The Pentagon is scrapping the government-only bookkeeping rules that have governed defense contracts for more than five decades, telling contractors they can instead run their books the same way commercial companies do. Deputy Secretary of War Steve Feinberg signed a memo dated September 14-15, 2026, titled "Fostering One Strong Industrial Base," directing the Department of War to move from the government-unique Cost Accounting Standards to commercial Generally Accepted Accounting Principles.

The shift affects every company that holds or bids on a negotiated defense contract subject to CAS, from prime contractors managing dozens of cost centers to mid-tier suppliers who have long complained that maintaining a parallel, government-only set of books drives away commercial firms that would rather not bother with defense work at all.

Why Feinberg Wants Defense Contractors on GAAP

CAS was built in the 1970s to give the government a uniform way to measure and allocate contractor costs on negotiated contracts, but it requires companies to track costs differently for the Pentagon than they do for every other customer. Feinberg's memo argues that duplicate bookkeeping discourages commercial and non-traditional companies from working with the Department of War. "The Department of War must buy faster, simpler, and more competitively to get speed and volume," Feinberg said, according to Washington Technology's coverage of the memo. In a separate statement to ExecutiveGov, he framed the change as an attempt to close the gap between defense contracting and the rest of the economy: "Our nation's greatest strength is its private sector, and our defense industry must harness and mimic it."

The memo does not stand alone. It builds directly on two final rules the OMB Cost Accounting Standards Board published in the Federal Register on September 1, 2026, both effective October 1, 2026. One rescinds CAS 407, the standard governing use of standard costs for direct material and direct labor, eliminating three-quarters of its individual requirements because GAAP already covers the same ground. "GAAP now contains codified content in these areas very similar to the requirements contained in CAS 407," the Board wrote in the rule, adding that "this final rule eliminates 12 of the 16 individual requirements contained in CAS 407, retaining only the minimal content the Board identified as needed." The second rule raises the dollar thresholds that trigger CAS coverage and expands agencies' authority to waive it.

The 30-60-90 Day Deadlines in the Memo

Feinberg's memo sets a cascading timeline rather than an immediate switch. Within 30 days, the Department of War must stop imposing what the memo calls "shadow CAS" requirements — informal practices that mimic CAS obligations without being written into the standards themselves — and issue a joint enforcement-posture statement confirming that contractors can keep the efficiency savings they generate on fixed-price work rather than having those savings clawed back through cost adjustments.

Within 60 days, the department must publish criteria letting a contractor's GAAP certification substitute for a government business-system review, cutting out one of the recurring audits that CAS-covered contractors currently undergo. Within 90 days, the department must open a DFARS rulemaking to write a new profit policy that rewards "value delivered, risk carried, and private capital invested" rather than the current cost-based profit formulas, and it must sunset any procedural requirement that is not tied to a specific legal authority. The memo also redirects oversight so it attaches to individual contracts instead of entire companies, and it leans more heavily on contractors' existing independent audits rather than government-run reviews.

Why Analysts Call It Early-Stage, Not a Finished Reform

Acquisition specialists who track CAS reform describe the memo as a significant policy signal that still has to survive the slower process of rulemaking and contract-by-contract implementation. David Berteau, a longtime industry analyst, told Federal News Network that "this is a huge step, but it's going to be a long journey between this memo and actually implementing it in contracts." Rich Brady of the Society of Defense Financial Management offered a similarly measured read, treating the memo as a directional commitment rather than a completed transition. Both specialists point to the same underlying reason for caution: CAS has been embedded in contract clauses, disclosure statements, and audit procedures for decades, and unwinding it touches thousands of active contracts negotiated under the old rules, not just new awards signed after October 1.

That caution tracks with the mechanics of the rulemaking itself. The CAS 407 rescission and threshold changes are final rules with a fixed effective date, but Feinberg's memo is a policy directive that depends on the department actually meeting its own 30, 60, and 90-day deadlines, and then on DFARS rulemaking — which involves proposed rules, public comment periods, and final rules — to lock in the new profit policy. Existing CAS-covered contracts do not automatically convert to GAAP-based accounting on October 1; the rule changes apply going forward and through the department's implementation choices under the memo.

What It Means for Contractors

Companies currently maintaining CAS-compliant cost accounting systems should not tear them down yet, but they have a clear signal about where the department is headed. Contractors bidding on new work, especially fixed-price and performance-based contracts, stand to gain the most in the near term: the enforcement-posture statement due within 30 days is specifically meant to let them keep cost savings instead of losing them to downward price adjustments, and commercial companies weighing whether to enter the defense market for the first time have one less argument for staying out.

Finance and contracts teams should watch the 60-day deadline closely, since a GAAP-certification substitute for business-system reviews would change how companies allocate audit and compliance resources — potentially reducing the government-review burden for firms that already carry clean commercial audits. The 90-day DFARS rulemaking on profit policy is the piece most likely to reshape contract economics over time, since a profit formula built around risk and invested capital rather than allowable cost would favor contractors that take on fixed-price risk or invest their own capital in production capacity, and could put cost-plus-heavy contractors at a relative disadvantage once the new formula is finalized. Given the multi-year implementation runway analysts describe, contractors have a window to weigh in during the DFARS comment process rather than treating the memo as already final policy.

Sources