Most defense contractors know about DFARS DOD compliance, but few realize how deep the requirements actually go. You're protecting more than data on your servers. You're responsible for CUI across cloud services, mobile devices, subcontractor networks, and every system that touches covered defense information. One gap in your security controls or a missed incident report can trigger payment withholding or False Claims Act exposure. Here's what full compliance actually looks like and how to document it properly.

TL;DR

• DFARS requires all DOD contractors handling CUI to implement 110 NIST SP 800-171 security controls.

• You must report cyber incidents affecting covered defense information within 72 hours or face penalties.

• Non-compliance triggers withheld payments, contract termination, and potential debarment from federal work.

• CMMC certification verifies your DFARS compliance, with requirements phasing in through 2026.

• GovDash maintains contract documentation and compliance obligations in FedRAMP Moderate-equivalent infrastructure.

What Is DFARS and Why Does It Matter for DOD Contractors

The Defense Federal Acquisition Regulation Supplement (DFARS) supplements the Federal Acquisition Regulation (FAR) with DOD-specific procurement rules. While FAR applies to all federal agencies, DFARS adds requirements unique to defense contracts.

DFARS determines whether you can win and keep DOD work. It covers buy American requirements, intellectual property rights, and cybersecurity mandates. If you handle Controlled Unclassified Information (CUI), you must implement NIST-based security controls. Non-compliance triggers contract termination, payment withholding, or suspension from future awards. DFARS compliance is required for all DOD supply chain participants.

Who Must Comply with DFARS Requirements

DFARS applies to any organization in the DOD supply chain that handles Controlled Unclassified Information. This includes prime contractors with direct DOD awards, subcontractors at every tier, and suppliers providing components or services involving CUI.

Contract size doesn't matter. If you process, store, or transmit CUI for the DOD, you must comply. This covers cloud service providers, IT support vendors, and manufacturers accessing defense-related data.

Your role may seem indirect, but providing mission-critical support can trigger obligations. CUI exposure drives compliance, not contract type or dollar amount.

Understanding Controlled Unclassified Information and Covered Defense Information

Controlled Unclassified Information (CUI) covers government data requiring protection without formal classification. Examples include export-controlled drawings, procurement documents, and law enforcement records. The National Archives oversees 120+ CUI categories.

Covered Defense Information (CDI) is DOD's CUI subset: controlled technical information tied to defense systems. CDI appears either marked with CUI labels or as contract-identified technical data about DOD-developed items.

Contracts involving CDI require DFARS 252.204-7012 compliance, triggering full NIST SP 800-171 security controls.

DFARS Clause 252.204-7012: The Core Cybersecurity Requirement

DFARS 252.204-7012 is the cybersecurity clause that appears in DOD contracts requiring CUI protection. When this clause is in your contract, you must implement 110 specific security controls from NIST SP 800-171 across all systems that process, store, or transmit covered defense information.

The clause applies to your entire IT environment where CDI resides, including on-premises servers, workstations, mobile devices, and cloud services like Microsoft 365 or AWS.

Beyond technical controls, 252.204-7012 mandates rapid incident response. You must report cyber incidents affecting covered defense information within 72 hours and preserve forensic data. The clause also requires you to flow down these same obligations to subcontractors handling CDI.

NIST SP 800-171: The Technical Security Framework

NIST SP 800-171 Rev 2 groups cybersecurity requirements into 14 families covering different security domains. Access Control limits system access to authorized users. Awareness and Training educates staff on security duties. Audit and Accountability creates activity logs. Configuration Management controls system changes. Identification and Authentication verifies user identities. Incident Response handles security events. Maintenance logs system upkeep. Media Protection secures CUI storage. Personnel Security screens individuals. Physical Protection controls facility access. Risk Assessment evaluates threats. Security Assessment tests controls. System and Communications Protection monitors networks. System and Information Integrity fixes flaws. Each family contains multiple requirements, which contractors document through their System Security Plan.

How DFARS and CMMC Work Together

While DFARS clause 252.204-7012 mandates NIST SP 800-171 controls, CMMC proves you implemented them. The DFARS CMMC Final Rule became effective November 10, 2025, requiring defense contractors to meet cybersecurity requirements based on information sensitivity.

CMMC has three levels. Level 1 covers basic cyber hygiene with annual self-assessments. Level 2 addresses NIST SP 800-171's 110 controls, requiring either self-assessment or third-party certification. Level 3 adds advanced protection for critical programs and always requires government-led assessment.

Your contract specifies which level you need. The DOD phases certification into new solicitations over several years, with priority contracts requiring proof first.

