This article explains what DoD contracts are, the four main contract types the Department of Defense uses, and how businesses of any size can compete for and win defense work.
Why it matters: The Department of Defense (DoD) is a significant player in the United States federal procurement market, awarding billions of dollars in contracts each year. With FY 2027 defense spending requests reaching $1.1 trillion in discretionary funding plus $350 billion in proposed reconciliation funding, contractors face unprecedented opportunity alongside increased complexity.
Key Takeaways
- Record DoD Spending in FY 2027: $1.1T discretionary defense spending plus $350B in proposed reconciliation funding represents unprecedented contractor opportunity.
- Early opportunity discovery is your competitive advantage. 83% of contractors miss best-fit contracts due to late discovery.
- Compliance is now baseline eligibility. DCAA, DFARS, and CMMC requirements determine who can compete for DoD contracts; 96% of contractors expect compliance costs to increase or remain elevated.
What Is a DoD Contract?
A DoD contract is a legally binding agreement between the Department of Defense and a private business to provide goods, services, or support in service of national security and defense missions.
DoD contracts can span everything from weapon systems development to IT infrastructure, supply chain management, construction, consulting, and logistics support.
What sets DoD contracts apart from commercial contracts is the regulatory environment: A DoD contractors must comply with federal acquisition regulations (FAR/DFARS), Defense Contract Audit Agency (DCAA) standards, cybersecurity frameworks (CMMC, NIST SP 800-171), and sometimes export controls (ITAR).
These requirements exist to protect national security and taxpayer investments in defense.
Also Known as Department of War (DoW) Contracts
Following a 2025 Presidential Action, the Department of Defense began operating under a secondary name: the Department of War (DoW).
DoD contracts and DoW contracts refer to the same agency and the same contracting process — the name change doesn't affect eligibility, compliance requirements, or how contracts are awarded.
See Deltek's coverage to learn more about what the shift means for contractors: Department of War (DoW) Acquisition Reform Signals a New Era for GovCon
What is the Department of Defense (DoD)?
The Department of Defense (DoD), also known as the Department of War (DoW), is the United States federal agency responsible for providing national security and defense. It is headed by the Secretary of Defense, who is appointed by the President.
The DoD manages the armed forces, defense strategy, and procurement of goods and services needed to maintain national security and defense.
The DoD operates across multiple branches (Army, Navy, Air Force, Space Force, Marine Corps, and Coast Guard) and numerous defense agencies (Defense Logistics Agency, DARPA, etc.). Combined, they manage a vast budget and employ millions of people.
The DoD awards contracts to thousands of private companies—from Fortune 500 primes to small businesses—to execute mission critical work.
How Much Does the Department of Defense Spend on Contracts in FY 2027?
For federal fiscal year 2027, the Trump Administration is requesting $1.1 trillion in discretionary funding for the Department of Defense, plus $350 billion in proposed mandatory funding via reconciliation.
This represents significant commitment to defense modernization, readiness, and strategic capability development.
The contractor-addressable portions of the defense budget are showing dramatic growth in specific mission areas:
- Equipment: 279% growth, signaling major modernization initiatives across materiel commands
- Research & Development: +122% growth, reflecting emphasis on emerging technologies, artificial intelligence, and strategic capabilities
- Technology: Cyber security, zero-trust architecture, next-generation encryption, CMMC, cloud computing, and critical infrastructure defense
- Supply Chain Resilience: Microelectronics, casting & forging, batteries, kinetic capabilities, and strategic materials stockpiling
- Space Domain: Resilient architectures, satellite communications, and enhanced space command & control capabilities
- Infrastructure: Construction, family housing, facility readiness improvements, and medical facility modernization
These growth areas signal where contractors should focus their business development efforts.
For deeper analysis by service branch and mission area, see Deltek GovWin's “Inside the Agencies: FY 2027 Priorities and How to Compete” reports:
- Inside the Department of Defense/War’s Fourth Estate
- Inside the Navy
- Inside the Army
- Inside the Air Force
Contractors Face Rising Margin Pressure Despite Growth
While DoD spending is increasing, contractor profit margins are not. According to Deltek’s 2026 17th Annual Clarity Government Contracting Industry Study, 90% of government contractors experienced at least one financial metric decline in 2025, and average profit margins fell from 20% to 17% year-over-year.
