The landscape of federal defense contracting has undergone its most significant shift in decades.
On December 18, 2025, the President signed the National Defense Authorization Act (NDAA) for Fiscal Year 2026 into law. While NDAAs are an annual tradition, the 2026 iteration is not merely a budget authorization; it is a manifesto for the Warfighting Acquisition System.
At the heart of this reform lies a sweeping overhaul of the Cost Accounting Standards (CAS). For fifty years, CAS has served as the bedrock of government pricing integrity, ensuring that the taxpayer pays a fair price based on consistent accounting practices. However, in an era of rapid technological disruption and geopolitical competition, the rigidity of CAS has often been cited as a barrier to entry for the very innovators the Department of Defense (DoD) needs most.The 2026 NDAA seeks to resolve this tension. By dramatically raising thresholds, decoupling regulatory triggers, and restructuring the CAS Board itself, the Act aims to trade a portion of granular oversight for the speed of relevance.
Death of the Trigger Contract: Raising the Individual Threshold to $35 Million
Perhaps the most disruptive change in the 2026 NDAA is the increase in the individual contract threshold for CAS applicability. For years, the magic number was $2.5 million. If a contractor received a negotiated award above this amount, and they already had a trigger contract of $7.5 million or more, they were thrust into the world of modified CAS coverage. The 2026 NDAA obliterates this low bar.
The Act raises the individual CAS contract threshold from $2.5 million to $35 million. This is not a marginal adjustment for inflation; it is a 1,300% increase designed to exempt the vast majority of small and mid-sized contracts from the administrative weight of CAS compliance. Historically, the trigger contract mechanism meant that once a contractor landed a single $7.5 million CAS-covered contract, all subsequent contracts over $2.5 million were also pulled into the CAS net. By raising the floor to $35 million, Congress has effectively eliminated this trap for mid-tier firms. A company can now manage a portfolio of $20 million and $30 million defense contracts without being forced to implement the rigorous (and expensive) disclosure statements and accounting changes required by CAS.
Expanding the Modified Zone: The $100 Million Full Coverage Threshold
While the $35 million floor protects smaller entrants, the 2026 NDAA also provides relief for established defense contractors. Full CAS coverage – which requires compliance with all 19 Cost Accounting Standards – previously kicked in when a contractor received a single CAS-covered award of $50 million or more, or if the net total of CAS-covered awards in a cost accounting period exceeded $50 million. The 2026 NDAA doubles this threshold to $100 million. This change creates a massive buffer zone between $35 million and $100 million. Contractors in this range will only be subject to Modified CAS, which requires compliance with only four of the nineteen standards:
- CAS 401: Consistency in Estimating, Accumulating, and Reporting Costs.
- CAS 402: Consistency in Allocating Costs Incurred for the Same Purpose.
- CAS 405: Accounting for Unallowable Costs.
- CAS 406: Cost Accounting Period.
By keeping contractors under Modified CAS for longer, the government reduces the need for complex Disclosure Statements and the continuous monitoring of Cost Accounting Practice Changes that haunt the compliance departments of larger firms.
Decoupling TINA and CAS: The $10 Million Pivot
For decades, the threshold for CAS was loosely tied to the threshold for Truthful Cost or Pricing Data (formerly known as TINA). The 2026 NDAA formally decouples these, recognizing that certified data and accounting standards serve different masters. Section 1804 raises the TINA threshold from $2 million to $10 million. This creates an interesting regulatory window.
Contracts between $10 million and $35 million will now require the submission of certified cost or pricing data, but they will not be subject to CAS. For the contractor, this is a significant win. While they must still justify their price with truthful data at the time of the proposal, they are not obligated to follow the rigid CAS-prescribed methods for how those costs are eventually accumulated or reported in their books. This provides the flexibility to use modern, commercial-style ERP systems that may not be CAS-compliant in the traditional sense but are more than adequate for business operations.
