On September 14, 2026, the Department of War signed "Fostering One Strong Industrial Base," a memo that moves defense contracting from government-unique Cost Accounting Standards (CAS) toward Generally Accepted Accounting Principles (GAAP). A few pieces took effect on signature. Most of it is deadlines, class deviations, and a proposal to the CAS Board that has not happened yet.
I spent eighteen years in federal acquisition as a Contracting Specialist and Contracting Officer at GSA, IRS, DoD, DOI, HHS, FTC, and Energy. Below, from the memo and appendix and the war.gov release: what is real today, what is planned, and what it does not touch.
What did the September 14, 2026 Department of War memo actually do?
Deputy Secretary of War Steve Feinberg directed the Department to accept GAAP-based accounting "to the maximum extent the law permits," confine CAS to a narrow set of sole-source, cost-based work, and rely on audits and financial controls companies already maintain. The memo is effective on signature, but most actions carry 30- to 180-day deadlines.
- Accounting baseline: GAAP, with CAS reserved for work where cost-based pricing genuinely requires it.
- Cost data: requested in the form the contractor already keeps. The memo says no new accounting systems or special data formats will be required.
- Pricing: where a market exists, the market sets the price; cost data is for major sole-source work.
- Contract type: it implements Executive Order 14402, which makes fixed-price the default.
Which changes are effective now and which are only planned?
Only a handful of actions bind the Department today: applying the higher CAS thresholds from the FY2026 NDAA, requiring senior approval before new full CAS coverage, and requiring a written material-risk determination before discretionary business-system reviews. Everything else is a directed deadline or a proposal that still needs guidance, rulemaking, or CAS Board action.
| Action | Status | Who / when |
|---|---|---|
| Apply increased CAS thresholds from FY2026 NDAA section 1806, plus statutory relief for nontraditional defense contractors | Effective now | USW(A&S), "immediately" |
| No DoW solicitation that could bring a business unit newly under full CAS coverage without written USW(A&S) approval of the acquisition strategy | Effective now | Decision within 15 business days or elevated |
| Discretionary business-system review requires a written determination of specific, material risk | Effective now | Cognizant contracting activity |
| Prohibit "shadow CAS" on exempt awards and other transactions | Planned | Within 30 days |
| Commerciality determinations within 15 business days of a complete request | Planned | Direction due within 45 days |
| CAS waiver policy and justification templates; proposals to the CAS Board | Planned | Within 60 days |
| Accept independent public accounting firm certification in place of DoW business-system review | Planned | Criteria and class deviation within 60 days |
| Consolidate business systems, confine earned value management, raise purchasing-system review threshold | Planned | Within 90 days |
| DFARS profit-policy rulemaking | Planned (starts the rulemaking only) | Initiate within 90 days |
What the policy says versus how a CO actually works: until the class deviation or DFARS change lands in your solicitation, your Contracting Officer is bound by the clauses in front of them. A press release does not remove a clause from your contract.
What happens to Cost Accounting Standards coverage?
CAS does not disappear. The CAS Board, not the Department of War, controls the rules at 48 CFR Chapter 99. The memo tells DoW to submit proposals within 60 days to make exemption the default and attach coverage to specific contracts rather than whole companies. Until the Board acts, current CAS applicability rules still apply.
The proposals the Under Secretary of War (Comptroller) is directed to send the Board:
- A class exemption making exemption the default, with coverage limited to cost-based development contracts of major scale awarded without adequate price competition.
- Coverage that attaches to the covered contract and its material indirect-cost pools, with no entity-, segment-, or flowdown-level attachment.
- Finishing the CAS-to-GAAP conformance begun with the Board's July 8, 2026 final rule.
- A short-form Disclosure Statement certifying that contract cost accounting follows audited GAAP financial statements.
Today, CAS applicability and exemptions still live in 48 CFR Part 9903, and administration lives in FAR Part 30. Small business awards are already exempt from CAS under 48 CFR 9903.201-1. For small firms, the value is protection against CAS creeping in through a prime's flowdown.
What is "shadow CAS" and why should small contractors care?
"Shadow CAS" is my shorthand for CAS-equivalent requirements imposed on an award that is legally exempt from CAS. The memo directs the Department, within 30 days, to prohibit components from imposing CAS coverage, disclosure, business-system review, or practice-change governance "under another name" on exempt awards and other transactions.
As a Contracting Specialist at DoD, I watched this happen through local checklists and "standard" data requests that no regulation required. A small firm-fixed-price performer would get disclosure-style requests copied from a large cost-type program. The memo attacks that pattern:
- No shadow CAS: exempt performers provide cost data only as already kept in their books and records.
- Basis for every requirement: within 90 days, every recurring review, checklist, or data demand below the FAR and DFARS must cite its authority. Uncited items are suspended for new use and lapse unless reaffirmed within 30 days.
- No recreated regimes: components may not rebuild a retired requirement through local policy, checklists, approvals, or clauses.
How will DCAA audits and contractor business systems change?
The memo shifts oversight toward audits contractors already pay for. Within 60 days, DoW must consider audited GAAP financial statements and internal-control attestations before doing more audit work, and must stop re-auditing costs or systems already audited or reopening closed years absent indicators of fraud or material misstatement.
| Area | Today | Direction in the memo |
|---|---|---|
| Accounting system | Reviewed against DFARS 252.242-7006 criteria | Simplified, commercial-aligned criteria; estimating and MMAS requirements folded in and their separate reviews retired |
| Business-system review | Government review by DCMA/DCAA | Registered independent public accounting firm certification accepted in place of DoW review |
| Earned value management | Broad application with separate system validation | Confined to major development programs and certain major production programs |
| Purchasing-system review | Existing FAR threshold | Threshold raised; reviews reserved for demonstrated risk |
The memo also tells contracting officers to offer bilateral, no-cost modifications removing affected clauses at the next practicable opportunity. The Defense Contract Audit Agency (DCAA) is not going away: final indirect-rate settlement and fraud and defective-pricing remedies are expressly preserved.
