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Editor-in-Chief, Washington Technology
The Defense Department is making moves to scrap traditional government-unique cost accounting rules in favor of the standards that commercial industries commonly use.
A Sept. 14 memo from Deputy Defense Secretary Steven Feinberg – Fostering One Strong Industrial Base – directs the Pentagon to ask the Cost Accounting Standards Board to make the Cost Accounting Standard the exception rather than the rule.
DOD will instead require companies to comply with the Generally Accepted Accounting Principles or GAAP, which is the standard used across commercial industries.
The initiative is tied to the April executive order on fixed-price contracting – Promoting Efficiency, Accountability and Performance in Federal Contracting. The memo also addresses the 2026 National Defense Authorization Act, which asked for DOD to find ways to relieve the CAS burden.
“The Department of War must buy faster, simpler, and more competitively to get speed and volume,” Feinberg wrote.
Once implemented, the move away from CAS will free contractors from maintaining two separate accounting systems.
The memo called CAS requirements “invasive oversight.”
“Where there is a market — competition, comparable sales, reliable price history — the market sets the price. Where there is no market – major sole-n from a company’s existing records,” Feinberg wrote
The move away from CAS has been championed for many years with limited success.
“A lot of us have been arguing for years that the cost accounting standards are, except in increasingly rare circumstances, an artifice of times past. So, to the extent they are really going to finally recognize that in policy, that’s a very positive step,” one industry observer told WT.
The memo also recognizes that old habits are hard to break and some DOD contracting offices may look for CAS-like data from their contractors, which the memo calls “shadow CAS.”
To prevent this, the memo bans components from imposing CAS-equivalent requirements on contracts even if they are called something else.
The memo sets out several deadlines:
Within 30 days, components must stop using shadow CAS.
- Within 60 days, components must publish criteria letting a registered independent public accounting firm’s GAAP certification stand in for government business-system review.
- Within 90 days, every procedural requirement below the FAR/DFARS must be tied to a specific legal authority or it automatically lapses unless a component acquisition executive reaffirms it.
- Within 90 days, a DFARS rulemaking will begin on a new profit policy rewarding “value delivered, risk carried, and private capital invested” rather than cost incurred alone.
The memo also directs the Defense Contract Audit Agency and the Defense Contract Management Agency to cooperate in establishing forward pricing rate agreements that will draw on data “maintained in the ordinary course of business.”
A second industry observer said some companies worry that DOD will try to police profits even in commercial and fixed-price contracts. These concerns stem from Feinberg’s August memo on pricing transparency and profits.
The memo tries to address those concerns in the appendix of the memo and requires what it calls a “joint enforcement-posture statement” in 30 days. The memo applies to fixed-price contracts and other transactions.When the contractor bears the cost risk and the contractor becomes more efficient against the negotiated price, the contractor “keeps the savings for that contract.”
DOD will try to capture those efficiencies “in the next negotiation,” according to the memo.
The provision will not apply to cost-reimbursement contracts.
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