not siloed efforts.

6. Delaying Remediation Until There’s a Problem

Many contractors postpone remediation until an issue becomes unavoidable, such as a failed assessment, contract delay, or security incident. At that point, timelines tighten, options narrow, and costs increase. Proactive remediation based on ongoing risk assessment is far more effective than reactive fixes under pressure.

DFARS compliance breaks down when it’s treated as a paperwork exercise rather than a structured security and risk management discipline. Contractors that recognize this early are better positioned to meet U.S. government expectations—not just today, but as security requirements continue to evolve.

Stay DFARS Compliant with ISI

Many defense contractors initially try to manage DFARS compliance internally, assigning pieces of the work to IT, compliance, or contracts teams. While this approach can work in limited cases, it often breaks down as requirements expand beyond policies and documentation into ongoing information security, risk management, and operational accountability. Without clear ownership across contractor information systems, authentication controls, remediation efforts, and continuous monitoring, internal teams can struggle to maintain adequate security over time.

A partner-led approach can shift DFARS compliance from a fragmented responsibility to a coordinated program that reduces gaps, avoids duplicated work, and makes it easier to demonstrate alignment.

ISI brings cybersecurity, managed IT, and compliance together under a single, integrated model. If DFARS is in your contract and you need a sustainable way to meet today’s requirements while preparing for what comes next, partnering with ISI helps you move forward with clarity, confidence, and continuity without juggling multiple vendors or disconnected solutions.

>>Contact ISI for Expert Guidance on Compliance Strategies

FAQs about DFARS Compliance

What Is the Difference between FAR and DFARS?

FAR is the primary set of rules for all federal government procurement across all agencies, while DFARS is a DoD-specific set of regulations that supplement the FAR.

How Does DFARS Relate to CMMC?

DFARS 252.204-7012 requires DoD contractors to implement the cybersecurity controls outlined in NIST SP 800-171, but until recently, compliance was based on trust. CMMC was introduced to close that gap by requiring third-party assessments to verify that contractors have truly implemented those controls. In short, DFARS sets the requirement, and CMMC provides the proof—making CMMC the enforcement mechanism for DFARS cybersecurity obligations.

Can ISI integrate its compliance software with tools like Microsoft 365 GCC High?

Yes. Our Security Control platform integrates directly with Microsoft 365 GCC High to help defense contractors meet DFARS compliance requirements, including safeguarding CUI under DFARS 252.204-7012. Our platform aligns controls, maps evidence, and supports workflows tied to NIST SP 800-171 and CMMC Level 2, both key foundations of DFARS compliance. Unlike generic compliance tools, our platform is purpose-built for DIB environments, making it easier to maintain continuous DFARS compliance inside GCC High without disrupting your existing IT and security architecture.

Key integration benefits include:

• Linking evidence and documentation stored in SharePoint and OneDrive (GCC High) to NIST SP 800-171 controls required for DFARS compliance
• Mapping security policies and sensitivity labels directly to DFARS-relevant compliance artifacts
• Syncing user and access reviews with Azure AD (GCC High) to support role-based access controls
• Supporting secure file-sharing workflows that meet DFARS requirements for protecting CUI

How do firms address secure email for external partners who lack encryption?

To meet DFARS compliance requirements (DFARS 252.204-7012), defense contractors must protect CUI even when emailing external partners who don’t use encrypted email. The safest approach is to use secure messaging or file-sharing tools with Federal Information Processing Standards (FIPS) validated cryptography, which keep CUI protected regardless of the recipient’s email system. Common solutions include Microsoft 365 GCC High, SharePoint, Virtru, Proofpoint Secure Share, and Mimecast Secure Messaging. These tools help ensure secure external communication while aligning with DFARS, NIST SP 800-171, and CMMC Level 2 requirements.

What data loss prevention approaches work best for CUI?

The most effective data loss prevention (DLP) approaches for protecting Controlled Unclassified Information (CUI) combine technical safeguards, access controls, and continuous monitoring. Because CUI can move across email, cloud storage, endpoints, and subcontractor workflows, strong DLP must follow the data wherever it goes.

Proven DLP approaches for CUI include:

• Sensitivity labels and encryption in GCC High or Azure Government to prevent unauthorized sharing or downloading
• Conditional access policies that block risky locations, unmanaged devices, or unapproved applications
• Endpoint DLP that controls print, copy/paste, USB access, and file movement
• Secure file-sharing portals
• Automated alerting and auditing for unusual access, exfiltration attempts, or policy violations
• Role-based access controls that limit CUI to only those who need it

Many defense contractors don’t realize how often they come across CUI in everyday work.

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