The Department of War (DoW) is moving to reduce government-unique accounting, audit, and compliance requirements as part of a broader effort to increase competition and expand participation in the defense industrial base.
A September 14 memo outlines several planned reforms, including a shift from Cost Accounting Standards (CAS) toward Generally Accepted Accounting Principles (GAAP). DoW also plans to propose making CAS exemptions the default, with remaining coverage focused largely on cost-based development contracts awarded without adequate competition. The Department will immediately apply higher CAS thresholds enacted under the fiscal year 2026 National Defense Authorization Act.
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Additional reforms include:
- Establishing commercial product and service determinations within 15 business days;
- Simplifying business-system requirements and allowing independent public accounting firm certifications to replace certain government reviews;
- Moving toward risk-based contract audits and reducing duplicative audit activity;
- Using cost and pricing information contractors already maintain rather than requiring new accounting systems or special data formats;
- Expanding the use of other transactions and advance market commitments; and
- Revising profit policy so negotiated margins consider factors such as value delivered, risk, and private capital invested.
Where adequate competition, comparable sales, or reliable price history exists, DoW plans to rely on market forces to establish pricing. Cost information would continue to be used when a functioning market does not exist.
The changes will be implemented on varying timelines over the coming months as DoW develops guidance and begins rulemaking for certain reforms.