International Contractors
US defense contract compliance for non-US companies.
A DoD prime contract or subcontract can bring US government accounting rules with it: FAR Part 31 cost principles, incurred cost submissions, certified cost or pricing data, and audit access for DCAA. We help European and other non-US companies meet the obligations in the contract they actually signed, without hiring a large US consultancy.
- 12 years inside DCAA
- 100+ DoD contractors audited
- CPA led
- QuickBooks, Costpoint, SAP & NetSuite
- Remote, nationwide
Flowdowns
How US rules reach a company outside the US
You never sign up for the FAR directly. It arrives through your subcontract: the prime’s DoD contract lists the clauses it must pass down, and the prime decides what goes into yours. So read the clause list you signed. Contract type (cost-type, time-and-materials or firm-fixed-price) and dollar value drive most of what follows.
The FAR is also mid-rewrite under the Revolutionary FAR Overhaul, and DoD has class deviations in effect for Parts 15, 25 and 31, among others. We check the current text on every engagement.
Your Obligations
What a DoD subcontract can require of you
Cost-type and T&M subcontracts: incurred cost
If your subcontract carries the Allowable Cost and Payment clause, FAR 52.216-7, you bill only allowable cost and owe a final indirect cost rate proposal within six months after fiscal year end. The prime must settle your rates before it can close out. DCAA’s guidance for contractors describes flowdowns giving either the government or the prime access to your books for the annual audit.
Firm-fixed-price subcontracts: certified cost or pricing data
Above the threshold, and absent an exception, FAR 52.215-12 requires the prime to get certified cost or pricing data from you before award, and 52.215-13 covers modifications. For DoD the subcontract threshold is $10 million under prime contracts entered into after June 30, 2026, and $2.5 million under earlier ones (DFARS 215.403-3, Class Deviation 2026-O0048). Data for larger subcontracts may go to the government with the prime’s proposal (FAR 15.404-3, now 15.404-8). See our guide to the FY2026 thresholds.
Audit access
FAR 52.215-2 flows down to subcontracts above the simplified acquisition threshold that are cost-type or T&M, require certified cost or pricing data, or require cost reports, and lets the government examine your records.
Cost Accounting Standards
Under 48 CFR 9903.201-1(b)(4), a contract or subcontract awarded to a foreign concern is exempt from every standard except CAS 401 and 402, the two consistency standards. Those apply only if the subcontract is CAS-covered, and the CAS Board’s final rule raises the coverage threshold to $35 million from October 1, 2026.
Nontraditional defense contractors
If you haven’t performed a fully CAS-covered DoD contract or subcontract in the prior year, you likely qualify under 10 U.S.C. 3014, as many European suppliers will. Section 1826 of the FY2026 NDAA exempts you from certified cost or pricing data, FAR Part 31 and the DFARS business systems clauses on DoD contracts unless waived. Your signed flowdowns and the prime’s need to show a reasonable price still govern, and primes are still working out how to flow this down.
IFRS and FAR Part 31
Where your IFRS books and FAR Part 31 disagree
You don’t need US GAAP books. Where CAS doesn’t apply, FAR 31.201-2 looks to generally accepted accounting principles appropriate to the circumstances, so IFRS or local GAAP is a fine start. The problem is allowability. FAR 31.201-6 requires you to find unallowable costs and keep them out of every proposal, billing and claim:
- Interest (31.205-20). Unallowable however represented, including financing cost capitalized into an asset.
- Entertainment and alcohol (31.205-14, 31.205-51). Client dinners, event tickets and club memberships are out, even where deductible at home.
- Share-based pay (31.205-6). Pay valued on changes in share price, such as stock options, is unallowable, so the IFRS 2 charge usually comes out.
- Bad debts (31.205-3). Actual and estimated credit losses and collection costs are unallowable.
- Advertising (31.205-1). Only narrow categories are allowable. Brand and product promotion aren’t.
- Intercompany transfers (31.205-26). Allowable at cost, not your transfer-pricing markup, unless a narrow exception applies.
- Severance for non-US staff (31.205-6). On service contracts performed abroad, severance to foreign nationals is unallowable above what is typical for similar work in the US.
- Taxes (31.205-41). Taxes you could have been exempted from are unallowable, and recoverable VAT isn’t a cost.
Practical Rules
Timekeeping, currency and VAT
Timekeeping
Salaried engineers in Europe often don’t record hours by project. US government work needs them to. DCAA’s incurred cost audit objectives start with labor supported by proper timekeeping, payroll and personnel records. That means daily entry by charge code, supervisor approval, a trail for corrections, and all hours recorded, not just billable ones.
Currency
For contracts performed outside the US, the contracting officer sets the currency of offers (FAR 25.1002), and your subcontract says what you price and bill in. State the exchange rate, source and date in each proposal, and convert the same way every year in the incurred cost submission.
VAT and other taxes
Recoverable input VAT belongs out of your pools and prices. DFARS 229.402-70 prescribes tax relief clauses for contracts awarded to foreign concerns, including country clauses for Italy, Spain, Germany and the UK. Whether any reach your subcontract depends on the prime contract, so ask.
