On December 18, 2025, President Trump signed the 2026 National Defense Authorization Act (NDAA). There are many significant elements of the bill aimed at streamlining the defense acquisition process. The goal is to eliminate barriers to entry and attract more companies to join the Defense Industrial Base. For example, the NDAA increases thresholds for requiring certified cost or pricing data to $10 million. The NDAA also increased the Cost Accounting Standards (CAS) thresholds to $35 million for modified CAS contracts and $100 million for full CAS. In addition, many sections of the NDAA are drafted to reduce barriers and burdens for contracts awarded using commercial pricing.
Most professionals agree that these threshold increases should significantly reduce oversight and administrative burdens. However, Section 1826 Exemptions for nontraditional defense contractors (NDCs) possibly dwarfs all of these other streamlining and procurement reform sections of the NDAA. The NDAA states that NDCs are exempt from the cost principles in Federal Acquisition Regulation (FAR) Part 31, Defense Federal Acquisition Regulation Supplement (DFARS) business system requirements, and Truthful Cost or Pricing Data requirements (formerly known as TINA). The goal is to enhance innovation and investment and create incentives for NDCs to do business with the Department of Defense (DoD).
While the threshold updates mentioned above will require updates to regulation in the coming months, primarily by June 30, 2026, the applicability of exemptions for nontraditional defense contractors took effect on the date the 2026 NDAA was signed into law.
What Is an NDC?
10 USC §3014 established the definition of “nontraditional defense contractor.” This definition is cited in the NDAA and has also been incorporated into the DFARS. An NDC is a broad classification that includes any “entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation … any contract or subcontract for the [DoD] that is subject to full coverage under the cost accounting standards ...”
Essentially, any contractor that hasn’t performed under a contract subject to full CAS within the past year is an NDC. In July 2025, a study by George Mason’s Baroni Center for Government Contracting estimated that more than 90% of the defense industrial base qualifies as nontraditional defense contractors.1
What Does §1826 Specify?
Section 1826 does not beat around the bush. In straightforward language, for DoD contracts, subcontracts, or agreements, NDC products and services shall be exempt from:
- The DFARS business systems rule and all requirements of the six DFARS business systems:
- Accounting
- Estimating
- Purchasing
- Earned value management
- Material management and accounting
- Property management
NDCs are also exempt from certification of cost or pricing data under the requirements of Truthful Cost or Pricing Data and FAR Part 31 Contract Cost Principles and Procedures.
The NDAA also provides that NDCs are exempt from DFARS 215.407, which includes:
- Defective certified cost or pricing data
- Make-or-buy programs
- Forward pricing rate agreements
- Should-cost review
- Estimating systems
Section 1826 provides that these statutory exemptions may be waived in whole or in part by the head of the relevant contracting activity through a written determination. This means a waiver would be needed to reincorporate any or all of the above requirements into a contract award to an NDC. This waiver requirement may be delegated to a senior contracting official for the relevant contracting activity or a more senior official. The written determination must include a justification explaining why the application of the waived requirements is in the best interest of the federal government. If a waiver is issued, Congress must be notified within 60 days and include a discussion of efforts made to adapt the acquisition approach to avoid the need for a waiver.
What’s the Significance?
While §1826 is sweeping in scope, the conceptual foundation is not new. In the mid-1990s, Congress passed the Federal Acquisition Streamlining Act (FASA) to allow the government, including the DoD, to acquire goods and services using streamlined procurement methods used in the commercial marketplace and exempt these contracts from certified cost or pricing data, FAR Part 31 cost principles, and the CAS.
In 2018, updates to the DFARS included the clauses 252.215‑7013 Supplies and Services Provided by Nontraditional Defense Contractors and 252.215-7010 Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data. These clauses established that nontraditional defense contractors may be treated as providing commercial products or commercial services and exempt from requirements of certified cost or pricing data.
Defense Pricing and Contracting (DPC) issued a memo in May 2024 reinforcing the application of these clauses and encouraging the continued participation of NDCs in the Defense Industrial Base (DIB). The memo tells Contracting Officers (COs) to obtain a statement from the offeror that they meet the statutory definition of an NDC as the basis for an exemption. The memo closes by explaining that COs are to use their discretion about the treatment of NDCs at both the prime and subcontractor levels.
