On September 14, 2026, the Deputy Secretary of War issued a memorandum, “Fostering One Strong Industrial Base,” directing a sweeping overhaul of how the Department of War (DoW) handles contractor cost and pricing. For contractors long burdened by Cost Accounting Standards (CAS) compliance, this is worth reading closely.

CAS Is on Its Way Out, GAAP Is Coming In

The memo directs DoW to move away from government-unique CAS requirements toward Generally Accepted Accounting Principles (GAAP)—the standard every American company already uses. No new accounting systems or special data formats will be required, and DoW commits to using any cost data it collects only for the specific pricing action it was requested for, never sharing it with competitors. Within 60 days, DoW must submit proposals to the Cost Accounting Standards Board (CASB) to make CAS exemption the default, limiting remaining CAS coverage to sole-source, cost-based development or incentive-fee work, and ensuring coverage attaches to specific contracts rather than entire business units.

Fixed Price Is Now the Default

Building on Executive Order 14402, the memo reinforces that where a market exists — competition, comparable sales, reliable price history — the market sets the price, and cost-based contracts are reserved largely for basic research and major system development. Contractors should expect fewer cost-reimbursement vehicles outside those categories.

Interim Protection for Contractors

Until the CASB acts, no DoW solicitation that would bring a business unit under full CAS coverage for the first time may be issued without written approval from the under secretary of War for Acquisition and Sustainment — and that official must justify why competition, commercial acquisition, or existing exemptions cannot meet the need instead.

Other Notable Directives Affecting Contractors

• Business-systems consolidation: Estimating-system and material-management reviews will merge into simplified, GAAP-aligned criteria, and a class deviation will let a registered independent public accounting firm’s certification substitute for DoW’s own business-system review.
• Earned value management: EVM will be confined to major development and high-risk production programs.
• Purchasing and audits: Purchasing-system review thresholds will rise, and audits will become risk-based. DoW will weigh a contractor’s audited GAAP statements before requiring additional work and will not reopen closed years or re-audit already-audited systems absent fraud indicators.
• Profit policy: DFARS rulemaking (due within 90 days) will rewrite profit policy so that contractor margins reflect value, risk, and invested capital rather than just incurred cost.
• Efficiency assurance: A companion policy will let contractors who become more efficient against a fixed price keep the savings on that contract, so that DoW captures efficiencies only in future contracts — minimizing post-hoc accounting disputes.
• Supplier transparency: Contracting officers will retain authority to look through primes to subcontractors, but implementing procedures (due within 30 days) will require obtaining price information first, will limit cost-data requests to the form contractors already keep, and will prohibit automated access to contractor systems without express contractual authorization.
• OT agreements: Other transaction agreements will become easier to use, with faster timelines and a broadened definition of meaningful participation for non-traditional players.

Why This Matters Now

The memorandum is effective immediately and sets aggressive deadlines — many actions are due within 30, 60, or 90 days. Contractors should watch for the CASB proposals, the DFARS profit-policy rulemaking, the business-systems class deviations, and the supplier-transparency implementing procedures, since each will translate broad policy into binding contract terms. Companies currently subject to full CAS coverage, or negotiating forward-pricing rate agreements, should also track how DCMA and DCAA reshape those processes under the new GAAP-based approach.

This is a policy memorandum, not new law; actual contract terms will likely change only as FAR/DFARS rulemakings and class deviations are issued. Contractors should consult counsel before relying on these directions for specific compliance decisions.

If you have any questions about the foregoing or require assistance, please do not hesitate to contact Aron Beezley or Nathaniel Greeson.