DOW Proposes Significant Cost Accounting Changes to Streamline Contracting Activities

Sep 16, 2026

Author: Eric Hayman

This article was originally published on the Capital Edge website: https://capitaledgeconsulting.com/

On Monday, September 14, 2026, the Department of War (DOW) issued what appears to be a very forward-thinking memo seeking to further reform the Agency's acquisition processes, increase competition, and make doing business with the Government easier, less cumbersome, and arguably more attractive.

There's a lot to cover, so here are some initial takeaways on the main points. While the direction is clear - DOW wants to streamline its supplier relationships - turning these goals into reality will take work, and some uncertainty remains for now.

1. GAAP as a baseline accounting standard, CAS is the EXCEPTION

• GAAP becomes the default accounting standard, CAS is reserved for sole-sourced, cost-type contracts for major systems or research/development efforts
• CAS coverage and applicability attached to contracts, not the entire organization
• Continuing the harmonization of GAAP and CAS
• Revise the disclosure statement to align with GAAP financial reporting constructs

The majority of this is not new. GAAP is already required by 48 CFR 99 unless a more restrictive CAS specific requirement applies. CAS is GAAP compliant, it's simply a more robust, causal/beneficial, and project accounting focused view. It provides the Government insight into contractor costs which traditional, non-government focused organizations don't typically track. In addition, the CAS to GAAP harmonization efforts and increases in the statutory CAS thresholds are already significantly addressing this goal.

Further, CAS coverage is already applicable to Contracts, not contractors. This concept is not new, nor is the requirement to consistently estimate, accumulate, and report costs. The announcement makes clear DOW's desire to preserve this requirement. Retaining the consistency requirements with one contract will subject elements of CAS to the entirety of a business segment.

Lastly, Disclosure Statement revision is certainly welcomed, but aligning to "GAAP Financial Reporting Constructs" likely doesn't address the Government's concerns or desires regarding project reporting and insight into proposed or incurred costs, especially under those contracts which remain subject to CAS.

2. Streamline business systems

• Consolidate estimating, MMAS, and accounting system reviews into one-criterion.
• Leverage commercial best practices and retain only necessary compliance requirements (e.g. - Statutory estimating, inventory accuracy, consistency)
• Implement a "contract-level" ledger to meet applicable allowability rules
• Limit Earned Value Management to major development programs
• Eliminate separate property stewardship overlays. Rely on government-wide property stewardship duties and remedies, aligned with commercial best practices and tools
• Simplify reviews and issue a class deviation that accepts independent public accounting firm certification class deviation requirements in place of DCAA reviews

Overall, streamlining the evaluation of contractor business systems, relying upon financial statement audits is a good thing, as is revamping the business system rules and associated audits to focus on risk. Doing so will reduce unnecessary burdens on the Government and contractors. However, audited financials are concerned with "fair representation" of company performance. They provide investors and guarantors assurances that the published financials and representations contained within can be reasonably relied upon. The information and insights the Government would consider necessary to support Certified Cost or Pricing Data isn't something "audited financials" can generally provide.

Specifically, the Government is often looking for historical cost data, especially hours, units, quantities, etc. to support certified proposals. It's hard to envision a scenario where contractors would not be required to track this information by project, task order or delivery for use in follow-on pricing; and doing so likely requires significant overhauls to TINA/TCPD public law.

In addition, CAS, FAR 31, and the DFARS business systems rules already require "contract level ledgers". In short, these are a contractor's project subledgers where direct costs are identified to the project, and where indirect costs are allocated to the projects in a causal/beneficial manner. DOW makes clear its desire to enforce allowability and consistency rules in the memo. Applying those rules either through FAR 31 or CAS is likely the easiest way to achieve this desire and maintain a "Contract Ledger" reflective of both direct costs and equitably allocated indirect expenses.

3. Fixed price contracting as the default

• Reserve cost-reimbursement contracting for basic research and major system development only
• Require justification from Contracting Officers for any exceptions

Fixed price contracting is already the Government's current contracting preference. In the last 10+ years, industry has seen a significant shift away from cost-type contracting to more fixed priced or commercial arrangements. The key takeaway here is enforcement by means of justifying exceptions through the Undersecretaries. Cost-type contracts aren't going away, and we will likely see a fair number of exceptions for service-based contracts. This is especially true during times of conflict. The variability in needs, quantities, and durations generally introduce a level of performance risk most contractors have been unwilling to accept, and thus an FFP price level the Government has been unwilling to pay.

4. Freeze new CAS coverage until CASB acts

• No solicitation shall require Full CAS Coverage of a Business Unit for the first time, without written approval from the Secretary of Acquisition
• Contracting Officers must assess whether competition, commercial acquisition, fixed-priced contracting, or other exemptions or waivers can meet requirements

The DOW's desires here are well founded; open the market, acquire faster, make it easier and more attractive for companies to do business with the Agency/Government. However, it is difficult to see how a Class Deviation has the power or authority to overrule CAS and the public law requiring compliance.

Further, DOW can already limit CAS applicability to contracts through control of the acquisition process:

• Award under the CAS thresholds
• Award to small businesses
• Award commercially
• Award FFP contracts on a competitive basis

5. Fifteen (15) day commercial item determinations

• Commercial item determinations (CIDs) should be completed within 15 business days of request
• Prior determinations stand for subsequent procurements unless reversed in writing

There's some good stuff here, and some stuff that is old news. Speeding up CIDs is a good thing, but the Federal Government, regardless of agency, doesn't do things fast. Getting through the CID process in 15 days, with what is likely to be a ramp up in requests, is the equivalent of "light speed". The "once commercial, always commercial" position is nothing new, but consistent enforcement will be key to success. What remains unclear is how contactors will be empowered in holding different contracting officers accountable.

6. Risk-based audits

• DOW Contracting Officers and Auditors must consider audited GAAP statements and internal controls before DOW audit
• No reopening of closed years unless fraud or material misstatement indicated
• Every audit must identify risk, materiality, record needs, and why existing evidence is insufficient.

These goals are welcomed by the contracting community and are long overdue. However, as stated previously, "GAAP statements" likely don't address the Government's cost concern, or their desire for contract cost insights with relation to pricing, invoicing, etc. It remains to be seen how the Agency will achieve these goals, but based on other statements in the memo, one would expect the following to continue to be of interest:

• For non-commercial procurements, especially those which are cost-type or sole sourced, project accounting requirements will remain and be of interest
• Equitable, causal beneficial allocations methods will continue
• Accounting for labor and materials
• Consistency in estimating, reporting, and accumulation of costs
• Consistency in the treatment of like-kind costs
• Identification of, and proper accounting for unallowable costs

In all, DOW's vision for the future of contract procurement is welcome and needed to improve competition, to accelerate purchases and deliveries, and to expand the industrial base. These goals go a long way towards achieving the DOW's desired outcomes, but CAS isn't going away, at least not entirely. Initial review of the memo suggests many of fundamental tenants of the Standards, especially project accounting, consistency, and equity in allocation, remain fundamental to the Agency's goals; at least for the immediate future.