On August 4, 2025, the Defense Contract Audit Agency (DCAA) released a Memorandum for Regional Directors (MRD) on DFARS Business System Terminology. This MRD follows an MRD released on May 13, 2025 that referenced the January 17, 2025 DFARS 252.242-7005 terminology change from “significant deficiency” to “material weakness.” Notably, the August 4 MRD states that “[a] material weakness based on the new DFARS definition will generally represent a significant deficiency as previously defined by DFARS.” The MRD states that a contractor must have at least one covered contract that contains the DFARS 252.242-7005 clause for the revised terminology to apply to the business system audit. Stated differently, if a contractor has a DFARS 252.242-7005-covered contract, auditors are to use the “material weakness” terminology; otherwise, auditors are to use “significant deficiency” terminology.

The August 4 MRD can be found here.