FAR and DFARS Explained: Risks, Requirements, and Regulatory Consequences

For companies doing business with the U.S. government, FAR and DFARS are not background procurement terms. They are operating rules that shape contract eligibility, cybersecurity obligations, reporting duties, pricing practices, supply chain controls, and legal exposure.

Many contractors view FAR and DFARS as legal language that matters only at the award stage. In reality, these clauses affect how an organization performs before, during, and after contract execution. Weak controls, inaccurate certifications, or failure to flow requirements down to subcontractors can lead to contract losses, payment disputes, suspension risk, False Claims Act exposure, and reputational damage.

What FAR and DFARS Are

The Federal Acquisition Regulation (FAR) is the primary rulebook governing how federal agencies acquire goods and services. It applies broadly across civilian and defense contracting and includes requirements related to ethics, labor, cost principles, representations and certifications, supply chain integrity, and information security.

The Defense Federal Acquisition Regulation Supplement (DFARS) adds Department of Defense-specific requirements to the FAR. DFARS is especially important for contractors handling Controlled Unclassified Information (CUI), supporting national security missions, or participating in the defense industrial base.

In practical terms, FAR sets the baseline federal contracting framework, while DFARS adds stricter defense-specific obligations.

Core Requirement Areas

While FAR and DFARS contain many clauses, several categories create the most material risk for contractors.

Contractors are expected to make accurate statements in proposals, certifications, invoices, and ongoing performance representations. This includes everything from size and status to domestic sourcing and cybersecurity posture, as well as compliance with contract clauses.

For defense contractors, DFARS 252.204-7012 and related clauses are especially significant. These provisions require safeguarding covered defense information, implementing security controls, reporting cyber incidents, preserving images and logs, and supporting DoD damage assessments where applicable.

Many FAR and DFARS clauses must be flowed down to subcontractors. Prime contractors that fail to impose or verify required obligations downstream can inherit significant performance and compliance risk.

FAR includes contractor code of business ethics and conduct requirements and, in some cases, mandatory disclosure obligations for credible evidence of certain violations involving fraud, bribery, gratuities, or overpayments.

Depending on the contract, FAR and DFARS may impose Buy American, Trade Agreements Act, specialty metals, counterfeit parts, and country-of-origin restrictions. Violations can create payment, termination, and enforcement consequences.

For certain contracts, contractors must support cost allowability, pricing accuracy, timekeeping integrity, and invoicing accuracy. These issues often become major drivers of enforcement.

The Main Risk Areas

A FAR or DFARS failure can affect award eligibility, option renewals, payment timing, and contract continuation. In defense contracting, weak cybersecurity or inaccurate assessment representations can directly affect access to opportunities.

One of the most significant consequences is exposure under the False Claims Act when contractors knowingly submit false certifications, false invoices, or misleading compliance representations. This is often where procurement noncompliance becomes a high-dollar legal issue.

DFARS cybersecurity clauses create operational obligations, not just paper requirements. Weak implementation around access control, incident reporting, logging, media protection, or subcontractor oversight can lead to both breach consequences and contractual liability.

Serious integrity failures can trigger investigations, adverse responsibility findings, suspension, debarment scrutiny, and long-term damage to customer trust.

Prime contractors are increasingly expected to manage supplier risk, counterfeit risk, sourcing restrictions, and downstream compliance. A weak subcontractor can create mission, security, and legal exposure.

How FAR and DFARS Connect to Other Regulatory Environments

FAR and DFARS often overlap with broader legal and regulatory regimes.

DFARS cybersecurity requirements often incorporate NIST SP 800-171 expectations for protecting CUI in nonfederal systems. CMMC builds on that environment by adding structured assessment and certification expectations for many defense contractors.

The Department of Justice has made clear that cybersecurity misrepresentations in government contracting can be pursued under the False Claims Act. This directly affects contractors making statements about DFARS safeguarding obligations, assessment scores, or incident readiness.

Public contractors may face additional exposure if a cyber incident tied to poorly contracted controls becomes material and triggers securities disclosure issues.

FAR and DFARS sourcing clauses can intersect with sanctions, export controls, country-of-origin rules, and supply chain restrictions involving covered telecommunications equipment or prohibited foreign sources.

