🇺🇸United States

Withheld Progress Payments and Cash‑Flow Delays from DFARS Cyber Non‑Compliance

3 verified sources

Definition

The DoD’s June 16, 2022 memo directs contracting officers to enforce remedies for DFARS 252.204‑7012 non‑compliance, including withholding progress payments, foregoing remaining contract options, and partial or full termination. These remedies immediately slow or stop cash inflows even for work already performed, extending DSO and straining liquidity.

Key Findings

  • Financial Impact: $5M–$50M+ in delayed or frozen payments for a single large production or development contract when progress payments are withheld
  • Frequency: Can become monthly once a non‑compliance finding is issued, until remediation is accepted or the contract is terminated
  • Root Cause: Bid and award processes that accept cyber clauses without ensuring that required controls, assessments, and documentation are in place; when post‑award reviews show gaps, contracting officers invoke DFARS remedies that directly delay invoicing and payment.

Why This Matters

This pain point represents a significant opportunity for B2B solutions targeting Defense and Space Manufacturing.

Affected Stakeholders

CFO, Treasurer / Cash Management, Program Manager, Contracts Administrator, Accounts Receivable / Billing, CISO

Deep Analysis (Premium)

Financial Impact

$10M-$30M in payments withheld during remediation period; contract termination risk for material non-compliance • $10M-$30M withheld from DHS contract due to subcontractor non-compliance • $10M–$40M in lost FMS contract awards; reputational damage with DoD buyer

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Current Workarounds

Configuration Manager maintains compliance status spreadsheet in Excel offline; manual tracking of NIST SP 800-171 control implementations via email chains and shared drives; no centralized audit trail • Configuration Manager relies on vendor security attestations via email; compliance status stored in uncontrolled shared folder; manual reconciliation with NIST 800-171 checklist quarterly • Contracts Administrator compiles compliance status via manual spreadsheet; tracks remediation tickets in email; sends POA&M updates as PDF attachments when requested

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Proposal Quality Defects Driving Rework and Lost Awards

$200k–$2M per major proposal in additional re‑write, SME review, and audit support labor; tens of millions in lost margin when proposals are downgraded or excluded

Loss of Current and Future Contract Revenue from Cyber / DFARS Non‑Compliance in Bid Phase

$5M–$100M+ contract revenue lost per disqualified bid; multi‑year revenue pipeline losses when contractors are found ineligible or debarred

Treble‑Damages and Disallowance of Billed Amounts Under the False Claims Act

$300M+ settlements in individual FCA cases; up to 3× the government’s claimed loss plus per‑claim civil penalties, with disallowed costs permanently unbillable

Unallowable Proposal and Compliance Costs After Non‑Compliance Findings

$500k–$10M+ per major investigation or adverse audit in unallowable internal labor, consulting, and legal spend; ongoing lost recoveries on indirect rates

Bid Capacity Lost to Manual, Compliance‑Heavy Proposal Processes

$1M–$10M+ per year in opportunity cost for a mid‑to‑large defense manufacturer in foregone bids or reduced win rates due to limited proposal bandwidth

Direct Financial Penalties, Terminations, and Debarment from DFARS / CMMC Breaches

$10M–$500M+ per affected contractor when combining lost contract value, FCA treble damages, unallowable penalties, and excluded future awards

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