This margin compression is driven by compressed acquisition timelines, rising compliance costs, and intense competitive pressure—making strategic opportunity selection and early positioning more critical than ever.
Types of DoD Contracts
DoD contracts come in several forms, each suited to different types of work and risk profiles.
The DoD primarily uses four main contract types, though it also awards contracts under alternative acquisition authorities for faster procurement. The four main types are:
- Fixed-Price Contracts: Fixed-price contracts are a common type of DoD contract used when the work is well-defined, repeatable, and clearly scoped. The contractor is paid a pre-determined price for goods and services, regardless of the actual costs incurred.
- Cost-Reimbursement Contracts: Cost-reimbursement contracts are used for complex work, R&D, or when scope is uncertain. The contractor is reimbursed for allowable costs incurred, plus a fee (usually a percentage of costs or a fixed amount).
- Time and Materials Contracts: T&M contracts are common for support services, maintenance, or when exact scope is not defined up front. The contractor bills for labor at agreed hourly rates plus materials and cost. The work scope may be flexible.
- Indefinite Delivery/Indefinite Quantity (ID/IQ) Contracts: IDIQ contracts allow multiple orders over a specified period, and blanket purchase agreements are available for repeat purchases like office supplies.
Other Transaction Agreements (OTAs) and Commercial Solutions Openings (CSOs)
Beyond the four main contract types, the DoD increasingly uses Other Transaction Agreements (OTAs) and Commercial Solutions Openings (CSOs) to acquire new capability faster, particularly for prototyping and innovation programs. These vehicles accelerate the procurement timeline, but they don't lower the bar on execution — contractors still need to demonstrate compliance, cost discipline, and the ability to scale from prototype to production.
What is the Process of Awarding a DoD Contract?
The DoD contract award process is designed to ensure fair competition, value for the government, and rigorous vendor evaluation. The timeline typically runs 3-6 months from solicitation to award but can vary significantly depending on a variety of factors, such as work complexity.
The process begins with DoD identifying a need and posting solicitation (typically on SAM.gov or via agency-specific systems). Potential contractors submit bids or proposals. The DoD evaluates submissions based on criteria outlined in the solicitation—usually a combination of technical capability, past performance, price, and compliance readiness.
After evaluation, the DoD selects the most qualified contractor(s) to receive the award. The DoD may consider whether a bidder is a disadvantaged business (woman-owned, minority-owned, veteran-owned, service-disabled-veteran owned, HUBZone, or small business) and may give such firms priority weight in certain competition scenarios.
Once selected, the DoD negotiates final terms with the winning contractor, and both parties execute the contract.
After award, the contractor is responsible for delivery, compliance with contract terms, timely invoicing, and adherence to all regulatory requirements. Contractors should be aware that failure to comply with the terms of their DoD contract can often result in costly penalties or even termination.
According to the 2026 Deltek Clarity GovCon Study, contractors win recompete bids at a 60.1% rate, compared with 40.3% for new bids — making incumbency and past performance one of the strongest predictors of DoD contract success.
Source: 17th Annual Deltek Clarity Government Contracting Study
The Role of Contracting Officers
Contracting Officers (COs) are the government’s representatives in the contract award process. They have the authority to negotiate, execute, and administer contracts on behalf of the DoD. COs must possess comprehensive knowledge of contract law, acquisition regulations, and the specific agency’s needs. They manage contract changes, resolve disputes, and ensure compliance with federal requirements. Above all, COs balance the interests of both parties while safeguarding national security.
How to Get a DoD Contract
All businesses can submit bids for DoD contracts. The DoD actively encourages competition and gives special consideration to small businesses, disadvantaged businesses, and businesses in economically distressed communities. After selecting the most suitable bidder or bidders, negotiations between the DoD and the winning contractors take place before a binding contract is signed.
