The Department of Defense (DoD) is a significant player in the government procurement market, awarding billions of dollars in federal government contracts each year. With such an abundance of opportunities for contractors to secure lucrative DoD contracts, it is helpful to understand the process by which the DoD awards contracts.
This article will provide a comprehensive overview of everything you need to know about securing a DoD contract, including the various types of DoD contracts and how to get defense contracts.
What is the Department of Defense (DoD)?
The Department of Defense (DoD) is the United States federal agency responsible for providing national security and defense. The department is headed by the Secretary of Defense, who is appointed by the President of the United States and reports to the President and Congress.
The DoD has a vast budget and employs millions of people. Its primary mission is to provide national defense services and protect the U.S. from foreign threats. It awards contracts to businesses, contractors, and other entities to complete projects in support of its mission.
What is Defense Contracting?
Defense contracting is the process of entering into contracts with the government or military to provide goods, services, or support for defense-related initiatives. These contracts can cover anything from research and development projects to construction work, weapon production, and even consulting services related to national security. Companies that are awarded defense contracts are usually highly specialized due to the sensitive nature of their work.
What is a Defense Contractor?
A defense contractor is a company that provides goods and services to the Department of Defense, such as weapons, military technology, supplies, and logistics support.
Depending on the size and scope of the contract, these companies may develop custom products or provide their resources to meet military needs. They work closely with government officials to ensure compliance with relevant regulations and standards and provide long-term planning for the sustainment of operations.
Defense contractors may also offer civilian services, including security personnel, base construction, and maintenance activities.
How Much Does the Department of Defense Spend on Contracts?
How much the DoD spends on contracts is determined by its priorities and the federal budget allocation. For the federal fiscal year 2025 (beginning October 1, 2024), $849.8 billion has been requested for Defense spending, an increase from the federal fiscal year FY 2023.
In its FY 2025 Federal Budget Request Overview, Deltek reported that some of the 2024 priorities for Defense spending are in the areas of:
Technology:
- Cyber security, cyber operations and CYBERCOM/CMF teams
- Investing in zero trust architecture, next-gen encryption, CMMC, critical infrastructure defense
- Enhancing cloud computing to buy down technical debt
Infrastructure:
- Construction and family housing
- Includes funding for facility readiness improvements and quality-of-life and medical facilities construction
Climate Resilience:
- Investing to improve climate security and resilience
- Priorities: Installations, R&D, operational energy and contingency preparedness
Supply Chain Resilience:
Focus areas include:
- Microelectronics
- Casting and Forging
- Batteries and Energy Storage
- Kinetic Capabilities
- Strategic and Critical materials stockpile
Space Domain:
Priorities include:
- Resilient architectures
- Enhanced space command and control
- Missile warning,
- GPS enterprise,
- Launch enterprise
- Satellite communications
Research & Development:
- Artificial intelligence
- JADC2
- Basic and Advanced research
Indo-Pacific:
- Prioritized in new National Cyber Strategy
- Focus on resilient and distributed air basing, new missile warning and tracking architecture
Types of DoD Contracts
DoD contracts come in a variety of forms, but the most common type of government contract awarded from this agency are:
- Fixed-Price Contracts: Fixed-price contracts are the most common type of DoD contract, in which a contractor is paid a pre-determined price for goods and services.
- Cost-Reimbursement Contracts: Cost-reimbursement contracts require contractors to pay out-of-pocket expenses incurred during the work and to be reimbursed upon completion with an additional fee to cover overhead costs.
- Time and Materials Contracts: Time and materials contracts provide contractors with an agreed-upon hourly rate for labor costs and a flat fee for materials.
- 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.
Companies interested in pursuing fixed-price, cost-reimbursement, or other DoD contracts should familiarize themselves with the requirements and regulations before submitting proposals or bids, as understanding them is essential to success.
Go Deeper
Article
Types of Government Contracts
Learn more about four main types of government contracts that contractors encounter: Fixed-price, cost-reimbursement, time and materials, and IDIQ.
What is the Process of Awarding a DoD Contract?
The process of awarding a DoD contract begins with the solicitation of bids from potential contractors. After reviewing all the applications, the DoD will select the most qualified contractor to receive the contract award. This decision is based on a variety of factors, including, but not limited to, overall price and technical capabilities.
The DoD also considers whether potential contractors are disadvantaged businesses and gives them priority review when selecting a winner.
Additionally, the DoD offers some small-business set-aside contracts for several disadvantaged groups. This helps ensure that businesses owned by minorities, women, and veterans have access to opportunities they might not otherwise have.
Once the selection has been made, the DoD will negotiate terms with the winning contractor before binding them to an official contract agreement.