Although FAR and DFARS are procurement frameworks, incidents involving employee, customer, or operational data may also trigger state notification and data security obligations.

Examples of Enforcement and Penalty Exposure

Penalties under FAR and DFARS can take different forms, including False Claims Act settlements, contract termination, repayment demands, suspension, debarment, and adverse audit findings.

In 2022, Aerojet Rocketdyne agreed to pay $9 million to resolve allegations that it misrepresented compliance with Department of Defense cybersecurity requirements while failing to implement required controls. The case is one of the clearest examples of how DFARS-related cybersecurity representations can expose a party to False Claims Act liability.

In 2022, Georgia Tech Research Corporation paid $2.7 million to settle allegations involving failure to meet required cybersecurity controls under a Department of Defense contract. The case reinforced that research entities and contractors alike can face consequences for weak compliance with defense cybersecurity obligations.

In 2022, Comprehensive Health Services agreed to pay $930,000 to resolve allegations involving cybersecurity misrepresentations in connection with a federal contract. While not limited to DFARS, the case showed how cybersecurity promises in government contracting can create liability even outside traditional defense manufacturing contexts.

In 2022, Boeing agreed to a $200 million SEC settlement over misleading statements related to safety processes following the 737 MAX crashes. While not a FAR or DFARS case, it is a useful reminder that statements about governance, controls, and compliance can create significant enforcement exposure when they do not align with operational reality.

Raytheon has faced multiple major enforcement actions over procurement, pricing, and disclosure issues, including a 2024 resolution involving defective pricing and allegations of foreign bribery. While the facts vary, these matters illustrate how government contractors can face overlapping procurement, accounting, and integrity risks under multiple legal regimes.

Final Takeaway

FAR and DFARS are not just procurement mechanics. They are enforceable frameworks that shape how government contractors operate, secure information, manage suppliers, submit claims, and represent their capabilities.

For defense contractors especially, the stakes are rising. Cybersecurity obligations, truthful certification requirements, and subcontractor oversight expectations are increasingly tied to revenue, legal exposure, and long-term market access. Organizations that treat FAR and DFARS as strategic compliance priorities will be better positioned to protect contracts, reduce enforcement risk, and compete with confidence.

Leaders should treat FAR and DFARS compliance as an enterprise issue, not just a contracts function. A strong response usually includes:

1. Mapping which FAR and DFARS clauses apply by contract
2. Validating that certifications and representations are accurate and current
3. Testing cybersecurity controls tied to DFARS and NIST obligations
4. Reviewing subcontractor flowdown and supplier oversight practices
5. Confirming billing, pricing, and timekeeping controls are defensible
6. Strengthening ethics, disclosure, and escalation procedures
7. Aligning legal, contracts, security, finance, and operations around compliance ownership

The goal is not to memorize every clause. The goal is to identify the clauses that create the highest operational and legal risk, then build evidence that the organization is actually meeting them.

Check out our platforms that help reduce effort and risk

Arrakis has built over several months numerous platforms that can help reduce risk. Read more here and those platforms are listed below.

- Compliance Chatbot - a free chatbot relating to compliance, cybersecurity, and privacy.
- Prosikon - A feature rich vendor due diligence platform to help increase visibility and provide more information for safer decisions. Read more here.
- PolicyForge - Build out your policies based on the regulatory environment you care about. Policy and Procedure Templates are included as well as control mapping. Read more here.
- Fortuna Risk Compass - Feature rich risk assessment platform that helps you visualize risk and cost better. Numerous graphical displays and ability to export risks to Prothesis. Read more here.
- Prothesis PoAM Builder - Build your PoAMs to prove you are mitigating risk and demonstrating maturity. Expands on Fortuna risks and demonstrates the "why" on the need for PoAMs. Read more here.
- Mutina SecurePath - Construct your SSPs to meet CMMC, or other frameworks, to provide assurance to external parties. SSPs are required for CMMC compliance. Read more here.
- CyberPrep Test Engine - A subscription based practice test platform covering 50+ certifications. Designed to be more difficult than the actual test to increase certification chances.

Regardless of the platforms, Arrakis suggests contracting professional consultation when seeking certification or compliance.