Federal government agencies like the DoD use several methods of advertising their intent to spend money, including socioeconomic set-aside programs and government websites such as SAM.gov.
Registering in SAM.gov requires a Unique Entity Identifier (UEI) — a 12-character, government-issued ID that replaced the legacy nine-digit DUNS number in 2022. You'll also want to check awarded contract data on USASpending.gov to see who has won similar DoD work and at what value.
The best way to get a defense contract is to leverage a tool like GovWin IQ to identify federal spending areas well in advance, then prepare your company's go-to-market strategy for when those opportunities are released.
Using GovWin IQ, you can track opportunities that your business is a good fit for up to five years before a bid or a request for proposal (RFP) is issued. This can help you identify key decision makers.
This kind of early visibility matters more than ever. According to the 2026 Deltek Clarity GovCon Study, 56% of contractors now miss five or more good-fit opportunities a year simply because they found out too late — up from 50% in 2024.
"We have used the GovWin IQ product for quite a long time with our business development community; they query it regularly to get insights into what’s happening in the federal government space… we do a lot of DoD and federal government work, so having that consolidated information helps quite a bit."
- Wally Wilinsky, Chief Information Officer, Leonardo DRS
DoD Contracts for Small Business
The DoD awards contracts to small businesses through several dedicated programs:
- 8(a) Business Development Program: Provides small businesses in socially and economically disadvantaged communities with competitive and sole-source contracts.
- Small Business Innovation Research (SBIR): Highly competitive grants for innovative small businesses conducting R&D for the DoD.
- Federal Supply Schedule (FSS) Ccontracts: Pre-negotiated price agreements for small businesses providing goods or services to the DoD.
- Set-Asides: Portions of larger contracts reserved exclusively for small business competition.
DoD Contracts for Disadvantaged Businesses
Disadvantaged businesses—including women-owned businesses, minority-owned businesses, veteran-owned businesses, and service-disabled owned businesses—receive priority consideration in DoD contracting. The DoD offers special terms, set-asides, and evaluation criteria for these firms to ensure access to opportunities.
By using this system, the DoD can increase competition among contractors while helping disadvantaged businesses access opportunities they might not otherwise have.
Recent developments are reshaping the 8(a) landscape. In a recent Deltek Podcast episode, Deniece Peterson, Vice President of Federal Market Analysis, noted: 'The Department of Defense has initiated its own audit of the 8(a) program, particularly with a focus on sole sourcing.'
Peterson suggested these changes may be part of a broader shift toward a more competitive small-business marketplace, making it increasingly important for contractors to differentiate themselves through past performance, specialized expertise, and mission-focused capabilities.
Subcontracting on DoD Contracts
Prime contractors often partner with subcontractors to fill capability gaps. This is a common path for small businesses to enter the DoD market without being a prime contractor themselves. This can be a great route for small business owners to get their firm in on a DoD contract they might not have had the capabilities to fulfill on their own.
A prime contractor is a business that works directly with the federal government on a contract opportunity, but sometimes, when the prime needs additional skills to complete a contract, it can be beneficial for them to enter into a teaming agreement or work with a subcontractor to provide some of the products or services that the prime contractor cannot provide on their own.
Most DoD subcontract agreements will include basic project requirements and key components such as business information, contract period, target costs, full scope of work, material costs, terms of payment, and language to help resolve potential disputes.
DoD Contracts & Compliance Regulations
GovCon compliance is non-negotiable in DoD contracting. All contractors must adhere to federal acquisition regulars (FAR/DFARS), Defense Contract Audit Agency (DCAA) standards, cybersecurity frameworks, and in some cases export controls.
Non-compliance can result in audit failures, contract termination, or debarment from future government work.
Compliance Costs Are Rising
Per the 2026 Deltek Clarity Study, 96% of contractors expect compliance costs to increase or remain elevated in 2026 and beyond. Combined with audit activity that has doubled year-over-year, contractors are prioritizing investments in audit-ready systems, automated compliance controls, and continuous monitoring to reduce risk and cost burden.
