DFARS Part 270: Defense Contracting Programs

In plain English

DFARS Part 270 establishes a pilot program that allows the Department of Defense to award certain follow-on contracts noncompetitively to qualified businesses, which are S corporations wholly owned by an employee stock ownership plan (ESOP). This matters to contractors because it creates a limited exception to full and open competition for eligible ESOP-owned S corporations, but only for follow-on contracts and with specific limitations.

Key rules

• A qualified business is an S corporation as defined in 26 U.S.C. 1361(a)(1) for which 100 percent of the outstanding stock is held through an employee stock ownership plan as defined in 26 U.S.C. 4975(e)(7). (270.101)
• The contracting officer may award only one sole-source, follow-on contract to the incumbent contractor if the contractor represents it is a qualified business and the contract is for the continued development, production, or provision of products or services that are the same as or substantially similar to those under the prior contract awarded by or for DoD.
• The contracting officer must justify the sole-source award in accordance with FAR 6.303 and 6.304 and cite FAR 6.302-5 as the exception to full and open competition.
• Participation in the pilot program requires approval by the Under Secretary of Defense (Acquisition and Sustainment), Office of the Principal Director, Defense Pricing, Contracting, and Acquisition Policy (Contract Policy), and only a contracting officer may submit an application to participate.
• Contracting officers may award only one sole-source, follow-on contract per predecessor contract to the incumbent contractor unless waived by the head of the contracting activity, delegable to a level no lower than one level above the contracting officer.
• Contracts may be awarded only to qualified businesses that have a minimum performance rating of satisfactory for the predecessor contract in the Contractor Performance Assessment Reporting System (see FAR subpart 42.15).
• Contracts may be awarded only to qualified businesses that have certified they will not pay more than 50 percent of the amount paid by the Government for contract performance to subcontractors that are not qualified businesses, except for subcontracts for materials not available from another qualified business when the contract is for products, unless waived by the head of the contracting activity
• The authority to award contracts under this subpart expires on December 27, 2029.

Who does what

In practice

• If you are an S corporation wholly owned by an ESOP and you are the incumbent on a DoD contract, you may be eligible for a sole-source follow-on contract without full and open competition, but only if the follow-on is for the same or substantially similar products or services.
• You must have a satisfactory performance rating on the predecessor contract and certify that you will not pay more than 50 percent of the contract amount to non-qualified subcontractors, unless a waiver is granted.
• The pilot program requires approval by the Under Secretary of Defense (Acquisition and Sustainment), so not all eligible contracts will be included; contracting officers must apply to participate.
• The authority to award contracts under this pilot program expires on December 27, 2029, so timing may affect eligibility.

Common pitfalls

• Assuming you can get multiple sole-source follow-on contracts: the rule limits awards to one per predecessor contract unless waived by the head of the contracting activity.
• Overlooking the subcontracting certification: you must certify that you will not pay more than 50 percent to non-qualified subcontractors, with only a narrow exception for materials not available from another qualified business when the contract is for products.
• Failing to ensure the follow-on contract is for the same or substantially similar products or services as the prior contract; otherwise, the sole-source authority does not apply.
• Believing the pilot program is automatic: participation requires approval by the Under Secretary of Defense (Acquisition and Sustainment), and only a contracting officer may submit an application.

Written by AI from this part's codified text (2026-10-04); cited sections are checked against the part. A guide, not legal advice: the regulation text, the solicitation and your contract rule.