Understanding FAR and DFARS for Government Contractors

The Federal Acquisition Regulation (FAR) is the rulebook for all federal procurement, organized in 53 parts covering competition, contract types, labor standards, and more. DFARS (Defense Federal Acquisition Regulation Supplement) adds DoD-specific requirements on top of the FAR. The three main contract types are Firm-Fixed-Price (FFP), Time and Materials (T&M), and Cost-Plus-Fixed-Fee (CPFF). Small businesses should focus on FAR Parts 12, 15, 19, 31, and 52 as the most relevant sections.

What Is the Federal Acquisition Regulation?

The FAR is the principal set of rules in the Federal Acquisition Regulation System, codified in Title 48 of the Code of Federal Regulations. It governs how all executive branch agencies acquire goods and services with appropriated funds. The FAR was established to achieve a uniform procurement system across the federal government while promoting competition, fair treatment of sources, and integrity in the acquisition process.

The FAR is jointly maintained by the Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) through the FAR Council. Changes are published as interim or final rules in the Federal Register.

For contractors, the FAR is not optional reading. It defines the rules of engagement for every federal contract -- from how solicitations are structured to what costs are reimbursable to how disputes are resolved. You do not need to memorize all 53 parts, but you must understand the parts that affect your business. The full text is freely available at acquisition.gov.

Key FAR Parts for Small Businesses

Part 12 -- Acquisition of Commercial Products and Services

Part 12 governs the purchase of commercial items using simplified procedures. For small businesses selling commercial products or services, Part 12 procurements are often the easiest entry point. They involve less paperwork, use commercial terms where possible, and have streamlined evaluation procedures. If your product or service is commercially available, look for Part 12 solicitations.

Part 13 -- Simplified Acquisition Procedures

Covers purchases under the Simplified Acquisition Threshold (currently $250,000). These procurements have reduced requirements and faster timelines. Many are reserved for small businesses. The government purchase card (micro-purchases under $10,000) falls under this part and requires minimal competition.

Part 15 -- Contracting by Negotiation

This is the part that governs competitive proposals -- the formal RFP process. It covers source selection procedures, evaluation factors, discussions (negotiations), and debriefings. Understanding Part 15 is essential for competing on larger contracts. Subpart 15.3 details how proposals are evaluated, and Subpart 15.4 covers cost or pricing data requirements.

Part 19 -- Small Business Programs

The most important part for small businesses. It covers all set-aside programs (small business, 8(a), HUBZone, SDVOSB, WOSB), size standards, subcontracting requirements for large businesses, and the SBA's role in the procurement process. Part 19 is your legal foundation for understanding how the government supports small business participation. See our guide to finding contracts for more on set-aside programs.

Part 31 -- Contract Cost Principles and Procedures

Defines which costs are allowable, allocable, and reasonable under government contracts. This is critical for cost-reimbursement contracts and for pricing fixed-price proposals. Part 31 specifically lists unallowable costs (entertainment, alcohol, lobbying, certain legal fees) and defines how indirect costs are calculated. If you have cost-type contracts, Part 31 compliance is essential.

Part 52 -- Solicitation Provisions and Contract Clauses

Contains the actual clause text referenced throughout the FAR. When a contract includes "FAR 52.222-26, Equal Opportunity," Part 52 is where you find the full text of that clause. Familiarize yourself with the clauses that appear most frequently in your contracts.