The challenge NDCs have faced has been the reluctance of COs and, by extension, prime contractor purchasing groups, to accept a contractor’s status as an NDC to relieve the need for detailed cost and pricing estimates to document fair and reasonable price negotiation. While the expectation is that commercial pricing can be justified as reasonable based on market research and pricing for non-governmental sales rather than cost estimates, commercial contract price analysis and negotiation may still rely on data other than certified cost or pricing data. This data can include identical details as FAR Table 15-2 cost estimates for certified cost or pricing data, just without the certification.
The responsibility to justify awards of fair and reasonable pricing for commercial products and services can push COs into an approach of “more information is better” and “better safe than sorry” when applying their discretion to request cost estimate information, even in support of commercial purchases. Upper-tier contractors and their purchasing groups are often more conservative than COs in applying commercial acquisition practices to NDC subcontracts due to genuine concerns over perceived risks to the adequacy of their purchasing systems. However, the resource and time requirements associated with detailed cost analysis are counter to the goals of streamlining and accelerating the acquisition process for the DoD.
Section 1826 clearly reinforces the application of streamlined commercial acquisition procedures for products and services provided by NDCs. The statute makes these exemptions explicit and broadly applicable to any contract, subcontract, or agreement involving an NDC. More significantly, it represents a shift in responsibility for purchasing groups from justifying the basis for an exemption to these requirements to justifying the application of any FAR Part 31, DFARS business system, or Truthful Cost or Pricing Data requirements through a waiver process.
The default expectation is that NDCs are exempt until determined otherwise, rather than relying on the discretion of the CO to apply an exemption to use commercial contracting methods.
What’s Next?
Section 1826 raises many questions that will need to be answered through guidance to DoD COs and their procurement teams. As this guidance is provided, we can expect to see significant changes in the way the DoD awards contracts to NDCs. Contractors will be curious to see how frequently the waivers to incorporate the exempted requirements will be used. But here are some nuanced questions we hope will be addressed through further guidance:
- If NDC products and services are exempt from FAR Part 31 cost principles and accounting business system requirements that are necessary cost reimbursement contract types, will NDCs be considered ineligible for cost reimbursement contracts without a waiver from the head of the contracting activity?
- If an NDC is defined as an entity not currently performing or having performed under a contract subject to full CAS within the past year, will there be an avenue by which an NDC may be subject to CAS in the future?
- Contractors not subject to the DFARS business systems clause can still be subject to Defense Contract Audit Agency (DCAA) accounting system audits and administrative contracting officer (ACO) determination of accounting system inadequacy, making them ineligible for cost reimbursable contract awards under FAR 16.301-3. Does this change the auditability of NDC business systems or the authority of COs to determine business system inadequacies for NDCs?
- Will the need to justify price reasonableness for products and services from NDCs under commercial procurement procedures result in any real changes to how buyers may request data other than certified cost or pricing data and the performance of cost analysis in support of negotiation?
- Requirements of Truthful Cost or Pricing Data are intended to provide government customers access to information that puts them on level footing when negotiating fair and reasonable pricing with contractors. Will exemption from these requirements for more than 90% of the DIB result in significantly higher prices paid by the federal government for these products and services?
- Will the civilian agencies be far behind the DoD in implementing similar changes?
One thing we can expect is that changes will not happen overnight. COs that have been trained to request cost estimates at the outset of any buying activity will require retraining. Purchasing teams at contractors will likely wait for the Defense Contract Management Agency (DCMA) to lead the way with these changes through additional guidance before implementing their own changed practices. But NDC contractors and subcontractors can point to §1826 of the 2026 NDAA as a basis in public law to push back on application of Truthful Cost or Pricing Data, FAR Part 31, or DFARS business systems requirements in contract awards to NDCs going forward.
We are following this topic closely and will provide additional FORsights™ as new guidance and other developments arise. If you have any questions, please do not hesitate to reach out to a member of the GovCon Consulting team at Forvis Mazars.
- 12025 Government Contracting Trends and Performance Index,” gmu.edu, July 2025.