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Defence procurement contracts · United States

US defense procurement

US defense contracts are awarded under the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), with standard clauses incorporated by reference. Prototype work increasingly runs on Other Transaction agreements under 10 U.S.C. 4021 and 4022, which sit outside the FAR. The FAR is being rewritten under the Revolutionary FAR Overhaul, so clause numbers and wording are checked at acquisition.gov before each update.

Randeep Bubbra | Lawyer | Making defence financeable

What to know

  • Termination for convenience is a standard clause in fixed-price and cost-reimbursement contracts. The contractor recovers costs and a reasonable profit on work done, not profit on the work cancelled.
  • Payments due under a contract can be assigned to a financing institution only under the Assignment of Claims Act, to one party (or an agent for a syndicate), with notice to the contracting and disbursing officers.
  • The contract itself cannot be transferred. A buyer of the business needs a novation agreement, except on a share purchase where the contracting entity does not change.
  • Rights in technical data depend on who funded development: unlimited rights for government-funded work, limited rights for work at private expense, and government purpose rights for mixed funding.
  • Certified cost or pricing data are required above a threshold, and contractors handling controlled unclassified information must meet DFARS cyber rules and the CMMC programme.

The instruments

Term by term

Award route and challenge

FAR and DFARS for procurement contracts. Prototype Other Transaction agreements under 10 U.S.C. 4021 and 4022 sit outside the FAR, with written approvals above US$100m.

Termination for convenience

FAR 52.249-2 (fixed price) and 52.249-6 (cost reimbursement). Costs plus a reasonable profit on work done, capped at the contract price.

Pricing and profit

Certified cost or pricing data (Truthful Cost or Pricing Data rules) above US$2.5m, with Cost Accounting Standards on larger contracts.

IP and technical data

DFARS 252.227-7013 and -7014: unlimited rights where development was funded by the government, limited rights where it was at private expense, and government purpose rights for mixed funding.

Liability and indemnities

No general cap in the FAR. Government indemnity for unusually hazardous or nuclear risks under Public Law 85-804 (FAR 52.250-1), and liability protection for approved anti-terrorism technology under the SAFETY Act.

Export control

ITAR (22 CFR 120 to 130) for defense articles and services, the EAR (15 CFR 730 to 774) for dual-use and 600-series items. ITAR registrants must notify changes in ownership or control.

Security and classified work

NISPOM (32 CFR Part 117) facility clearances, with foreign ownership, control or influence (FOCI) mitigated by board resolutions, security control agreements or proxy agreements.

Cyber

DFARS 252.204-7012 requires safeguards and reporting of cyber incidents within 72 hours. The CMMC programme (32 CFR Part 170) adds certification.

Assignment and financing consents

Assignment of Claims Act (31 U.S.C. 3727, 41 U.S.C. 6305) and FAR 52.232-23: payments can be assigned once, to a financing institution or an agent for a syndicate.

Change of control and novation

Contracts cannot be transferred without a novation agreement (FAR 42.12), though a share purchase needs none. CFIUS reviews foreign acquisitions, and ITAR registrants must notify ownership changes.

Government remedies and debarment

Suspension and debarment under FAR 9.4 exclude a contractor across government. DPAS rated orders (15 CFR Part 700) must be accepted and take priority.

Payment and milestones

Progress payments on costs incurred (customarily 80%, 85% for small businesses) or performance-based payments, plus Prompt Payment Act interest on late payment.

Disputes and governing law

Contract Disputes Act claims go to the contracting officer, then a board of contract appeals or the Court of Federal Claims. The contractor must keep performing.

Industrial participation and offset

The US government does not commit US firms to offsets on Foreign Military Sales. Offsets are agreed between the company and the foreign buyer.

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General information on public law and standard terms as at 28 Oct 2026, not legal advice on any contract or transaction. Quoted wording is checked against the official text linked to it.