For Israeli companies looking to expand into the United States, the federal government contracting market represents one of the most attractive growth opportunities in the world. The U.S. government is the largest purchaser of goods and services globally, and it routinely buys cutting-edge technology, cybersecurity solutions, defense-related systems, professional services, and specialized equipment that align closely with Israel’s innovation economy.
The current bilateral moment strengthens that case further. The FY 2026 National Defense Authorization Act directs the Defense Innovation Unit (DIU) to establish a presence in Israel — the first time DIU has been directed to maintain an international footprint — reflecting congressional intent to deepen the U.S.-Israel defense technology partnership. For Israeli companies in AI, cybersecurity, autonomous systems, and defense-adjacent technology, the policy environment has never been more favorable.
But while the opportunity is significant, success in the U.S. government market requires more than a strong product and a capable team. It requires understanding a highly regulated contracting ecosystem where compliance, documentation, and procurement strategy are often as important as technical excellence.
This article provides a practical legal roadmap for Israeli companies considering entry into the U.S. government contracts market, focusing on what sophisticated businesses need to understand early to avoid costly missteps and position themselves for long-term success.
The U.S. Government Market Is Not a Commercial Market
The first adjustment for many Israeli companies is recognizing that U.S. federal procurement does not function like a private-sector sales cycle. Government contracts are governed by mandatory regulations that control everything from proposal submission requirements to pricing structures, subcontracting rules, intellectual property rights, cybersecurity compliance, and even employee compensation practices.
Unlike commercial customers, federal agencies generally cannot “just pick” the best vendor based on relationships or perceived quality. Most awards must be made through competitive processes governed by formal evaluation criteria. The government’s discretion is constrained, and companies must learn to win business by mastering the procurement process rather than relying on traditional sales approaches.
Understanding the FAR (and DFARS) Is Essential
The foundation of U.S. government contracting is the Federal Acquisition Regulation, commonly referred to as the FAR. The FAR is not simply a set of guidelines — it is a comprehensive regulatory framework that establishes mandatory contract clauses, defines procurement procedures, and sets baseline compliance requirements for contractors.
Israeli companies targeting defense or intelligence-related opportunities must also understand the Defense Federal Acquisition Regulation Supplement, or DFARS, which imposes additional requirements relating to security, supply chain integrity, data rights, and cybersecurity. DFARS compliance is particularly critical for companies offering software, communications technology, surveillance tools, or any product that could be used in national security environments.
For many foreign companies, the key takeaway is that the FAR and DFARS are not merely “legal fine print.” They define the business model of federal contracting, and companies that treat them as an afterthought often find themselves disqualified, protested, or unable to perform.
Entity Registration Is Mandatory and It Must Be Done Correctly
Before an Israeli company can be awarded a U.S. federal contract, it generally must register in the System for Award Management, known as SAM.gov. SAM registration is a prerequisite to doing business with the U.S. government and includes detailed disclosures about ownership, business structure, banking information, and compliance certifications.
While SAM registration is often treated as an administrative step, it can become a legal risk if done incorrectly. Inaccurate certifications, incomplete disclosures, or misunderstandings about representations related to size status, ownership, or compliance obligations can later become the basis for bid protests, False Claims Act exposure, or suspension and debarment issues.
For Israeli companies, a particular area of attention is Foreign Ownership, Control, or Influence (FOCI). Where an Israeli company has board-level relationships with Israeli government entities, receives Israeli government R&D funding, or has ownership structures that could confer influence on the Israeli government, FOCI mitigation may be required before the company can access classified information or perform certain sensitive work. This analysis should be conducted early, ideally before the first proposal submission.
Israeli Companies Must Plan Early for Export Controls and Technology Restrictions
Many Israeli firms entering the U.S. government market operate in sectors that intersect with controlled technologies, including cybersecurity, AI, communications infrastructure, aerospace, drones, defense systems, and dual-use software. That means export control compliance must be part of the business plan from the beginning.
U.S. export control laws, including the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), can apply not only to shipping products internationally, but also to sharing controlled technical data with foreign persons, including employees located outside the United States. In government contracting, export control issues often arise in unexpected ways, such as remote access to development environments, cross-border technical collaboration, or subcontractor support.
Israeli companies should assume that if their product touches defense, encryption, surveillance, or sensitive communications, export control questions will arise. A failure to anticipate them can delay contract performance or make the company ineligible for certain procurements altogether.
Domestic Preference Rules Can Be a Hidden Barrier, but U.S.-Israel Bilateral Agreements Provide Structural Advantages
Many U.S. government contracts include domestic preference requirements, including the Buy American Act (BAA) and the Trade Agreements Act (TAA). These laws and regulations affect whether a product qualifies as “domestic” or whether the government is allowed to purchase foreign-manufactured goods.
This is an area where sophisticated companies can lose awards even with superior technology. Agencies may be prohibited from buying certain foreign end products, or they may apply evaluation penalties that make foreign offerings less competitive. In other cases, a product may qualify because it is manufactured in a designated country or meets certain substantial transformation requirements.
Israel’s designation as a TAA country is a genuine competitive advantage — it means Israeli-origin products are generally eligible for U.S. federal procurement and are not subject to the BAA price differentials that apply to non-designated countries. However, this designation protects only end products that are wholly grown, produced, or manufactured in Israel, or have been substantially transformed in Israel into a new article. Israeli companies with supply chains that include components from non-designated countries — most commonly China — must conduct a TAA compliance analysis before entering the federal market.