What does this mean for commercial and nontraditional contractors?
If you sell a commercial product or service, the biggest near-term win is speed. The memo directs commerciality determinations within 15 business days of a complete request, and a prior DoW determination stands for later buys unless a head of contracting activity reverses it in writing.
- Commercial pricing: contracting officers may still request cost data on commercial buys, but only when price, market, and sales data are insufficient to set a fair and reasonable price.
- Certified cost or pricing data: the memo says twice that it does not change the thresholds or exceptions. The commercial exception in FAR 15.403-1 still controls.
- Profit: for fixed-price contracts and OTs where you carry cost risk, a joint enforcement statement will confirm you keep efficiency savings on that contract; DoW captures them only in the next negotiation.
- Waivers: a CAS waiver policy with standing templates is due within 60 days for new entrants, predominantly commercial segments, and businesses outgrowing small-business size.
That last bullet matters. From the Contracting Officer seat, the most painful call I made was telling a growing small business that its first large full-and-open award would pull it into CAS. The waiver templates are aimed squarely at that moment.
What does the memo NOT change for GSA Schedule and OASIS+ contractors?
This is a Department of War memo. It does not amend the FAR, the GSAR, or GSA policy. Your GSA Multiple Award Schedule pricing is still built on commercial sales practices and price analysis, and OASIS+ cost-reimbursement task orders still require an adequate accounting system under FAR 16.301-3.
| Area | Changed by this memo? | Why |
|---|---|---|
| GSA MAS commercial pricing and Price Reductions Clause | No | Governed by FAR Part 8, GSAR 538.270, and GSAR 552.238-81, which the memo does not touch |
| OASIS+ cost-reimbursement task orders | No | FAR 16.301-3 accounting-system condition still applies; the memo leaves cost-allowability rules for cost-reimbursement work intact |
| Certified cost or pricing data thresholds | No | The memo states it does not alter the thresholds or exceptions |
| CAS rules in 48 CFR Chapter 99 | Not yet | Only the CAS Board can change them; DoW is sending proposals |
| Existing DoD contract clauses | Not automatically | Removed by bilateral no-cost modification when offered |
Across our 70+ GSA contract awards, I have seen contractors hear "commercial accounting" and assume Schedule compliance got lighter. It did not. Your Commercial Sales Practices disclosures and Price Reductions Clause tracking customer are unchanged.
What should you do now?
Do not change your accounting system or drop any clause based on this memo alone. Inventory what you are subject to today, keep complying with current contract terms, and position yourself to accept the bilateral modifications and faster commerciality decisions as they arrive over the next 30 to 180 days.
- Map your CAS status: list every DoW prime and subcontract, the CAS clause and coverage level in each, and any CAS-like flowdowns on awards that should be exempt.
- Gather your evidence: audited GAAP financials, internal-control attestations, and prior DCAA reports.
- Prep commerciality requests: once the 45-day direction issues, a complete request gets a 15-business-day clock.
- Challenge uncited data demands: after the 90-day annotation deadline, ask the CO for the authority behind any recurring checklist or data request.
- Leave your GSA MAS and OASIS+ compliance alone: CSP disclosures, Price Reductions Clause monitoring, and cost-type accounting-system adequacy are unchanged.
I hold FAC-C Level III and a Harvard Master of Liberal Arts. If you are a commercial or nontraditional firm deciding whether to pursue DoW buyers directly, through a GSA Schedule, or through a prime, talk to us about your federal sales strategy and we will map the path that fits your accounting reality.
Frequently Asked Questions
Did the Department of War eliminate Cost Accounting Standards?
No. The memo moves toward GAAP and directs proposals to the Cost Accounting Standards Board to make CAS exemption the default, but only the Board can change the rules in 48 CFR Chapter 99. Until it acts, current CAS applicability rules still apply.
What parts of the September 14, 2026 memo are effective immediately?
The memo is effective on signature. The immediate actions are applying the higher CAS thresholds from section 1806 of the FY2026 NDAA, requiring written USW(A&S) approval before a solicitation brings a business unit newly under full CAS coverage, and requiring a written material-risk determination before discretionary business-system reviews. Most other items carry 30- to 180-day deadlines.
Does the memo change certified cost or pricing data thresholds?
No. The memo states that it does not alter the thresholds or exceptions for certified cost or pricing data. The commercial product and service exception in FAR 15.403-1 still applies.
Does this memo change GSA Schedule pricing requirements?
No. It is a Department of War memo and does not amend the FAR, GSAR, or GSA policy. GSA MAS pricing still relies on Commercial Sales Practices disclosures and the Price Reductions Clause at GSAR 552.238-81.
Do OASIS+ cost-reimbursement task orders still require an adequate accounting system?
Yes. FAR 16.301-3 still conditions cost-reimbursement contracts on an accounting system adequate for determining costs. The memo expressly leaves cost-allowability requirements for cost-reimbursement work in place.
Will DCAA still audit defense contractors?
Yes. The memo makes audits risk-based: DoW must first consider audited GAAP financial statements and internal-control attestations, and should not re-audit costs or reopen closed years absent indicators of fraud or material misstatement. Final indirect-cost-rate settlement on cost-reimbursement work and fraud and defective-pricing remedies are preserved.
How fast will commercial item determinations happen under the new memo?
The memo directs, within 45 days, that commercial product and service determinations be completed within 15 business days of a complete request. A prior DoW determination stands for later procurements unless a head of contracting activity reverses it in writing.