To become a government military contractor, you register your business in the federal contracting systems, choose the industry codes and certifications that match what you sell, meet the regulatory requirements that apply to defense work, and then compete for contracts through official solicitations. The path is procedural rather than mysterious, but it is long, and several of the steps — security clearances and cybersecurity certification in particular — can take many months before you can perform on a classified or sensitive award. The Department of Defense obligated roughly $491 billion on contracts in fiscal year 2025, more than every other federal agency combined, so the opportunity is real; the entry cost is paperwork, systems, and patience.1Defense Contract Management Agency. High-Dollar Contracts Announced, DCMA Will Administer
Register Your Business With the Federal Government
Nothing else you do matters until you exist in the government’s systems. The registration stack has four pieces, and they connect to each other in a specific order.
Start with a Unique Entity Identifier, which replaced the older DUNS number and is now the government’s primary way to identify your business, track its financial health, and link it to every contract you touch.2eCFR. 2 CFR Part 25 – Unique Entity Identifier and System for Award Management
Next, identify your work with North American Industry Classification System codes. These six-digit codes tell the government what you make or do. Code 336411 covers aircraft manufacturing; 541512 covers computer systems design. Picking the right codes matters because they control which contracts the system shows you and which small business size standards apply to your firm.3SAM.gov. Entity Registration
All of this feeds into the System for Award Management at SAM.gov, the central database the government uses to verify that a company is eligible to receive federal funds. During registration, you complete a Representations and Certifications section disclosing your business size, ownership structure, and socioeconomic status. That disclosure is what makes you eligible for small business set-asides. Registration must be renewed every 365 days, and letting it lapse makes you ineligible for new awards.3SAM.gov. Entity Registration
Once SAM.gov processes your registration, you receive a Commercial and Government Entity code, commonly called a CAGE code. This five-character identifier ties your company to a specific physical location and becomes part of how the defense logistics system tracks suppliers throughout the contract lifecycle.4Defense Logistics Agency. CAGE Code – Commercial and Government Entity Code
Understand How Defense Contracts Pay
How you get paid depends on the contract type, and the differences matter more than most newcomers realize. Each structure shifts risk between buyer and seller in a different way, and the type dictates how you price a proposal and how heavily auditors will look at your books.5Acquisition.GOV. FAR Part 16 – Types of Contracts
- Firm-fixed-price. You agree to deliver at a set price regardless of what it actually costs. Under budget, you keep the savings; over budget, you absorb the loss. Most common for well-defined requirements.
- Cost-reimbursement. The government pays your allowable costs up to a negotiated ceiling, plus a fee. Used when the work is too uncertain to price up front, like cutting-edge research. Lower financial risk for you, heavier oversight and auditing from them.
- Time-and-materials. Fixed hourly labor rates plus actual material cost. Common for advisory work, IT support, and situations where scope is hard to predict.
- Indefinite-delivery/indefinite-quantity. A framework agreement with minimum and maximum order quantities. The government issues task orders as needs arise. Popular for recurring services and spare parts.
Cost-reimbursement work, in particular, requires accounting systems that can track every dollar to a specific contract. This is where many small firms run into trouble.
Meet the Regulatory Baseline
Every federal purchase follows the Federal Acquisition Regulation, the standardized rulebook governing how agencies solicit, evaluate, and award contracts.6General Services Administration. Federal Acquisition Regulation The Department of Defense layers on the Defense Federal Acquisition Regulation Supplement, which adds requirements specific to military readiness, security, and cybersecurity. Together, these documents run to thousands of pages.
Buy American
Contractors must prioritize domestic materials and manufacturing. A manufactured product qualifies as domestic only if it is made in the United States and at least 65% of its component costs come from domestic sources. That threshold rises to 75% for items delivered starting in 2029. Products made primarily of iron or steel face a stricter standard: foreign iron and steel cannot exceed 5% of total component cost.7Acquisition.GOV. FAR Subpart 25.1 – Buy American-Supplies
Wage Laws
Two federal wage laws touch most defense contractors. The Davis-Bacon Act sets minimum wage rates for construction workers on government projects, based on prevailing wages in each county.8U.S. Department of Labor. Davis-Bacon Wage Determinations The Service Contract Act does the same for service workers on contracts exceeding $2,500, covering roles from janitorial staff to IT technicians.9U.S. Department of Labor. SCA Wage Determinations You cannot pay market rates and hope for the best. The government publishes required minimums for each job classification and geography.