Important Clauses for Small Businesses

While you will encounter hundreds of FAR clauses over time, these appear most frequently and have the greatest impact on small business contractors:

• FAR 52.204-21: Basic Safeguarding of Covered Contractor Information Systems -- the 17 basic cybersecurity requirements (CMMC Level 1 basis)
• FAR 52.212-4: Contract Terms and Conditions -- Commercial Products and Services -- standard terms for commercial item contracts
• FAR 52.219-14: Limitations on Subcontracting -- requires set-aside winners to perform a certain percentage of the work themselves
• FAR 52.222-26: Equal Opportunity -- non-discrimination requirements
• FAR 52.222-41: Service Contract Labor Standards -- minimum wage and fringe benefit requirements for service contracts (formerly SCA)
• FAR 52.227-14: Rights in Data -- General -- governs intellectual property rights for data produced under the contract
• FAR 52.232-33: Payment by Electronic Funds Transfer -- EFT payment requirement (why you need banking info in SAM.gov)

DFARS Supplements

The Defense Federal Acquisition Regulation Supplement (DFARS) adds requirements specific to Department of Defense contracts. DFARS clauses are numbered to correspond with their FAR counterparts (e.g., DFARS 252.204 supplements FAR 52.204). Key DFARS clauses include:

• DFARS 252.204-7012: Safeguarding Covered Defense Information -- requires NIST 800-171 compliance for protecting CUI, the foundation for CMMC requirements
• DFARS 252.204-7021: Cybersecurity Maturity Model Certification Requirements -- the CMMC assessment clause
• DFARS 252.225-7001: Buy American and Balance of Payments Program -- domestic sourcing requirements for defense articles
• DFARS 252.225-7009: Restriction on Acquisition of Certain Articles Containing Specialty Metals -- sourcing restrictions for specialty metals
• DFARS 252.227-7013/7014: Rights in Technical Data (Noncommercial/Commercial) -- IP rights for defense technical data
• DFARS 252.239-7010: Cloud Computing Services -- requirements for cloud services handling DoD data

Other agencies have their own supplements too. For example, GSAM (GSA Acquisition Manual), AIDAR (USAID), and DEAR (Department of Energy). Always check which supplements apply to your specific contracts.

Flow-Down Requirements

When you work as a subcontractor, many FAR and DFARS clauses "flow down" from the prime contract to your subcontract. This means you are bound by these requirements even though the government did not contract directly with you. Common flow-down clauses cover:

• Equal employment opportunity and affirmative action
• Cybersecurity and CUI protection (DFARS 252.204-7012)
• Export control and ITAR compliance
• Intellectual property and data rights
• Cost accounting standards (for cost-type subcontracts)
• Drug-free workplace requirements
• Restrictions on foreign nationals accessing certain information

Always review your subcontract terms carefully. If a clause references a FAR or DFARS section, look up the full text to understand your obligations. Non-compliance can result in termination, financial penalties, or debarment -- even for subcontractors.

Contract Types

FAR Part 16 defines the contract types available to the government. Understanding these is essential for pricing your proposals correctly and managing financial risk.

Firm-Fixed-Price (FFP)

The most common contract type for small businesses. You agree to deliver a defined scope of work at a set price. The government pays the agreed price regardless of your actual costs. Maximum risk is on you (cost overruns are your problem), but the profit potential is highest if you perform efficiently. Best for work with well-defined requirements and predictable costs.

Time and Materials (T&M)

You are paid for labor hours at pre-negotiated fixed hourly rates (which include wages, overhead, G&A, and profit) plus materials at cost. The government bears more risk because the total cost depends on actual hours worked. T&M contracts include a ceiling price that cannot be exceeded without modification. Common for professional services, engineering support, and work where the scope is not precisely defined.

Cost-Plus-Fixed-Fee (CPFF)

The government reimburses all allowable costs (as defined by FAR Part 31) plus a negotiated fixed fee. The fee does not vary with actual costs. Most risk is on the government. CPFF contracts require an adequate accounting system that can track costs by contract and meet CAS (Cost Accounting Standards) requirements. Common for R&D work and programs with high technical uncertainty.

Other Types

Additional contract types include Fixed-Price Incentive (FPI), Cost-Plus-Incentive-Fee (CPIF), Cost-Plus-Award-Fee (CPAF), and Indefinite-Delivery/Indefinite-Quantity (IDIQ) vehicles. Each has different risk profiles and administrative requirements. As your government business matures, you will encounter these more frequently.

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