Duty-Free Entry: The Overlooked Advantage in Defense Contracting

In today’s fiscal environment, every dollar matters to both the U.S. Government and the contractors who support it. Yet, one of the simplest ways to reduce program costs and increase competitiveness in government contracting often goes unnoticed: Duty-Free Entry (DFE) for imported materials used in performance of federal contracts.

DFE is not a loophole, it is policy. The Federal Acquisition Regulation (FAR) Subpart 25.9, the Defense Federal Acquisition Regulation Supplement (DFARS 225.9), and the Harmonized Tariff Schedule of the United States (HTSUS Chapter 98) all make clear that when a contractor imports goods for use in executing a U.S. Government contract, those goods may be exempt from customs duties and tariffs.

This principle is common sense. Tariffs are designed to influence commercial behavior, not burden U.S. Government programs. When contractors pay duties on materials used exclusively for government work, those costs are passed back to the Government through higher contract prices. In effect, the Government ends up taxing itself.

A Strategic Opportunity Hiding in Plain Sight

Despite being a well-established policy, many defense and aerospace firms fail to leverage DFE, either because the process is poorly understood or because it is not proactively managed within contract execution and supply-chain planning.

For large programs involving imported components, assemblies, or subsystems, that oversight can translate to millions of dollars in unnecessary cost and a lost pricing advantage in future bids.

The rules are already in place. Duty-Free Entry is authorized for imported materials that:

1. Are required for performance under a U.S. Government contract;
2. Are classified under an eligible HTSUS subheading (e.g., 9808.00.30 for DoD, 9808.00.50 for DOE, 9808.00.80 for NASA); and
3. Have a duty significant enough to make the administrative effort worthwhile.

In practice, this applies broadly across the defense industrial base, from a subcontractor importing specialized composites for airframes, to a prime contractor bringing in propulsion components, to a space systems integrator sourcing foreign optical assemblies.

How the Process Works

The DFE process requires coordination among multiple parties: the contracting officer, the prime contractor, any foreign suppliers, the customs broker, and U.S. Customs and Border Protection (CBP).

For Department of Defense contracts, the process is particularly streamlined through the Defense Contract Management Agency (DCMA) Duty-Free Entry Team, which reviews and approves tens of thousands of certificates each year through the Procurement Integrated Enterprise Environment (PIEE).

A few critical steps stand out for contractors:

• Ensure DFARS 252.225-7013 (“Duty-Free Entry”) is included in your contract. If it isn’t, request a modification. Without it, DCMA will not issue a DFE certificate.
• Use the PIEE-DFE module. Contractors request entitlement through PIEE; once approved by the Administrative Contracting Officer (ACO), the customs broker receives a secure link to request certification from DCMA.
• Coordinate documentation and marking early. Packaging must clearly indicate “UNITED STATES GOVERNMENT, DEPARTMENT OF DEFENSE” and reference the applicable contract number and activity address code. Missing or incorrect markings are among the most common reasons for rejection.
• Retain all records for at least five years. FAR and CBP regulations require long-term documentation of DFE transactions for audit and compliance purposes.

While the DoD process is the most mature, similar procedures exist for the Department of Energy and NASA through FAR 52.225-8. In these cases, the contracting officer serves as both the approving and certifying authority. The core principle remains the same: if an imported item directly supports contract performance and falls within an eligible classification, the contractor should not pay tariffs on it.

Why It Matters Now

Since the re-imposition of broad tariffs on foreign imports, including the near-universal 10 percent tariff introduced in 2025, DFE has become a far more consequential tool for program affordability. The difference between utilizing DFE or not can directly impact profit margins, proposal competitiveness, and the Government’s total cost of ownership.

Moreover, as global supply chains remain complex and multi-national, the likelihood that some portion of a program’s materials or subcomponents originate overseas is high even when final assembly occurs in the United States. DFE ensures that these global inputs do not inflate program costs unnecessarily.

Yet, many contracting officers and program managers still misunderstand or overlook the mechanism, often because the FAR and agency supplements provide minimal practical guidance. The result is a missed opportunity to reduce costs and improve pricing posture across the defense industrial base.

Challenges and Common Missteps

Several recurring issues prevent defense contractors from realizing the benefits of DFE:

• Incomplete flow-down: Subcontractors importing materials for a prime contract are often unaware that DFE applies to them if properly flowed down through DFARS 252.225-7013 or FAR 52.225-8.
• Late engagement with customs brokers: Brokers are essential in coordinating entry packets, forms (such as CBP Form 7501), and filings with DCMA or CBP. Early coordination avoids shipment delays or duty assessments.
• Unclear accountability: When tariffs are mistakenly applied, questions arise over whether the Government or contractor is financially responsible. If a contracting officer fails to support DFE that should have been granted, it may even form the basis for a Contract Disputes Act claim.
• Administrative fatigue: Because many agencies lack dedicated DFE support (unlike DCMA’s small but efficient team), contracting officers often deprioritize the process. The result is an uneven application of a policy that could generate substantial taxpayer savings.

The Case for Reform

The current patchwork of HTSUS subheadings offering DFE is too narrow. Only a handful of agencies (DoD, DOE, NASA, and a few others) have clearly defined provisions. A broader, government-wide structure for procurement-related DFE could save hundreds of millions annually.

Expanding Chapter 98 of the HTSUS to include a general “Government Contract Articles” subheading would institutionalize what is already contemplated under FAR Subpart 25.9 and 19 C.F.R. §§ 10.100–10.104.

Equally important, a centralized interagency DFE Support Office (perhaps within the General Services Administration) could replicate DCMA’s scalable model and make DFE accessible to all civilian agencies. Four specialists at DCMA already process over 30,000 certificates per year; expanding that capacity government-wide would yield exponential savings.

What Contractors Should Do Now

1. Review your contracts for inclusion of DFARS 252.225-7013 or FAR 52.225-8. If absent, initiate a modification.
2. Engage your contracting officer early especially if you anticipate significant imports for program execution.
3. Train supply-chain and contracts personnel on DFE eligibility and documentation. A lack of awareness at the operational level is often the root cause of missed savings.
4. Integrate DFE planning into your proposal pricing. Accounting for DFE in cost models can make bids more competitive without sacrificing margin.
5. Leverage experienced trade compliance partners. Navigating the intersection of customs law, FAR clauses, and contract administration requires specialized expertise especially for programs involving multiple tiers of subcontractors or international suppliers.

A Smarter Way Forward

Duty-Free Entry represents a quiet but powerful lever in government acquisition.  It is a regulatory mechanism that rewards diligence, coordination, and understanding of how trade and procurement intersect.

For defense and aerospace contractors, mastering DFE isn’t just about compliance. It’s about strategic execution: lowering program costs, enhancing competitiveness, and demonstrating stewardship of taxpayer resources.

As the defense industrial base confronts rising costs, shifting tariffs, and increasingly complex global supply chains, the ability to navigate these intersections effectively will define the next generation of high-performing government contractors.