On September 14, 2026, Deputy Secretary of War Stephen Feinberg issued a memorandum and an accompanying appendix focused on strengthening the defense industrial base by reforming acquisition requirements related to a wide range of issues, including accounting standards, efficiency, government oversight, procedural requirements, audits, pricing, and more. Building on prior policymaking, including Executive Order 14402 (April 30, 2026), this memorandum directs agency actions aimed at making defense acquisition more commercially oriented and less dependent on government-unique accounting and oversight regimes.
Among other things, the memorandum directs the Department of War (“DoW”) to shift away from the Cost Accounting Standards (“CAS”) and increase its reliance on the Generally Accepted Accounting Principles (“GAAP”), including by advancing CAS coverage reform at the CAS Board. The memorandum further directs a number of other reforms related to accelerating acquisition transformation, scaling advance market commitments, improving efficiency, reducing administrative burden, limiting audits, streamlining business system reviews, and increasing the use of commercial contracting and other transaction authority (“OTA”) agreements.
Highlights include:
CAS Changes
The most noteworthy provisions of the memorandum and appendix address CAS, cost and pricing information, and DoW’s relationship with the CAS Board.
Proposal to “Confine” CAS Coverage
The memorandum states that “DoW will submit proposals to the CAS Board within 60 days to make CAS exemption the default, confine remaining CAS coverage to sole-source, cost-based development or incentive-fee procurement, and ensure CAS applies only to relevant contracts and not companies as a whole” (emphasis added). Although CAS already applies at the contractual level (as opposed to the “company” level), the proposal to make CAS exemption “the default” and to apply CAS only to a subset of currently covered contracts could be significant, assuming that the proposal is accepted and implemented by the CAS Board, which is responsible for promulgating CAS regulations.
Additional details regarding the contents of this proposal are set forth in the appendix, which states that:
- DoW will request a “class exemption” from the CAS Board to make CAS apply only to “cost-based development contracts of major scale awarded without adequate price competition.” Notably, although the CAS Board has authority to issue class-wide waivers to CAS (and the memorandum references that authority), the proposed change could potentially be interpreted as inconsistent with the intent of the CAS statute, which generally applies CAS to “all” contracts above the specified monetary threshold (currently $35 million), subject to certain exemptions (including for commercial contracts) or to waivers issued by the CAS Board or on an individual contract basis by the acquiring agency.
- DoW will request that coverage “attach[] to the covered contract and the indirect-cost pools material to it, with no entity-, segment-, or flowdown-attachment.” This change, if implemented, would likely require significant changes to both the CAS regulations and the Federal Acquisition Regulation (“FAR”).
- DoW will request “completion of the CAS-to-GAAP conformance begun with the July 8, 2026, final rule, so that GAAP is the baseline and government-unique requirements survive only where cost-based pricing specifically demands them.” On this point, it bears mention that the CAS Board has already rescinded five of the seven CAS standards it previously identified as duplicative of GAAP (see more details in our previous blog post here).
- DoW will request a “modernized Disclosure Statement” consisting of “a short certification that contract cost accounting follows the contractor’s annual GAAP financial statements, audited by a registered independent public accounting firm, supplemented only by legally required disclosures, with a schedule of departures, in a machine-readable, versioned electronic submission format.” This, too, would require changes to the existing regulations (as well as to the current Disclosure Statement form).
Other CAS Changes
Additionally, under the heading “CAS containment within existing authority,” the appendix directs three other immediate actions:
- DoW is to “immediately” apply the increased thresholds for CAS coverage established by Section 1806 of the FY2026 National Defense Authorization Act, which raised the threshold for contract coverage to $35 million and the threshold for “full” coverage to $100 million. (This is not a significant change: the increased CAS thresholds were already implemented for DoW by a July 30, 2026 DFARS Class Deviation, which likewise took effect “immediately,” and the CAS Board issued a Final Rule that implements the threshold changes into the CAS regulations, effective October 1, 2026.) Relatedly, DoW is directed to establish a formal policy and “standing justification templates” for the individualized, contract-level waivers that may be issued under 48 U.S.C. § 1502(b)(3) and 48 C.F.R. § 9903.201-5. This latter change is directed toward standardizing (and perhaps making greater use of) the existing CAS waiver authority for certain types of businesses, specifically “new entrants, predominantly commercial segments, and businesses outgrowing small-business classifications.”
