Who pays for DMSMS resolutions?

Blue Water Components · October 19, 2026

When a part goes obsolete, someone has to pay to fix it, whether that means a last-time buy, an alternate part, or a redesign. Who pays depends on the contract. There is no single default: the government chooses how to fund DMSMS resolutions, and SD-26 (June 2026) gives program offices example contract language for splitting that cost between the government and the contractor.

This page explains the funding options in SD-26, the new guidance on prefunding, how cost avoidance is counted, and why finding problems early is the cheapest option for everyone. Quotations are from SD-26 (June 2026), with printed page numbers, available from the DLA ASSIST document index.

The short answer

SD-26 states the starting point plainly: "The government can choose how best to fund resolutions. Ultimately, costs are generally passed on to the customer, but the government may choose to put some responsibility on the contractor in hopes of achieving greater efficiency or performance" (p. 20). In other words, the government usually pays in the end, but a contract can make the contractor responsible for some or all resolution costs.

The three SD-26 funding options: Requirements 22a, 22b, and 22c

SD-26 offers three illustrative requirements (p. 20). In 22a and 22b, the contractor reports proposed resolutions to the government and waits for approval before implementing them.

• Requirement 22a: the contractor pays for smaller resolutions. SD-26 summarizes it as: "The contractor is responsible for the cost of minor changes (Class II ECPs) below $1 million" (p. 20). The guide notes that the program office can change the threshold.
• Requirement 22b: the contractor pays for everything approved. "Upon approval, the contractor is responsible for all costs associated with the resolution" (p. 20).
• Requirement 22c: used in sustainment. It "mirrors 22a except for the $1 million ceiling. There is no cost ceiling in 22c" (p. 20). The contractor funds resolutions below Class I changes, and the government is responsible for Class I changes "except as proposed by the contractor in its RFP response and accepted by the Procuring Contracting Officer" (p. 22).

Class I changes affect an item's form, fit, or function, and are typically the expensive ones, such as redesigns. That is why the dividing line matters: under 22a and 22c, the contractor carries routine resolutions while major changes go back to the government.

Prefunding: closing the gap for major changes

The 2026 revision adds guidance on prefunding. SD-26 notes that "Both requirements 22a and 22c leave funding gaps for major changes (Class I ECPs). One strategy to fund these gaps efficiently is to strategically prefund the contract with resolution funds" (p. 20).

To size that fund, SD-26 points to data from Requirements 21 (research and analysis of resolutions), 14 (case management and reporting), and 23 (program and budget information), which can support estimates of the funding needed for known and forecasted DMSMS issues. It adds that authorization to use the funds "is implied if the government directs the contractor to implement a proposed resolution, the cost of which is not covered by the contract," and that a DMSMS management team (DMT) with both government and contractor members is needed for the process to work (p. 20).

Other parties in the picture

Subcontractors and suppliers usually carry obligations through flow-down. When a prime's contract includes DMSMS requirements, SD-26's illustrative language has the prime flow down DMSMS management requirements and case reporting to its subcontractors. Whether a subcontractor pays for a resolution depends on its own subcontract terms.

Resolution ideas can come from anywhere. SD-26 says cost-effective resolutions "may be proposed by any combination of the three entities: the government, the prime contractor and its subcontractors, or an independent DMSMS SME" (p. 20). It also says the government "must provide the necessary programmatic and logistics data, cost factors, and product roadmaps" to enable accurate cost-benefit analyses.

Cost avoidance: how savings are counted

DMSMS programs often report cost avoidance: the difference between the resolution actually chosen and a more expensive one that would otherwise have been needed. SD-26's illustrative case reporting language asks for the cost of each solution and the cost avoided, with cost avoidance "determined based on guidance from the program office or, if none is provided, the method described in the SD-22" (p. 11). Agree on the method with your program office early so the numbers are comparable.

Proactive vs. reactive: why early detection costs less

Reactive DMSMS management waits until a part is discontinued or unavailable and then scrambles for a fix. By then, the cheaper options, like a last-time buy or a drop-in replacement, may be gone, leaving a redesign. Proactive management finds at-risk parts early, while there is still time to choose a low-cost resolution and budget for it.

SD-26 reflects this. Its Foreword says proactively managing DMSMS and PM&P "drives decreased life cycle costs, increased readiness, and reduced supply chain vulnerabilities" (p. iv). Its source selection language favors designs with "minimal items with life cycles ending in less than 5 years and mitigation plans in place for the items with short life cycles" (p. 8). Whoever ends up paying, knowing the short-life parts before you bid makes the cost easier to plan and price. See our guide to SD-26 predictive tools and design health, or start with a free pre-bid BOM health check.

Frequently asked questions

Sources

• SD-26, DMSMS and PM&P Management Contracting Guide (June 2026), DLA ASSIST
• SD-22, Diminishing Manufacturing Sources and Material Shortages: A Guidebook of Best Practices for Implementing a Robust DMSMS Management Program (March 31, 2024)

SD-22 and SD-26 are DSPO guidance. Blue Water Components is not affiliated with or endorsed by DSPO or the Department of Defense.