The Defense Department is moving to replace many government-unique contractor accounting requirements with commercial standards as part of a broader effort to increase competition, reduce compliance burdens, and accelerate acquisition.
In a memo signed Sept. 14, Deputy Defense Secretary Steve Feinberg directed the department to shift from cost accounting standards (CAS) toward generally accepted accounting principles and extend that approach through the defense supply chain.
The implementation plan sets deadlines ranging from days to months for senior defense officials to narrow specialized cost-accounting oversight, speed commercial product and service determinations, simplify business-system reviews, make contract audits risk-based, and revise the department’s profit policy.
“Selling to the Department of War should be a line of business, not a corporate identity,” Feinberg said. “Our nation’s greatest strength is its private sector, and our defense industry must harness and mimic it – unleashing industry first, and protecting taxpayers by confining our most burdensome oversight tools to the narrow set of work that genuinely demands them.”
Under the Trump administration, the DOD was rebranded as the War Department.
Under Feinberg’s directive, the department will ask the Cost Accounting Standards Board to make exemption from CAS the default and largely confine remaining coverage to cost-based development contracts awarded without adequate competition. Until the board acts, an acquisition strategy that would bring a previously uncovered business unit under full CAS coverage will require senior-level approval.
The changes implement President Donald Trump’s April 30 executive order, which established fixed-price contracts with performance-based considerations as the default and preferred method for federal procurement and requires justification for non-fixed-price contracts, including cost-reimbursement contracts.
The memo also calls for the department to immediately apply higher CAS thresholds enacted in the fiscal year 2026 National Defense Authorization Act.
For commercial acquisitions, the department is directed to establish a process within 45 days that provides commercial product and service determinations within 15 business days after receiving a complete request. The memo also calls for simplified, commercially aligned business-system criteria that would allow certification from registered independent public accounting firms to replace separate government reviews.
The department will also make contract audits risk-based and avoid duplicating work that has already been completed unless there are indicators of fraud or material misstatement. Contracting officials are directed to use cost and pricing information that contractors maintain in the ordinary course of business rather than requiring new accounting systems or special data formats.
“Transparency and partnership runs both ways: the Department opens its buying to market forces, pays fair prices with honest margins, and in exchange industry shares, when asked, the cost and pricing information it already keeps,” Feinberg said.
Where competition, comparable sales, or reliable price history exists, the department said it will rely on the market to establish prices. Where no functioning market exists, contracting officials may use cost information drawn from company records.
The directive also calls for expanded use of other transaction authority and advance market commitments as the department seeks to bring more commercial and nontraditional suppliers into defense acquisition.
Within 90 days, the department plans to begin rulemaking to revise its profit policy so negotiated margins reflect the value delivered, risk carried, and private capital invested rather than cost alone. The memo also directs defense officials to clarify contract-oversight roles, eliminate duplicated responsibilities, and establish performance measures for the reform effort.