Cost Accounting
Contractors performing cost-reimbursement or incentive work must follow Cost Accounting Standards, which dictate how you allocate overhead, estimate costs, and report expenses.10Acquisition.GOV. Part 9904 – Cost Accounting Standards The point is to prevent bookkeeping that shifts unrelated expenses onto government contracts. Getting this wrong, even unintentionally, can trigger payment holds and formal audits.
Export Controls if You Touch the Munitions List
If your products or services touch the U.S. Munitions List, you enter a separate regulatory universe. Any company that manufactures, exports, or brokers defense articles or defense services must register with the State Department’s Directorate of Defense Trade Controls. Even a manufacturer that never exports must register. The act of manufacturing a single defense article triggers the obligation.11eCFR. 22 CFR Part 122 – Registration of Manufacturers and Exporters
Registration fees depend on how active your export business is. Tier 1 is $3,000 per year, for new registrants and companies that received no favorable license determinations in the prior year. Tier 2 is $4,000 per year, for companies with five or fewer favorable determinations. Tier 3 applies to companies with more than five: $4,000 plus $1,100 for each determination beyond five. Registration renews annually and is a prerequisite before the government will process any export license application. Violations carry severe criminal and civil penalties.
Get Certified for Cybersecurity (CMMC)
The Cybersecurity Maturity Model Certification program took effect December 16, 2024, and now requires defense contractors to prove their cybersecurity practices meet specific standards before they can win certain contracts.12Federal Register. Cybersecurity Maturity Model Certification (CMMC) Program Phase 1, running November 2025 through November 2026, focuses on Level 1 and Level 2 self-assessments.13Department of Defense Chief Information Officer. About CMMC
Level 1, for Federal Contract Information, requires meeting 15 basic security requirements and performing an annual self-assessment. Results go into the Supplier Performance Risk System. No outside auditor is required, but you cannot have any open corrective action items. Everything must be fully implemented.
Level 2, for Controlled Unclassified Information, requires meeting 110 security requirements from NIST SP 800-171. Depending on the contract, the assessment is either a self-assessment every three years or an independent evaluation by a certified third-party organization. Open corrective items are permitted but must be closed within 180 days.
Both levels require annual affirmation entered into the Supplier Performance Risk System. Skip an affirmation and your assessment lapses, taking your eligibility with it.14Supplier Performance Risk System. NIST SP 800-171 Information Many small firms underestimate the IT investment needed for Level 2, and the cost of a third-party assessment adds another layer.
Plan for Security Clearances
Many defense contracts require access to classified information, and the clearance process is one of the longest lead-time items a new contractor will face. There are two layers: a Facility Security Clearance for the company itself and Personnel Security Clearances for individual employees.
Facility Clearance
A company cannot apply for a Facility Security Clearance on its own. You need a sponsor, typically a government contracting officer or an already-cleared prime contractor, who submits a request to the Defense Counterintelligence and Security Agency through the National Industrial Security System. The government must determine that your company has a legitimate need for classified access tied to a specific contract or program.15Defense Counterintelligence and Security Agency. Facility Clearances You can bid on and win a classified contract before you hold a clearance, but you cannot begin performance until it comes through.
Once cleared, the company must appoint a Facility Security Officer responsible for managing security obligations: employee clearance submissions, access controls, incident reporting, and compliance with the National Industrial Security Program Operating Manual. The FSO role requires specific training through the Defense Counterintelligence and Security Agency.
Personnel Clearances
Individual employees go through a separate background investigation before they can access classified material. The Facility Security Officer initiates the process only after confirming that the employee genuinely needs access for a specific classified contract. Employees submit detailed personal history information, and a trained government adjudicator reviews the results against national security guidelines.16Center for Development of Security Excellence. Personnel Clearances in the National Industrial Security Program
A clearance is not a universal key. Each access decision requires a valid “need to know” tied to the employee’s specific duties. Holding a Secret clearance does not entitle anyone to see every Secret document in the government.
Use Small Business Set-Asides Where You Qualify
The federal government reserves a significant share of contract dollars for small businesses. The statutory goal is 23% of all prime contract awards measured by dollar value, with additional targets for specific categories. Whether you qualify as “small” depends on your NAICS code and SBA size standards, which set thresholds based on either employee count or average annual revenue for each industry.
Several programs create dedicated contract opportunities for firms that meet particular ownership criteria.
