Pentagon Wants a Direct Line Into Contractors' Books: What the New DoD Pricing Memo Means for Industry

A memo signed this week by Deputy Secretary of War/Defense Stephen Feinberg signals one of the more potentially consequential shifts in defense pricing policy in years. The directive, addressed to senior Pentagon leadership and the directors of the military services and defense agencies, calls for a "reset" of the Department's expectations around contractor cost and pricing data and floats a tool that would let the Pentagon reach directly into contractors' financial systems to get it. This, coupled with the broader push to fixed-price contracts, would push contractors to take all of the financial risk in contracts without a potential upside.

What the Memo Says

The memo directs the warfighting acquisition workforce to secure "full transparency" into cost and pricing information at every tier of the supply chain, from prime contractors down through subcontractors. That expectation applies to negotiations for products and services valued at $10 million or more, regardless of whether the contract action actually triggers the statutory requirement to submit certified cost or pricing data.

Among the specific directives:

• Contracting officers must have access to actual cost information at both the prime and supplier level for covered contract actions.
• The Department intends to establish "fair and reasonable" contract profit margins by applying commercial best practices tailored to each product or service line.
• Acquisition personnel are directed to close out the backlog of delinquent Cost and Software Data Reporting (CSDR) submissions, which the Department says has left gaps in its ability to evaluate program performance.
• Perhaps most notably, the Under Secretary of Defense for Acquisition and Sustainment is directed to explore an automated, API-based solution that would pull cost data directly from contractors' enterprise resource planning and other financial systems-a machine-to-machine connection intended, in the memo's words, to reduce industry's regulatory burden and compliance costs.

Feinberg was careful to frame the effort as pro-competition rather than punitive, stating that the Department "does not intend to limit profitability when contractors realize efficiencies after negotiating a fair and reasonable price based on a realistic baseline."

The Timing Is Not a Coincidence

This memo lands just months after Congress moved in the opposite direction. The fiscal year 2026 National Defense Authorization Act raised the threshold for submitting certified cost or pricing data from $2.5 million to $10 million for contracts awarded after June 2026, a change industry had pushed for and generally welcomed as meaningful regulatory relief.

The new memo does not reverse that statutory threshold, but it does something functionally similar: it extends the Department's expectation of "full transparency" to the same $10 million level "regardless of whether cost and pricing data require certification." In practice, contractors who assumed the higher threshold would mean less exposure to detailed cost scrutiny may find that the underlying data demands have simply been reasserted through policy rather than statute.

Why This Should Get Contractors' Attention

For government contracts attorneys and contracting professionals, a few pieces of this memo deserve particular scrutiny.

1. A Direct Pipeline Into Financial Systems Raises Real Data and Security Questions

The API concept is the headline item. Giving the Department machine-to-machine access to a contractor's ERP or financial systems is a fundamentally different posture than periodic, negotiated submissions of cost data. Even with careful scoping, contractors will want clarity on:

• What data fields the API can actually reach, and whether access can be technically limited to relevant cost elements rather than the full financial system.
• How the government will secure that data once it is pulled, particularly given the volume of recent DoD cybersecurity mandates (CMMC among them) aimed at protecting exactly this kind of sensitive business information.
• Whether competitively sensitive or proprietary information, including indirect rate structures and overhead allocations, is adequately walled off from acquisition personnel outside the pricing function.
• How this expectation flows down to subcontractors and lower-tier suppliers, many of which lack the dedicated compliance infrastructure that large primes maintain (and a potential unwillingness to share this kind of data).

2. Undefined Standards for "Fair and Reasonable" Profit

The memo commits to applying "commercial best practices tailored to each product or service line" in setting profit margins, but does not yet define what that means in practice. Until implementing guidance narrows this standard, contractors face uncertainty about how consistently-and how aggressively-individual contracting officers and program offices will apply the standard across different commodities and services.

3. Increased Compliance Burden, Especially Down the Supply Chain

The memo frames the API approach as reducing industry's regulatory burden, and a well-built automated interface could indeed replace some of the manual, labor-intensive submissions contractors currently prepare. But standing up the systems and internal controls needed to support that kind of direct access and to make sure it is properly scoped is itself a burden, and one that will fall hardest on subcontractors and smaller suppliers with thinner compliance staffs.

4. More Data in Government Hands Means More Exposure Under the False Claims Act

Greater visibility into actual cost data, provided in closer to real time, gives the Department more to compare against what was represented during negotiations. Discrepancies that might once have surfaced only through an audit or a formal cost or pricing data review could now be flagged much sooner, and any gap between represented and actual costs is precisely the kind of fact pattern that can support a False Claims Act theory. Contractors should expect increased scrutiny of internal cost estimating and accounting systems as this policy matures.

5. Competitive and Trade Secret Concerns

Contractors have long been sensitive about the government's ability to see and potentially use detailed cost and pricing information in future negotiations or competitions. A standing, automated feed of that information heightens those concerns, particularly for companies whose pricing reflects proprietary efficiencies or trade secrets they would not otherwise disclose. This would be especially true if the Department utilizes support contractors to analyze the data.

What's Next

This memo is a policy directive, not a rulemaking, and the API tool in particular is described as something the Department will "explore," not something that is imminent. Even so, contractors (particularly primes with complex, multi-tier supply chains) should not wait for a formal rule before engaging:

• Review current cost accounting and estimating systems for readiness under closer government scrutiny.
• Track how individual contracting officers and program offices begin applying the $10 million transparency expectation in ongoing negotiations.
• Watch for implementing guidance further defining "fair and reasonable" profit margins and "commercial best practices."
• Engage early, including through industry associations, on the scope and security architecture of any API-based data solution before it is finalized.
• Assess flowdown implications for subcontractors and suppliers who may need support navigating new expectations they are not equipped to meet alone.

Hunton will continue to monitor implementation of this memo, including any proposed rules or further guidance from the Office of the Under Secretary of Defense for Acquisition and Sustainment, and will provide updates as the Department's approach takes shape. Visit Hunton for additional updates.