Doing business with the United States Department of War (U.S. DoW) opens doors to one of the world’s largest defence markets—but it also comes with strict compliance requirements under the Defense Federal Acquisition Regulation Supplement (DFARS).
For Canadian companies, DFARS compliance isn’t just a box to check—it’s the key to unlocking opportunities under the Canada-U.S. Defence Production Sharing Agreement and competing on equal footing with U.S. suppliers. Understanding what DFARS means for your business is essential before you bid on your next contract.
What is DFARS?
The Defense Federal Acquisition Regulation Supplement (DFARS) is a set of regulations that supplements the Federal Acquisition Regulation (FAR) that governs how defense-related goods and services are acquired by U.S. DoW.
Why Does DFARS Matter for Canadian Companies?
Canada enjoys a unique position under the Canada-U.S. Defence Production Sharing Agreement (DPSA), which allows Canadian firms to compete on equal footing with U.S. companies for U.S. DoW contracts.
DFARS formalizes this relationship by:
DFARS 225.870: Contracting with Canadian contractors
- DFARS 225.870-1a: Contracts endorsed by and awarded through CCC have a Government of Canada guarantee of contract performance.
- DFARS 225.870-1b: Canada recognized as part of the U.S. defense industrial base.
- DFARS 225.870-4(a):S. DoW purchases from Canadian suppliers shall be made through CCC. through the Canadian Commercial Corporation – U.S. DoW’s official contracting authority for Canada.
- DFARS 225.870-8: Recognizing Canadian security clearances for industrial security compliance.
- DFARS 225.872-1: Waiver of Buy American Act
- DFARS 215.403-1c-4C: Waiver of requirements for cost and pricing data.
- DFARS 252.225-7013: Allowing Canadian goods to enter the U.S. duty-free.
| Restriction Type | DFARS/FAR Reference | Impact on Canadian Suppliers | Possible Workarounds |
|---|---|---|---|
| Berry Amendment | DFARS 225.7002 | Prohibits foreign sourcing for textiles, food, and clothing. | Source U.S.-made items or request waiver via Contracting Officer. |
| Small Business Set-Asides | FAR Part 19 | Contracts reserved for U.S. small businesses; Canadian firms excluded. | Partner with U.S. small businesses as subcontractor. |
| Naval Vessel Acquisition Restrictions | DFARS 225.7013 | Foreign shipyards cannot bid on certain vessel acquisition/refit contracts. | Focus on components or subcontracting opportunities. |
| Flags and Measuring Tools | DFARS 225.7002 | Must be 100% U.S.-made; Canada excluded. | Source from U.S. manufacturers. |
| Prohibited Sources | DFARS Subpart 225.7 | No sourcing from banned countries or entities (e.g., China, terrorism sponsors). | Conduct supplier due diligence and vetting. |
| Foreign Ownership Restrictions | DFARS 252.209-7002 | FOCI rules may disqualify Canadian firms with certain ownership structures. | Implement FOCI mitigation plans and disclose ownership. |
| Performance Location Restrictions | DFARS 225.871 | Some contracts require work to be performed in the U.S. only. | Establish U.S. presence or partner with U.S. firms. |
Understand common DFARS compliance requirements
1. Mandatory Cybersecurity Requirements
- DFARS 252.204-7012 requires contractors to implement NIST SP 800-171 controls to protect Controlled Unclassified Information (CUI).
- Cyber incidents must be reported to the U.S. DoW within 72 hours.
- Cloud service providers supporting U.S. DoW contracts must meet FedRAMP Moderate or equivalent standards.
- These requirements apply not only to prime contractors but also to subcontractors—Canadian firms must ensure their entire supply chain complies.
2. Supply Chain Risk Management
- DFARS includes clauses like 239-7018 (Supply Chain Risk), which obligate contractors to mitigate risks such as sabotage or malicious code in IT systems.
- The U.S. DoW can restrict suppliers based on security concerns, even without public disclosure.
- Canadian businesses should vet suppliers carefully and maintain visibility into their supply chain to avoid disqualification.
3. Flow-Down Clauses
- DFARS clauses often flow down to subcontractors. Even if you’re not the prime contractor, you may still need to comply.
- Recent rules (DFARS 252.244-7000) limit unnecessary flow-downs for commercial subcontracts, but mandatory clauses—like cybersecurity and export controls—still apply.
- Canadian firms should review subcontract templates and confirm which DFARS clauses are mandatory vs. recommended.
4. Export Control & ITAR/EAR Compliance
- DFARS compliance often intersects with S. export control laws (ITAR/EAR).
- Canadian companies handling defense articles or technical data must ensure proper licensing and secure data transfer protocols.
5. Exceptions & Restrictions
- While DFARS waives the Buy American Act for most defense items from Canada, some restrictions remain:
- Berry Amendment (DFARS 225.7002) limits foreign sourcing for food, clothing, and textiles.
- Certain naval vessel components and small business set-asides are reserved for U.S. suppliers.
- Always check solicitation details for these exceptions.
6. Contract Thresholds
- Negotiated acquisitions for experimental, developmental, or research work under projects other than the Defense Development Sharing Program;
- Acquisitions of unusual or compelling urgency;
- Acquisitions at or below the simplified acquisition threshold; or
- Acquisitions made by U.S. DoW activities located in Canada.
- For purchases below the simplified acquisition threshold, Canadian firms can contract directly with the U.S. DoW but must still meet DFARS requirements.
7. Industrial Security
- DFARS recognizes Canadian security clearances, but firms must coordinate with Public Services and Procurement Canada for compliance under DFARS 225.870-8.