Relatedly, Israeli companies also benefit from a set of bilateral agreements that provide structural advantages not available to most foreign competitors. The U.S.-Israel Reciprocal Defense Procurement MOU exempts certain Israeli defense products from the BAA in Department of Defense (DoD) procurements and provides preferential treatment in source selection. The Security of Supply Arrangement signed in February 2023 establishes a framework for prioritizing defense procurement between the two countries in times of need. While these agreements do not eliminate compliance requirements, they reduce barriers that other foreign entrants face and provide a formal legal basis for Israeli companies to compete on more equal footing with domestic suppliers in defense procurements. Israeli companies should work with counsel to understand how these agreements apply to their specific product and contract type.
Israeli companies should not assume that a strong U.S.-Israel relationship automatically resolves these issues. The applicability of domestic preference rules is contract-specific and depends on factors such as contract value, agency, end-use, and supply chain structure.
Cybersecurity Compliance Is Now a Gatekeeping Requirement
Cybersecurity is no longer simply a best practice in federal procurement — it is increasingly a mandatory qualification requirement. For defense and many civilian IT procurements, contractors must comply with security standards such as NIST SP 800-171, and DoD is implementing the Cybersecurity Maturity Model Certification (CMMC) framework, which will require third-party certification for many contractors and subcontractors. Israeli cybersecurity companies sometimes assume that their technical sophistication will substitute for formal compliance documentation. In federal contracting, that assumption is wrong. The government and prime contractors often require written system security plans, incident response protocols, documented access controls, and audit-ready evidence of compliance. In practice, many foreign companies find that cybersecurity compliance is one of the most time-consuming and expensive barriers to entry, particularly if they plan to handle controlled unclassified information (CUI) or defense-related data.
Structuring Matters: U.S. Subsidiary, Joint Venture, or Subcontracting?
One of the most strategic questions for Israeli companies is whether to enter the market directly as a foreign entity or through a U.S. subsidiary. While foreign companies can contract directly with the U.S. government in many circumstances, establishing a U.S. presence often provides significant advantages, including easier compliance administration, better positioning for domestic preference requirements, and greater credibility with contracting officers and prime contractors.
Another common entry point is subcontracting. Many Israeli companies succeed first by partnering with established U.S. primes as a subcontractor or technology provider, building performance history and familiarity with procurement requirements before pursuing prime contracts. However, subcontracting comes with legal complexities that must be managed carefully. Teaming agreements, nondisclosure agreements, and subcontract terms often contain strict intellectual property provisions, flow-down compliance clauses, and limitations on future competition. Israeli companies should treat these agreements as strategic documents, not informal business arrangements.
Two other entry pathways that Israeli technology companies frequently overlook deserve specific mention. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide direct DoD funding of up to $1 million per project for companies performing R&D with commercial potential — and Israeli companies operating through a U.S. subsidiary can access these programs directly. The DIU, which serves as the Pentagon’s primary commercial technology accelerator, has been directed by the FY 2026 NDAA to establish a presence in Israel, creating a direct channel for Israeli companies to engage with DoD on commercial and dual-use technology needs. These pathways are particularly well-suited for companies that lack federal contracting history but have demonstrated commercial technology capability.
Performance History Is Often the Difference Between Winning and Losing
U.S. agencies place substantial weight on past performance, which evaluates whether a contractor has successfully performed similar work for government or commercial customers. For Israeli companies without a U.S. contracting history, this can be a major disadvantage even if the technology is superior. The solution is not simply to “wait” until past performance exists. Companies should actively build credible performance narratives through subcontracting, pilot programs, commercial U.S. clients, and well-documented international government work that can be presented effectively in proposals. The key is to frame prior work in a way that aligns with U.S. evaluation standards and demonstrates low performance risk.
U.S. Government Contracts Carry Unique Enforcement Risks
Companies entering U.S. federal contracting must understand that compliance failures can quickly escalate into legal exposure. Unlike commercial contracting, where disputes often remain private, U.S. government contracting is intertwined with enforcement mechanisms such as audits, inspector general investigations, mandatory disclosure rules, and potential civil or criminal liability. The False Claims Act is particularly significant. It can impose severe liability for inaccurate invoices, defective pricing disclosures, noncompliance with material contract terms, or misrepresentations in certifications. For Israeli companies unfamiliar with this enforcement landscape, even unintentional errors can create outsized legal and reputational consequences. Successful companies treat compliance as a core business function from day one, not as an afterthought once revenue begins flowing.
Success Requires a Strategy, Not Just a Bid
The U.S. federal marketplace rewards disciplined planning. Companies that enter the market successfully typically begin by identifying a target agency, mapping procurement vehicles used by that agency, forming strategic U.S. partnerships, and building internal infrastructure to handle compliance requirements. Winning is rarely about responding to a single solicitation. It is about positioning the company so that when the right opportunity appears, the company can compete without scrambling to solve structural issues under deadline pressure. That includes building proposal capability, implementing compliance policies, understanding contract vehicles, and developing a pricing strategy that aligns with federal cost principles and audit expectations.
Conclusion
For Israeli companies, the U.S. government contracts market offers a rare combination of scale, stability, and long-term growth potential. But it is also a market where sophisticated legal and regulatory compliance is inseparable from business development. Companies that treat federal contracting like a commercial expansion effort often face frustration, disqualification, or avoidable legal risk. Those that succeed do so by investing early in compliance infrastructure, understanding the FAR and DFARS environment, planning for cybersecurity and export control requirements, structuring intelligently, and building relationships through strategic subcontracting and partnerships. With the right approach, Israeli companies can compete effectively — and thrive — in one of the most consequential procurement markets in the world.