DCAA Compliance
The Defense Contract Audit Agency (DCAA) audits DoD contracts to ensure compliance with federal accounting standards and regulations. DCAA auditors use FAR (Federal Acquisition Regulation) and CAS (Cost Accounting Standards) to verify contractors are maintaining accurate financial records, segregating costs by contract, and calculating indirect rates correctly.
Although the DCAA is responsible for contract audits of the DoD, it is not the only entity to conduct them. The Defense Contract Management Agency also ensures that government contractors adhere to relevant regulations and standards, and that businesses fulfill the contractual obligations from contract award to closeout.
Deltek Costpoint's compliance credentials carry weight with auditors and agencies alike.
“Our business needed to implement a system that supported not only our financial compliance requirements, but also the cybersecurity compliance regulations. Deltek's Costpoint project-based ERP solution is the whole package and continues to make investments in cybersecurity for its customers.”
- Hari Nallure, Vice President and Co-Founder at ePATHUSA.
DFARS Compliance
All DoD contractors (prime and sub) that handle, process, or transfer Controlled Unclassified Information (CUI) must comply with DFARS requirements.
DFARS stands for the Defense Federal Acquisition Regulation Supplement. It is part of the federal acquisition regulation system and governs all DoD procurement and contracting. Key requirements include supply chain oversight, cybersecurity protections (CMMC, NIST), subcontractor flow-down of compliance requirements, and handling of CUI.
For defense manufacturers and A&D suppliers, Deltek TIP Technologies helps operationalize DFARS-driven quality and traceability requirements across the shop floor.
Protecting Sensitive Data in Defense Contracts
The following frameworks protect sensitive data in DoD contracts:
- CMMC (Cybersecurity Maturity Model Certification): Contractors handling CUI must achieve CMMC Level 1, 2, or 3 certification depending on the contract. CMMC integrates NIST SP 800-171 standards and industry best practices.
- FedRAMP Moderate Baseline: Cloud service providers storing, processing, or transmitting CUI must achieve FedRAMP Moderate authorization or equivalency (DFARS 252.204-7012).
- ITAR (International Traffic in Arms Regulations): ITAR applies export restrictions (separate from cybersecurity frameworks above) on the export of defense articles, technology, and services to protect U.S. national security.
Frequently Asked Questions
A DoD contract is a legally binding agreement between the Department of Defense and a business to provide goods, services, or support for national defense. It sets out the scope of work, pricing terms, and delivery schedule the contractor must meet. The DoD awards these contracts under fixed-price, cost-reimbursement, time and materials, and IDIQ structures, and businesses of nearly any size can compete.
The Department of Defense (DoD) remains the agency’s formal legal entity name. However, following a September 2025 presidential action, the agency now operates under the secondary title of Department of War (DoW). Both “Department of Defense”, and “Department of War” are in official use. DoD contracts and DoW contracts refer to the same legal agency and the same contracting process.
Search active DoD solicitations on SAM.gov, the government's official contract opportunity database. For awarded contract data — including who won a specific DoD contract and its value — check USASpending.gov. However, many leading contractors gain a competitive advantage by using market intelligence platforms like GovWin IQ to track opportunities 12-60 months before a solicitation is released, giving them time to build relationships, shape requirements, and prepare winning strategies.
The formal competitive process—from solicitation to award—typically takes 3–6 months. But successful contractors begin positioning much earlier. Using tools like GovWin IQ, top performers identify opportunity signals 12–60 months before the RFP is released, allowing them to engage decision-makers, understand agency priorities, and establish competitive advantages long before competitors are aware an opportunity exists.
All DoD contractors must comply with DCAA (Defense Contract Audit Agency standards), DFARS (Defense Federal Acquisition Regulation Supplement), CMMC (Cybersecurity Maturity Model Certification), and FedRAMP requirements if handling sensitive data.
Audit-ready, purpose-built ERP solutions designed for government contracting such as Deltek Costpoint automate compliance controls, maintain complete audit trails, and reduce manual effort, lowering both compliance risk and cost burden over time.