Cyber Incident Reporting: The 72-Hour Rule

When you discover a cyber incident affecting covered defense information, the clock starts. DFARS requires you to report within 72 hours of discovery through the DOD's Defense Industrial Base Collaborative Information Sharing Environment (DIBNet).

A reportable incident includes any compromise or suspected compromise of CDI, malicious software on CDI systems, or denial of access to CDI systems. This covers ransomware attacks, data exfiltration, unauthorized access attempts, and phishing that successfully breached your network.

Your report must include incident details, affected systems, types of information at risk, and mitigation steps taken. You must also preserve forensic images and data for 90 days after submission, allowing DOD investigators to analyze the breach if needed.

Subcontractor Flow-Down Requirements

Prime contractors bear full responsibility for their supply chain under DFARS. Clause 252.204-7012 must flow down verbatim to every subcontract involving covered defense information or operationally critical support (IT managed services, system administration, network operations).

Verification is mandatory. Review subcontractor System Security Plans, validate CMMC certificates when required, and audit security posture pre-award. Run periodic assessments and require documented incident response plans.

If a subcontractor breach exposes DOD data, you'll answer for it. Maintain records of security reviews, compliance gap correspondence, and remediation timelines to prove due diligence.

Consequences of DFARS Non-Compliance

DFARS violations trigger financial penalties, contract termination, and business-ending consequences. The DOD's 2022 enforcement memo starts with withheld payments and escalates to debarment.

Initial enforcement withholds progress payments until gaps are fixed. Contracting officers can decline option periods, cutting future revenue. Serious violations end contracts immediately.

False Claims Act exposure applies when you certify compliance without meeting requirements. The government can pursue treble damages per false claim. Knowing fraud triggers criminal prosecution.

Debarment blocks all federal contract awards, often across agencies, for years. You lose access to the government marketplace while competitors fill the void.

DFARS Compliance Implementation: Key Steps

Start with a gap analysis mapping your current security posture against all 110 NIST SP 800-171 requirements. Document each control as implemented, partially implemented, or not implemented to identify where you need investment.

Next, create your System Security Plan describing how you meet each control. The SSP documents your security boundary, system architecture, and implementation details. Pair it with a Plan of Action and Milestones tracking remediation timelines for any gaps.

After implementing controls, conduct a self-assessment scoring each requirement as met or not met. Calculate your total score and submit it to SPRS within 30 days of contract award or annually.

Streamlining DFARS Compliance with GovDash

Managing DFARS compliance requires tracking security controls, maintaining documentation, and proving adherence across every contract. GovDash helps contractors handle this workload without adding headcount.

Contract Cloud centralizes contract documents, deliverables, and compliance obligations in one secure location. You can track DFARS requirements from award through closeout, maintaining visibility into System Security Plans, incident reports, and assessment timelines. The knowledge management system stores reusable compliance documentation, so you're not recreating security artifacts for each contract.

GovDash runs on FedRAMP Moderate-equivalent infrastructure with controls designed to protect CUI during storage, processing, and transmission.

Final Thoughts on DFARS and DOD Cybersecurity

Meeting DOD DFARS cybersecurity standards protects both your business and the defense supply chain. You need solid documentation, tested security controls, and processes that prove compliance when contracts demand it. Start by identifying where CUI lives in your systems, then work through the NIST controls methodically. Your compliance work becomes your competitive advantage when you can respond to solicitations faster and demonstrate readiness from day one.

FAQs

What happens if I fail to report a cyber incident within 72 hours?

Missing the 72-hour reporting window can trigger contract termination, withheld payments, and potential suspension from future DOD awards. You must report through DIBNet as soon as you discover any compromise or suspected compromise of covered defense information.

Do I need DFARS compliance if I'm a small subcontractor?

Yes. If you process, store, or transmit Controlled Unclassified Information at any tier in the DOD supply chain, you must comply with DFARS requirements. Contract size and your position in the supply chain don't exempt you from the cybersecurity obligations.

How is CMMC different from self-certifying NIST SP 800-171 compliance?

CMMC requires formal third-party assessment and certification to prove you've implemented the required controls, while self-certification relies on your own attestation. The DFARS Final Rule phased in November 2025 now mandates CMMC certification for new DOD contracts based on the sensitivity level of information you'll handle.

What information counts as Covered Defense Information?

CDI is controlled technical information about defense systems that either carries CUI markings or is contract-identified technical data about DOD-developed items. Examples include export-controlled technical drawings, system specifications, and procurement-sensitive documents related to defense programs.

Can I store Covered Defense Information in commercial cloud services like Microsoft 365?

You can use commercial cloud services only if they meet FedRAMP Moderate or equivalent security standards and you've configured them to comply with all 110 NIST SP 800-171 controls. Your cloud provider must also agree to DFARS flow-down requirements and support your incident reporting obligations.