- DoW is ordered to “prevent shadow CAS,” meaning that DoW components will be prohibited from imposing on CAS-exempt awards and other transactions the equivalent of “CAS coverage, disclosure, business-system review, or practice-change governance under another name.” Moreover, cost data from exempt performers will be requested as already maintained in their books and records.
- As noted above, DoW will send the CAS Board a proposal to circumscribe the existing coverage regime. At the same time, “[u]ntil the Board acts, no solicitation from the DoW that could bring a business unit not previously subject to CAS under full CAS coverage may be issued unless the Under Secretary of War for Acquisition and Sustainment has approved the acquisition strategy in writing.” Any requests for such approval “must assess competition, commercial acquisition, competed fixed-price structures, exemptions, and existing waiver authority, and explain why none can meet the requirement.” This is a change only to acquisition strategy and does not change the substantive law of CAS applicability. It also bears mention that this policy directive does not provide any relief to business units that already hold contracts subject to CAS; it is only a restriction on future business activity by DoW.
Accelerating Acquisition Transformation
This tasker is the shortest fuse in the appendix, and deliberately so. Where most of the appendix implementation actions run on 30-, 60-, and 90-day clocks, the Under Secretary of War for Acquisition and Sustainment (“USW(A&S)”) has seven days to issue a Department-wide modular open systems approach (“MOSA”) policy and the Portfolio Acquisition Executive (“PAE”) Operating Framework, with its addendum of authorities recommended for delegation to PAEs. The compressed timeline signals that these documents are essentially complete—the remaining step is release, not development—and reflects the sequencing logic driving acquisition transformation since Secretary Hegseth’s November 7, 2025 memorandum requiring the development of a commercial-first strategy, and the Acquisition Transformation Strategy that followed. Together, the three policies form a single architecture: commercial-first governs what the Department buys, MOSA governs how it is built and sustained, and the PAE construct governs who decides.
For industry, the PAE authorities addendum is the document to watch. The appendix makes the recommended authorities the default for the Military Departments and requires each Component’s implementation plan to delegate them within 120 days, subject to narrow exceptions. Paired with the MOSA policy, the practical effect is to push decision authority to portfolio-level executives to ensure that applicable statutory MOSA objectives are met in planning and conducting particular procurements. The result is a meaningful shift in where, and how quickly, program decisions affecting contractors will now be made.
Scaling Advance Market Commitments
This is the one tasker in the appendix about economics rather than the DoW acquisition process. The Director of the Defense Innovation Unit—with USW(A&S) support, including Defense Production Act (“DPA”) authorities if needed—has 180 days (~ March 13, 2027) to “structure additional advance market commitments, including aggregated allied demand consistent with the America First Arms Transfer Strategy[.]”
The DPA reference is not incidental. Section 303 of the DPA permits purchases of, and commitments to purchase, an industrial resource or critical technology item—a statutory offtake authority built for exactly this purpose.
This concept is well known outside the defense industry—manufacturers and lenders have used it for years. Rather than fund development and hope a market appears, the buyer promises up front to purchase a set quantity at a set price if the product delivers. This purchase commitment is the incentive—it de-risks private capital, justifies investment in capacity, and in markets too fragile or nascent to produce one on their own, puts a public price on the table that both incumbents and new entrants can plan against. The appendix attaches two limits to DoW use of the tool: payment follows delivered performance and scale, not promises, which keeps this a purchase commitment rather than a subsidy; and the commitments remain bounded by existing appropriations and fiscal law.
This provision complements the memorandum’s broader objectives: reforms to CAS, business system reviews, and other requirements lower the cost of selling to DoW; advance market commitments raise the payoff. The Department’s Drone Dominance initiative is offered as the proof of concept.
