What was once a back-office function is now directly impacting how firms win work, deliver programs and withstand audit scrutiny.
For government contractors, the regulatory changes keep coming, and as a result, the compliance responsibilities keep mounting.
Ongoing updates to the Federal Acquisition Regulation (FAR) are forcing government contracting firms to adjust on the fly to new federal agency purchasing practices. Cybersecurity Maturity Model Certification (CMMC) 2.0 continues moving toward enforcement, with new cybersecurity requirements and additional obligations on the horizon. FedRAMP expectations are tightening. And recent executive actions bring new diversity, equity and inclusion-related restrictions and potential penalties.
This fundamental shift in the regulatory landscape has turned compliance from a series of point-in-time events into a continuous, cross-functional discipline. What was once a back-office function is now directly impacting how firms win work, deliver programs and withstand audit scrutiny. In such a fluid environment, firms that excel at tracking, understanding and operationalizing compliance responsibilities gain a clear edge in landing new work from the United States government, while also reducing exposure to audit findings, penalties and delivery disruptions.
As more firms are discovering, artificial intelligence embedded directly into compliance workflows can help a government contracting firm operationalize compliance so it becomes an integral, proactive part of day-to-day operations rather than a separate, reactive effort. In fact, findings from Unanet’s soon-to-be-released 2026 GAUGE benchmarking report show 36% of government contracting firms are actively using AI to support compliance, while another 42% are exploring the use of AI for compliance.
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Here are five areas where AI can make a real difference on the compliance front:
Building a real-time compliance framework. Between CMMC 2.0 and the FAR overhaul, the rulebook is no longer static. The FAR updates alone are coming in increasingly faster cycles, impacting contracts, clauses and execution expectations. Here’s where centralized, AI-powered regulatory tracking is a must, keeping firms abreast of the latest updates and new requirements at the executive and agency levels. AI agents can monitor and report on regulatory changes in real time, interpret new regulatory language (such as FAR updates) and map that language to contracts and business processes.
Result: Faster alignment between regulatory change and contract execution, reducing compliance risk and operational lag.
Moving to always-on audit readiness. From CMMC enforcement to the new FAR requirements, audits loom larger than ever over government contracting firms. What’s more, given the federal government’s more aggressive audit approach, the audits to which a firm is subjected will likely be stricter than in the past. In such a dynamic environment, static documentation won’t suffice for most audits.
Instead, firms should look to establish a state of continuous audit readiness. With the support of AI, they can make documentation a firm-wide discipline and map evidence/documentation directly to internal controls. AI agents can also work on a firm’s behalf to continuously assess whether gaps in documentation/data have emerged due to evolving requirements, recommend steps to address those gaps, and create audit trails as work happens.
Result: Improved audit outcomes, along with less of the internal disruption and resource drain that typically accompany audit preparation.
Getting serious about subcontractor compliance. The FAR’s increased domestic content thresholds for “Buy American” compliance (65%, increasing to 75% in 2029), along with the flow-down requirements of CMMC [to verify subcontractors are compliant with CMMC, particularly if they handle federal contract information(FCI) and/or controlled unclassified information (CUI)], mean prime contractors need heightened insight into, and oversight of, the subcontractors that comprise their supply chains. They’ll need strong tracking of subcontractor certification and compliance attestations, along with risk-based segmentation. Not only can AI handle these functions, it can also predict subcontractor-related risk exposure across projects and programs.
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Result: Less risk of subcontractor issues threatening eligibility for prime contract awards.
Modernizing policies to keep pace with change. From new cybersecurity standards to revamped federal purchasing approaches to new DEI restrictions, all the regulatory upheaval means policies written even a year or two ago have likely become obsolete. That puts the onus on firms to conduct structured policy reviews across various parts of the business, including human resources, IT and cybersecurity, finance and project accounting. AI has an important role to play here, too, with the ability to compare policies against regulatory updates/changes, flag areas that require updating, and even recommend how specific policies should be updated. AI also can monitor projects to ensure they’re tracking to relevant policies and procedures. This is especially critical in areas like cost allowability, indirect rate structures and labor category alignment, where outdated policies can quickly create compliance exposure.
Result: Internal policies are up-to-date to reflect the latest regulatory changes, reducing a firm’s risk of noncompliance.
Elevating and maintaining data quality — because compliance depends on it. For government contracting firms, data integrity is quickly becoming synonymous with compliance credibility. The new regulations emphasize traceability, transparency and accuracy in reporting, so it’s critical for firms to be confident that the data they’re supplying to regulators (and their own people, of course) is timely, accurate, complete and verifiable. This becomes a more straightforward proposition when the firm’s core systems are integrated, eliminating siloes and spreadsheet-based processes, and enabling data to flow across the business.
With a single source of truth, firms can ensure data is consistent, traceable and defensible across audits and reporting. When systems are connected and the data flowing through them is solid, then AI can go to work, flagging missing or incomplete compliance documentation and identifying errors and anomalies (in billing and invoices, in the classification of costs, et cetera) prior to an audit.
Result: Firms can be confident in the AI they’re using to support compliance activities because they’re confident in their data.
From time lost in the scramble to locate and reconcile information, to substandard audit outcomes, to being disqualified from project work because of subcontractor compliance issues, the risks are too great for government contracting firms to cut corners with compliance.
In a world where compliance factors more heavily in how federal agencies assess government contractors’ performance, firms that effectively leverage AI across these areas can turn compliance excellence into a true competitive advantage, improving how they win work, deliver programs and operate with confidence in an increasingly dynamic and demanding federal environment.
Chris Crowder is executive vice president of government contracting solutions at Unanet.
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