For businesses working with the U.S. federal government—especially in the defense sector—compliance with FAR (Federal Acquisition Regulation) and DFARS (Defense Federal Acquisition Regulation Supplement) is non-negotiable. These frameworks dictate how contractors must operate, report, and protect sensitive data.
But staying compliant isn’t just about avoiding penalties—it’s about building trust, winning future contracts, and being audit-ready at all times. In this guide, we break down the five key steps to mastering FAR/DFARS compliance and preparing your organization for a successful audit.
Step 1: Understand the Scope of FAR and DFARS
Before jumping into documentation and systems, you must understand what each regulation covers:
FAR applies broadly to all federal contracts and outlines general acquisition rules, procedures, and guidelines.
DFARS builds on FAR and adds extra requirements for Department of Defense (DoD) contractors, particularly in cybersecurity, cost accounting, and supply chain risk management.
📌 Tip: Start by reviewing key clauses in your contracts—especially DFARS 252.204-7012 (safeguarding covered defense information) and FAR Subpart 4.7 (contractor records retention).
Step 2: Implement a Compliant Accounting and Timekeeping System
FAR/DFARS audits often examine how well you track labor, expenses, and billing. To meet these standards:
Use DCAA-compliant accounting software to segregate direct and indirect costs.
Implement accurate time-tracking systems with audit trails.
Ensure real-time labor distribution reporting.
Document cost allocation policies.
🧾 If you’re billing under cost-reimbursement contracts, your accounting system must pass DCAA scrutiny.
Step 3: Strengthen Cybersecurity Controls
Under DFARS 252.204-7012, all DoD contractors must comply with NIST SP 800-171 security requirements to protect Controlled Unclassified Information (CUI).
Key cybersecurity actions include:
Conducting a gap analysis against NIST 800-171.
Creating a System Security Plan (SSP) and Plan of Action & Milestones (POA&M).
Using multi-factor authentication, encryption, and role-based access controls.
Documenting incident response procedures and reporting mechanisms.
💡 Being proactive here also helps you prepare for CMMC (Cybersecurity Maturity Model Certification) requirements.
Step 4: Maintain Accurate Records and Documentation
FAR requires you to retain key records and make them available during audits. Examples include:
Cost proposals and pricing data
Purchase orders, invoices, and subcontracts
Labor and timekeeping records
Equipment usage logs
Written policies and procedures
📁 Best Practice: Organize documentation by contract, and use cloud systems with access controls to keep data secure and centralized.
Step 5: Conduct Internal Audits and Mock Reviews
Don’t wait for an official audit to discover compliance gaps. Instead:
Perform internal audits regularly.
Use checklists based on FAR/DFARS requirements.
Hire a third-party GovCon consultant to conduct a mock DCAA or DCMA audit.
Review findings with department leads and assign corrective actions.
🚨 Bonus: Train your team to handle audit interviews confidently and provide clear, complete responses.
Conclusion: Compliance is Ongoing, Not One-and-Done
Mastering FAR/DFARS compliance isn’t just a project—it’s a continuous process of monitoring, documentation, and improvement. By following these five steps, your business can remain audit-ready and gain a competitive edge in the government contracting world.