The reference to allied demand bears watching as well. Aggregating U.S. and international partner requirements into a single commitment may change the calculus for a supplier weighing a second production line and ties industrial base policy to foreign military sales policy in a way vendors and their foreign partners should track.
Improving Efficiency and Reducing Administrative Burden
Limiting Audits
The appendix directs the Department to consider a contractor’s audited GAAP financial statements and internal-control attestations before performing additional auditing work, and to refrain from reopening closed years without indicators of fraud or material misstatements.
Streamlining Commercial Acquisitions
The appendix seeks to accelerate the Department’s acquisition of commercial products and services by requiring commerciality determinations within 15 business days of a complete request and by requiring that prior DoW commerciality determinations remain effective for subsequent procurements unless reversed in writing. The appendix also limits requests for cost information in commercial acquisitions, permitting them only when available price, market, and sales data do not support a fair and reasonable price determination. Together, these changes seek to reduce barriers to commercial participation and expand DoW’s use of commercial acquisition authorities.
Eliminating Non-Statutory Acquisition Requirements by Requiring a Basis for Requirements
Other reforms within the appendix aim to reduce the administrative burden involved in acquisition by reducing or eliminating the number of procedural requirements that must be followed. The appendix directs the USW(A&S) to conduct a complete inventory of acquisition requirements imposed below the FAR and Defense Federal Acquisition Regulation Supplement and, within 90 days, tie each requirement to a specific legal, regulatory, or policy authority. Requirements lacking a proper justification will be suspended for new use and will ultimately be eliminated unless the relevant Component Acquisition Executive reaffirms the requirement within 30 days. Going forward, DoW may not impose new procedural requirements without expressly identifying their legal or regulatory basis.
Reforming Contractor Business System Oversight
The memorandum will significantly restructure DoW’s contractor business systems regime to reduce compliance burdens and align oversight more closely with commercial practices. It directs the Department to consolidate existing estimating-system and material-management-and-accounting-system requirements into simplified accounting-system criteria aligned with commercial practices; narrow earned value management requirements to major development and certain production programs; reduce government property oversight by relying on government-wide FAR property-stewardship duties and remedies rather than a separate review overlay; and expedite review of contractor corrective action plans by imposing a 90-government-day clock. The appendix also prohibits Components from recreating retired oversight regimes through local policies, checklists, approvals, or contract clauses and instructs contracting officers to offer bilateral no-cost modifications removing affected clauses as soon as practicable.
The memorandum aims to simplify business system reviews, including by requiring the Department to issue a class deviation allowing contractors to demonstrate compliance through third-party certifications rather than government-led business systems reviews. Together, these reforms shift oversight away from government-unique review processes and toward greater reliance on commercial accounting and auditing practices.
Other Transaction Authority Reforms
The Other Transactions Guide (and interim policy) will be revised to, among other things, (1) define a nontraditional defense contractor’s “‘participati[on] to a significant extent’” in an OTA “as any unique contribution material to the prototype project, without percentage-of-workshare or dollar thresholds as eligibility tests”; (2) “direct[] follow-on production planning in every prototype OT”; and (3) “publish pre-approved findings templates and a 10-business-day signature standard for exceptional-circumstances determinations,” which appears to refer to the provision in 10 U.S.C. § 4022(d)(1)(D) that allows for waiver in “exceptional circumstances” of the statutory requirements for nontraditional defense contractor participation or cost share. As to the revision regarding follow-on production planning, it is unclear what that will mean and how it may impact analysis of protest jurisdiction over OTAs at the U.S. Court of Federal Claims.
Conclusion – What Comes Next
Many of the reforms contemplated in the memorandum will not take effect immediately; most will require additional agency action and development, and DoW’s CAS reforms will require action by the CAS Board. We will continue to monitor implementation efforts as they develop. Although the agency has not formally solicited comments, there may be opportunities for industry to engage with DoW to provide constructive feedback during the limited window prior to implementation. DoW has set aggressive implementation timelines, and typically, the agency is most receptive to input provided early in the policy development process that is framed as advancing, rather than opposing, the agency’s stated objectives. Our team is well-positioned to assist in formulating a strategy for engaging with the Department.