On Sunday, December 7, the House released its updated draft of the Fiscal Year 2026 National Defense Authorization Act (NDAA). Beyond the surprise evidence of Congress working over a weekend in December, the updated draft includes several noteworthy changes to the Cost Accounting Standards (CAS) that have been in the works for years, most notably as recommendations of the Section 809 panel from 2019. If these changes can make their way into the final signed bill, federal contractors will see a landmark shift in compliance and oversight requirements that may be the most significant results to date of the current administration’s efforts to remake the defense acquisition process.
Key Changes to CAS
Section 1806, Matters Related to Cost Accounting 4 Standards, would implement the following changes to applicability of CAS, CAS administration, and the makeup of the CAS Board itself.
- Increase the full CAS applicability threshold from $50 million to $100 million. This would significantly decrease the amount of contractors with contracts subject to full compliance with all CAS and Disclosure Statement requirements.
- Increase the CAS contract threshold from $2.5 million to $35 million. This would significantly decrease the amount of contract actions that would be subject to the CAS without impacting the government’s access to cost or pricing data to support fair and reasonable price negotiations.
- Fixed price contracts shall be excluded from federal government recovery of increased costs in the aggregate resulting from cost accounting practice changes. This greatly simplifies the administrative process for contractors making cost accounting practice (CAP) changes and determining cost impacts. This would also help to address issues that have been in dispute for decades on what constitutes “aggregate increased costs” for multiple simultaneous CAP changes and offsetting impacts for a single change across varying contract types.
- Members of executive agency audit entities, e.g., DCAA, are ineligible to serve as members of the CAS Board. Effective Date – January 1, 2028.
- CAS Board will report to the Office of Management and Budget (OMB) rather than the Office of Federal Procurement Policy (OFPP).
These much-anticipated changes will relieve many contract actions from compliance with the often-onerous CAS requirements while maintaining coverage over the vast majority of federal acquisition dollars in the defense industry. The CAS committee that supported the 809 Panel and developed these recommendations has expressed satisfaction with the adoption of these changes in the NDAA. Steve Trautwein of Forvis Mazars served on the committee as one of two government representatives and expressed the view that the changes were long overdue and a significant step in the right direction to achieving the kinds of acquisition results so essential to U.S. national security.
What’s Next for Cost Accounting Standards?
This draft of the NDAA identifies different timelines for the implementation of the above changes to applicable regulation, generally stating a timeline of “not later than 180 days after the enactment of this Act.” Assuming this is signed before January 1, 2026, this would require implementation of these updates by June. However, if history is any indication, we should expect to see these changes applied as class deviations from the Department of War (DOW) sooner rather than later. The most recent example of a significant increase in the CAS threshold stemmed from the 2018 NDAA, which was signed December 12, 2017. This updated the CAS contract applicability threshold (and Truthful Cost or Pricing Data threshold) from $750,000 to $2 million, and DOD issued a class deviation to the Defense Federal Acquisition Regulation Supplement (DFARS) on April 13, 2018, with an effective date for the change of July 1, 2018.
Will the effective date for applying these new thresholds follow a similar pattern of July 1, 2026? If so, will agencies and upper-tier contractors delay awards to suppliers to bypass CAS applicability? Can contracts be amended to remove CAS applicability based on these new thresholds? Will DCAA update its guidance to auditors for calculating cost impacts resulting from unilateral CAP changes? Will the CAS Board’s updated composition and reporting structure accelerate efforts to update the standards?
How Forvis Mazars Can Help
We’re eager to see what comes next, as all of these changes will have to make their way into the final version of the 2026 NDAA and signed into law by the president before we can start the clock. At Forvis Mazars, our government contract consulting team is keeping our ears to the ground to stay up to date and bring the latest information to our clients. Contact us to prepare for these cost accounting changes.