What's Happening?
On September 14, 2026, Deputy Secretary of War Stephen Feinberg issued a memorandum and an accompanying appendix to reform acquisition requirements within the Department of War (DoW). This initiative aims to strengthen the defense industrial base by making
defense acquisition more commercially oriented and less reliant on government-specific accounting and oversight. Key changes include a shift from Cost Accounting Standards (CAS) to Generally Accepted Accounting Principles (GAAP), with proposals to the CAS Board to make CAS exemption the default for many contracts. The memorandum also directs reforms to accelerate acquisition transformation, scale advance market commitments, improve efficiency, reduce administrative burden, limit audits, streamline business system reviews, and increase the use of commercial contracting and other transaction authority (OTA) agreements. These reforms build upon prior policymaking, including Executive Order 14402, issued on April 30, 2026. The DoW will also prohibit its components from imposing 'shadow CAS' on CAS-exempt awards and transactions, ensuring that cost data from exempt performers is requested as already maintained in their books and records.
Why It's Important?
These reforms are significant for the U.S. defense industrial base, aiming to reduce barriers for commercial companies to engage with the Department of War. By moving towards GAAP and making CAS exemption the default, the DoW seeks to lower compliance burdens and align oversight with commercial practices, potentially attracting a broader range of innovative businesses. This shift could foster greater competition and efficiency in defense contracting, leading to more advanced and cost-effective solutions for the military. The emphasis on advance market commitments is designed to de-risk private capital investment in defense technologies, encouraging manufacturers to invest in capacity by guaranteeing purchases at set prices. This approach could accelerate the development and deployment of critical defense capabilities. Furthermore, streamlining commercial acquisitions and limiting audits are expected to reduce administrative overhead for contractors, making it more appealing for commercial entities to participate in defense projects. The reforms also aim to push decision-making authority to portfolio-level executives, which could lead to faster program decisions affecting contractors.
What's Next?
Many of the reforms outlined in the memorandum will require additional agency action and development, and the proposed CAS reforms will necessitate action by the CAS Board. The DoW plans to submit proposals to the CAS Board within 60 days to make CAS exemption the default and confine remaining CAS coverage to specific types of contracts. Until the CAS Board acts, no solicitation from the DoW that could bring a business unit not previously subject to CAS under full CAS coverage may be issued without written approval from the Under Secretary of War for Acquisition and Sustainment. The Under Secretary of War for Acquisition and Sustainment has seven days to issue a Department-wide modular open systems approach (MOSA) policy and the Portfolio Acquisition Executive (PAE) Operating Framework. Component Acquisition Executives will have 120 days to implement delegated PAE authorities. The Director of the Defense Innovation Unit, with support from the Under Secretary of War for Acquisition and Sustainment, has 180 days to structure additional advance market commitments. The DoW will also conduct an inventory of acquisition requirements imposed below the FAR and Defense Federal Acquisition Regulation Supplement within 90 days, suspending or eliminating those without proper justification.
Beyond the Headlines
The shift towards commercial practices and reduced government oversight in defense acquisition could have profound long-term implications for the relationship between the U.S. government and the private sector. By making it easier for commercial companies to work with the Department of War, these reforms could blur the lines between traditional defense contractors and commercial innovators, potentially fostering a more dynamic and integrated industrial base. This could lead to faster adoption of cutting-edge technologies from the commercial sector into military applications, enhancing national security. However, it also raises questions about the balance between efficiency and accountability, as reduced oversight might necessitate new mechanisms to ensure taxpayer money is spent wisely and that defense capabilities meet stringent quality and security standards. The initiative to aggregate U.S. and international partner requirements into single advance market commitments could also reshape global defense supply chains and foster stronger alliances through shared industrial base policies.