- 8(a) Business Development. Open to firms at least 51% owned and controlled by U.S. citizens who are socially and economically disadvantaged. Economic eligibility caps include a personal net worth of $850,000 or less, adjusted gross income of $400,000 or less, and total personal assets of $6.5 million or less.17U.S. Small Business Administration. 8(a) Business Development Program
- Service-Disabled Veteran-Owned Small Business. Requires at least 51% ownership by one or more service-disabled veterans. The firm must meet SBA size standards and be registered in SAM.gov.18U.S. Small Business Administration. Veteran Small Business Certification
- Women-Owned Small Business. Requires at least 51% ownership and control by women who are U.S. citizens, with women managing day-to-day operations. A subcategory for economically disadvantaged women-owned businesses applies the same financial thresholds as the 8(a) program.19U.S. Small Business Administration. Women-Owned Small Business Federal Contract Program
- HUBZone. Targets firms with a principal office in a historically underutilized business zone and at least 35% of employees living in a HUBZone. Certification renews every three years.20U.S. Small Business Administration. HUBZone Program
Set-aside contracts face less competition, and contracting officers actively seek certified firms to hit their agency’s small business targets.
Bid, Compete, and Handle a Loss
Once registered, firms submit proposals through the Procurement Integrated Enterprise Environment or other designated portals. Each submission goes through source selection, where government evaluators score the technical approach, management plan, and cost proposal against criteria published in the solicitation. Depending on the procurement strategy, the government awards to either the lowest-priced technically acceptable offer or the one offering the best overall value.21Acquisition.GOV. FAR 15.506 – Postaward Debriefing of Offerors
Timelines vary. A straightforward supply contract might be awarded in weeks. A complex weapons system development can take six months or longer from proposal submission to award.
Debriefings
If you lose, you have three days after receiving the award notification to request a debriefing in writing. The government must then explain how it scored your proposal, identify significant weaknesses in your offer, and provide the overall ranking of all proposals. The debriefing also reveals the winning contractor’s overall cost and technical rating, though not proprietary details of their approach.22Office of the Law Revision Counsel. 10 USC 3304 – Post-Award Debriefings Companies that take debriefings seriously and adjust their approach tend to see measurably better results in later competitions.
Bid Protests
A disappointed bidder who believes the government made an error or violated procurement rules can file a formal protest with the Government Accountability Office. The filing deadline is 10 calendar days after the basis of the protest becomes known, which is typically the date of the debriefing. GAO enforces this deadline strictly, and missing it by even one day kills your protest.23eCFR. 4 CFR 21.2 – Time for Filing When a protest is filed, the Competition in Contracting Act generally requires the agency to halt contract performance while GAO reviews the case, maintaining the status quo for up to 100 days.24U.S. GAO. Bid Protest FAQs
Life After the Award: Audits and Real Legal Exposure
Winning is not the end of scrutiny; it’s the start. The Defense Contract Management Agency tracks schedule, quality, and production performance, sometimes placing representatives inside contractor facilities on large programs. The Defense Contract Audit Agency handles the financial side, reviewing accounting systems, billing practices, and cost allocations to confirm that only allowable expenses are charged to the government.25Defense Contract Audit Agency. Defense Contract Audit Agency
Auditors flag costs contractors cannot pass through, such as excessive executive compensation, lobbying, entertainment, and unrelated travel. When discrepancies surface, the government can withhold payments or demand the return of funds already paid. Both agencies track past-performance ratings that become part of your permanent record in government databases. A history of late deliveries, quality failures, or accounting problems will follow your company into every future competition.
The most serious enforcement tool is the False Claims Act, which targets anyone who knowingly submits a false claim or uses a false record in connection with a government payment. Liability does not require intent to defraud; acting with reckless disregard for the truth is enough.26Office of the Law Revision Counsel. 31 USC 3729 – False Claims Penalties are three times the government’s actual damages plus a per-claim civil penalty that, after inflation adjustments, ranges from $14,308 to $28,619 for each false claim.27Federal Register. Civil Monetary Penalties Inflation Adjustments for 2025 On a contract with hundreds of invoices, the math turns catastrophic quickly.
Beyond financial penalties, the government can debar a company from all future federal contracts. Debarment is functionally a death sentence for a firm whose revenue depends on government work. Whistleblower provisions in the False Claims Act also allow employees to file lawsuits on the government’s behalf and collect a share of any recovery, so internal compliance failures tend to find daylight even when leadership would prefer they did not.28Department of Justice. The False Claims Act Compliance infrastructure — the accounting system, the FSO, the cybersecurity program, the export control policies — is not overhead you can defer. It is the price of admission.