Audit Access
Who actually audits a non-US subcontractor
DCAA’s Contract Audit Manual (section 4-1006) says the US has reciprocal audit agreements with Canada, the UK, France, the Netherlands and Germany, under which those countries’ auditors audit their own companies on US contracts. Foreign companies elsewhere, including Italy, Poland, the Nordic countries, Bulgaria and Israel, are audited by the appropriate DCAA office, for example the European Branch Office.
Our founder spent 2016 to 2020 at that office in Wiesbaden, leading audit teams on US and foreign contractors and supporting negotiations. The firm is led by a former DCAA Supervisory Auditor who also ran these systems from inside a venture-backed defense technology company.
The Audit
What the auditor actually looks at
For a foreign subcontractor, the objectives match any incurred cost audit (DCAA Contract Audit Manual, chapter 6).
The bridge from your statutory ledger
A reconciliation from your IFRS or local GAAP trial balance to the claimed cost, account by account. Reclassifications, post-closing adjustments and group recharges each need an explained line, not a plug.
Labor hours
A sample of employees traced from timesheet to payroll to the hours claimed on each contract, with a look at who approved changes.
Indirect cost allocation
Whether pools and bases are logical and applied the same way each year. Group management fees get close attention: the auditor wants the parent’s actual cost and the allocation basis.
Unallowable cost screening
A scan of accounts likely to hold entertainment, interest, share-based pay, bad debts and advertising, then a test of whether your own process caught them. Misses widen the audit.
Subcontract and intercompany pricing
Affiliate purchases checked against the cost basis in FAR 31.205-26, and your own subcontracts checked for competition or cost analysis. A tax transfer price won’t stand in for cost.
Common Situations
Where the call usually starts
The prime asked for an incurred cost submission and nobody knew what it was
We confirm what your subcontract requires and build the schedules from your ledger.
Your books are IFRS and the costs don’t map
We map your statutory chart of accounts to direct, indirect and unallowable cost once, and reuse the map every year.
The prime’s pricing team wants certified data
We check the threshold and exceptions, then assemble the cost build-up and support so what you certify is accurate, complete and current.
An auditor emailed from DCAA
Answer promptly, and don’t send the whole ledger. We pin down the scope, prepare the support, and join the calls.
How We Help
What we do for non-US subcontractors
We work remotely, in English or Bulgarian.
Gap assessment against the flowdowns you signed
What applies at your contract type and value, and what is missing. Where terms need negotiating, we work alongside your counsel.
IFRS-to-FAR cost bridge
A documented map from your statutory ledger to allowable direct and indirect cost.
Indirect rate calculation
Overhead and G&A pools and bases, billing rates and the year-end true-up.
Subcontractor incurred cost submission
The annual proposal, reconciled to your books, sent where your subcontract says it goes.
FFP proposal support and data for the prime
Cost volumes, bases of estimate and, above the threshold, certified cost or pricing data.
Audit support
Document requests and meetings with DCAA or your own government’s auditors.
Questions
Frequently asked
Do non-US companies have to follow CAS?
Only partly, and only on CAS-covered contracts. Under 48 CFR 9903.201-1(b)(4), a contract or subcontract awarded to a foreign concern is exempt from every standard except CAS 401 and 402. Many subcontracts are exempt altogether.
Do we need to convert our books to US GAAP?
No. FAR Part 31 looks to CAS where it applies and otherwise to generally accepted accounting principles appropriate to the circumstances. You need a documented bridge from your IFRS or local GAAP ledger to allowable cost.
Who can see our cost data, the prime or DCAA?
It depends on your subcontract. Access clauses can run to the government, the prime, or both. If the prime is also a competitor, it is common to send detailed records to the government auditor and give the prime only what it needs to settle your rates. Agree this before you sign.
Will DCAA audit us, or our own government’s auditors?
Companies in the United Kingdom, France, Germany and the Netherlands are generally audited by their own government’s auditors under reciprocal agreements. Elsewhere, including Italy, Poland, the Nordic countries and Bulgaria, expect a DCAA office such as the European Branch Office.
We might be a nontraditional defense contractor. What changes?
Section 1826 of the FY2026 NDAA exempts nontraditional defense contractors, meaning companies with no fully CAS-covered DoD work in the prior year, from certified cost or pricing data, FAR Part 31 and the DFARS business systems clauses on DoD work, unless waived. Your subcontract terms still govern, so check how the prime has flowed it down.
Can you work in Bulgarian?
Yes. Our founder speaks Bulgarian natively, and we work in English and Bulgarian. Anything for the prime or a US auditor is prepared in English.
More
Related services
Incurred cost submissions
Annual final indirect cost rate proposals, audit-ready.
Nontraditional defense contractors
What Section 1826 of the FY2026 NDAA exempts, how status is asserted and lost, and what still gets reviewed.
Holding a US defense subcontract, or about to sign one?
Send us the subcontract and its clause list. We’ll tell you what applies and what to fix first.