Reforming the CAS Board: Independence and Expertise
The 2026 NDAA doesn’t just change the rules; it changes the referees. Section 1806 mandates a structural overhaul of the Cost Accounting Standards Board (CASB). In a move that sparked significant debate during the conference committee, the Act declares that, effective January 1, 2028, members of executive agency audit entities – specifically the Defense Contract Audit Agency (DCAA) – are ineligible to serve as members of the CAS Board. The rationale is independence.
Congress argued that the body setting the standards (the CASB) should be distinct from the body enforcing them (DCAA). By removing auditors from the Board, the 2026 NDAA seeks to ensure that CAS standards are written with a focus on accounting theory and industry reality rather than audit ease.
The CAS Board will now report directly to the Office of Management and Budget (OMB) rather than the Office of Federal Procurement Policy (OFPP). This elevation signals that cost accounting is no longer viewed as a niche procurement sub-specialty, but as a critical component of national fiscal policy and industrial base health.
Administrative Relief: The Aggregate Cost Rule for Fixed-Price Contracts
One of the most persistent pain points for defense contractors has been the governments ability to recover increased costs when a contractor changes its accounting practices. Historically, if a contractor made a change that increased costs on one contract but decreased them on another, the government often tried to cherry-pick – the increase without allowing the offset. The 2026 NDAA introduces a landmark protection for Fixed-Price Contracts, Fixed-price contracts shall be excluded from federal government recovery of increased costs in the aggregate resulting from cost accounting practice changes.
This provision is a major victory for administrative efficiency. It eliminates the need for the exhaustive Cost Impact Proposals that can take years to negotiate. If a contract is firm-fixed-price, the government has already agreed to a price; under the new law, the government can no longer reach back into that price simply because the contractor updated its overhead allocation method. This encourages contractors to modernize their accounting systems without the fear of a contract price adjustment penalty.
The Innovation Incentive: Nontraditional Defense Contractors (NDCs)
The ultimate goal of the 2026 NDAA is to entice Nontraditional Defense Contractors—tech startups, Silicon Valley giants, and commercial manufacturers – to work with the Pentagon. The Act expands the definition of an NDC to include entities that have not performed a CAS-covered contract within the preceding year. Under Section 1826, these companies are granted a CAS Holiday. They are exempt from nine specific DFARS clauses related to business system administration and, crucially, are treated as commercial entities unless a specific waiver is signed. This allows a software company with a proprietary AI algorithm to sell to the DoD at a $40 million price point without having to re-engineer its entire accounting department to satisfy 1950s-era cost standards.
Strategic Implications: What Contractors Must Do Now
The 2026 NDAA represents a Grand Bargain. The government is relaxing its grip on how costs are accounted for, but in return, it expects faster delivery and more competition. Mid-Tier Contractors hovering just below the $50 million mark now have a much longer runway before they hit full CAS coverage. This is the time to invest in growth. The $100 million ceiling allows for significant expansion without the immediate need for a Tier 1 compliance department.
Large Prime Contractors must urgently review their subcontractor flow-down procedures. With the TINA threshold at $10 million and the CAS threshold at $35 million, many subcontracts that previously required CAS flow-downs no longer do. Failing to update these flow-downs could result in over-compliance, making the primes supply chain more expensive and less agile than their competitors.
The Compliance Professional role is shifting from policeman to strategist.
The 2026 NDAA requires a deep understanding of the gaps between the $10M TINA threshold and the $35M CAS threshold. Professionals must be able to guide their firms through this unregulated space while still ensuring that prices remain fair and reasonable to avoid False Claims Act risks.
Conclusion: A New Era of Defense Compliance
The 2026 NDAA’s impact on Cost Accounting Standards is nothing short of revolutionary. By raising the thresholds to $35 million and $100 million, Congress has acknowledged that the cost of oversight must not exceed the value of the insight gained. While the fundamental principles of consistency and transparency remain, the compliance tax on innovation has been significantly reduced.
For the first time in a generation, the Cost Accounting Standards are no longer a wall designed to keep people out, but a gate designed to let the best technology in.
As the implementing regulations are rolled out over the next 180 days, the defense industrial base must move quickly to capitalize on this newfound flexibility.
The race for 2026 has begun, and the winners will be those who can balance the rigors of accounting with the requirements of the modern warfighter.