After the contract has been awarded, both parties must adhere to the terms outlined in their agreement. This includes tracking expenses, meeting deadlines, and providing progress updates as requested. Additionally, contractors should be aware that failure to comply with the terms of their DoD contract can often result in costly penalties or even termination.
The Role of Contracting Officers in Awarding Contracts
Contracting Officers are responsible for negotiating and executing DoD Contracts. As the liaison between the Department of Defense and contractors, Contracting Officers must possess a comprehensive knowledge of all types of DoD Contracts. They negotiate prices, terms, and conditions to ensure contractors provide goods or services to the DoD in an economical and timely manner.
Contracting Officers must also certify that contractors comply with all legal requirements and regulations. Above all, Contracting Officers ensure that the interests of both parties are met while ensuring national security.
How to Get a DoD Contract
All businesses can submit bids for DoD contracts, with the DoD giving special consideration to disadvantaged businesses. 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.
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 to target for building relationships.
DoD Contracts for Small Business
The Department of Defense awards contracts to small business government contractors through several different methods. Depending on the products or services being procured under the contract, the DoD may use a different contract type to meet its needs.
- The 8(a) Business Development Program provides small businesses in socially and economically disadvantaged communities with competitive and sole-source contracts. Set-asides allow exclusive bidding for certain small-business contracts.
- Small Business Innovation Research (SBIR) grants are highly competitive, allowing innovative developers access to Department of Defense resources that may otherwise be restricted.
- Federal Supply Schedule contracts offer pre-negotiated prices for goods or services provided by specific companies.
DoD Contracts for Disadvantaged Businesses
Disadvantaged businesses play an essential role in the DoD contracting process. These businesses, owned by minorities, women, and veterans, often lack the same access to resources as traditional prime contractors.
The DoD supports these disadvantaged businesses with special terms and conditions that make it easier for them to compete for contracts. Furthermore, disadvantaged businesses are eligible for priority review when bidding for contracts, helping ensure they can secure the resources needed to complete a job successfully.
By using this system, the DoD can increase competition among contractors while helping disadvantaged businesses access opportunities they might not otherwise have.
Subcontracting on DoD Contracts
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. This can be a great route for small business owners to get their firm in on a type of DoD contract they might not have had the capabilities to fulfill 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.
Go Deeper
Article
What is Subcontracting?
Learn more about what government subcontracting is and the best practices to follow when subcontracting government contracts for both primes and subs.
Article
How to Find Prime Contractors
Find answers to your subcontracting questions, including how to find prime contractors and which best practices your business should follow.
DoD Contracts & Compliance Regulations
Contractors must comply with the regulations governing the delivery of defense contracts, and they may be audited to verify compliance.
DCAA Compliance
The Defense Contract Audit Agency (DCAA) is responsible for auditing Department of Defense contracts and other government entities involved in acquisition and contract administration. Audits assure the government that organizations are adhering to applicable regulations. Federal auditors, such as the DCAA, use FAR and CAS standards to monitor whether a business is complying with government-approved financial and accounting structures.
Although the DCAA is responsible for contract audits of the Department of Defense (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.
DFARS Compliance
Companies that provide procurement services to the DoD, whether directly or indirectly, must meet the minimum DFARS standards. All DoD primary and sub-contractors that process, handle, or transfer Controlled Unclassified Information (CUI) must comply with this requirement.
DFARS stands for the Defense Federal Acquisition Regulation Supplement. It is part of the federal acquisition regulations system and governs all purchasing, supply chain, and contractual requirements for U.S. military contracts worldwide. DFARS provides a regulatory framework for the Armed Forces to ensure that contractors deliver quality goods and services at fair and reasonable prices in support of national security-related endeavors.
Protecting Sensitive Data in Defense Contracts
The Department of Defense evaluates the cybersecurity capacities of government contractors using the Cybersecurity Maturity Model Certification (CMMC) and International Traffic in Arms Regulations (ITAR). Each has specific compliance standards currently being implemented within the defense industry.
- CMMC: Adhering to CMMC requires incorporating multiple cybersecurity standards and best practices. The Department of Defense (DoD) supported the creation of the model.
- NIST SP 800-171: Government contractors who manage non-classified sensitive data must adhere to the security requirements under FAR clause 52.204-21.
- FedRAMP Moderate Baseline: Firms that store, process or transmit Controlled Unclassified Information (CUI) in a Cloud Service Provider (CSP) must confirm compliance with FedRAMP Moderate Authorization or Equivalency as required by DFARS 252.204-7012 and CMMC Level 2 & 3 certification compliance.
- ITAR: ITAR applies restrictions and controls on the export of defense- and space-based articles, technologies, and services to protect U.S. national security and foreign policy objectives.
