IN Brief:
- A new US defence memorandum directs narrower use of government-specific cost-accounting and audit requirements.
- Commercial product and service determinations are to be completed within 15 business days under the implementation plan.
- The reforms also direct continuous competition, wider use of alternative acquisition mechanisms, and risk-based oversight.
The US Department of War has directed changes to defence procurement rules covering cost accounting, commercial-product determinations, audits, competition, and supplier participation, with senior acquisition organisations now required to implement a series of defined deadlines and approval controls.
The US Department of War set out the measures in a memorandum titled Fostering One Strong Industrial Base, signed by Deputy Secretary Steve Feinberg on 15 September. The document governs how contracting organisations request and use contractor cost information and how government-specific accounting and audit requirements are applied.
One of the principal changes is a direction to restrict government-unique Cost Accounting Standards to a narrower set of work while making greater use of Generally Accepted Accounting Principles already used by commercial companies. The department says the objective is to prevent individual government awards from forcing wider business units into specialised accounting structures where the underlying contract does not require that level of oversight.
The implementation appendix includes a planned department proposal to the Cost Accounting Standards Board that would make exemption the default and concentrate full coverage on cost-based development contracts awarded without adequate competition. Acquisition organisations are also instructed to use immediately the higher cost-accounting thresholds enacted in the 2026 National Defense Authorization Act.
Senior approval will be required before an acquisition strategy brings a new business unit under full cost-accounting coverage. That creates an additional review before government-specific accounting requirements can expand beyond an individual contract into a wider part of a supplier’s organisation.
Commercial purchasing receives its own timetable. Product and service determinations are to be completed within 15 business days, while business-system criteria are to be simplified and aligned more closely with commercial practice. The implementation plan also allows independent public-accounting certification to substitute for separate government review in some circumstances.
Audit activity is being directed towards a more explicitly risk-based model. Officials are told to use independent audits already undertaken by companies where appropriate, reserve government-specific scrutiny for work carrying sufficient risk, and avoid repeated examination of the same issue through overlapping government processes.
The memorandum differentiates between purchases where a functioning market provides pricing evidence and work where that evidence is absent. Competitive offers, comparable commercial sales, and reliable price history can provide a basis for market pricing, while sole-source or specialised development work may still require the government to examine cost information maintained by the contractor.
That distinction leaves substantial oversight in place for programmes where the customer has limited market evidence. Unique weapons development, nuclear work, highly specialised manufacturing, and other programmes with few potential suppliers present a different pricing problem from commercial software, electronics, logistics services, or dual-use equipment sold into several markets.
The policy therefore changes where the department intends to apply its more specialised controls rather than removing cost scrutiny from defence procurement. Companies may still be required to provide cost and pricing information, but the memorandum directs contracting organisations not to demand new accounting systems or special data formats merely because a supplier is selling to the government where existing information is sufficient.
Competition is another element of the implementation plan. Programme organisations are directed to maintain several performers through production where practical, place orders with suppliers that demonstrate delivery performance, and leave later opportunities open to competition instead of treating an initial award as an automatic path to all subsequent work.
Whether several sources can be sustained will vary considerably by programme. Production volume, qualification costs, tooling investment, intellectual property, infrastructure, and specialist workforce requirements can all determine whether maintaining competing suppliers is economically practical. The memorandum establishes the acquisition preference without resolving those programme-specific constraints.
The department is also directing expanded use of other transaction authorities and advance market commitments, mechanisms that can be used to bring companies into defence work without applying every feature of a conventional procurement from the outset. Individual programme offices will still have to determine whether those mechanisms are appropriate to the technology, competition, and risk involved.
Profit policy is included in the reforms. Negotiated margins are to take account of value delivered, risk carried, and private capital invested rather than being driven only by allowable cost. The instruction could affect negotiations with companies funding production capacity or technology development from their own balance sheets, although the resulting margins will continue to depend on individual contract circumstances.
The memorandum forms part of the department’s wider acquisition reforms and follows previous directions on fixed-price contracting and supplier transparency. It also states that information supplied by companies for authorised government purposes is not to be made available to another company for commercial use.
The department has instructed that no new organisation or compliance framework should be created to implement the changes, while implementing guidance may not add requirements beyond the memorandum and applicable law. That restriction makes execution dependent on existing acquisition, contracting, audit, and programme organisations changing how they apply current processes.
The practical effects will be measurable through individual procurements rather than the memorandum itself. Commercial determinations completed within the stated timetable, use of existing independent audits, changes in accounting coverage, the number of suppliers competing for defence work, and the treatment of cost data on specialised programmes will show how consistently the policy is being applied across the industrial base.
