Consistent with Executive Order 14372, Prioritizing the Warfighter in Defense Contracting, the DoW released a memorandum dated August 10, 2026 that expands the review of contractor facilitization costs on sole source acquisitions. A prior DoW memo dated May 4, 2026 stated that facilitization costs include both direct and indirect expenses for long-term, non-recurring investments in physical assets to improve, expand, or maintain operational capacity or increase production quantity. According to the May 4 DoW memo, the following cost elements and directly associated expenses are generally considered facilitization costs: capital equipment purchases, special tooling and test equipment, facility investments and plant rearrangements, rental costs, real property, manufacturing and production development costs, gains and losses on disposition of depreciable assets, and parts obsolescence, where the increased costs do not result in improved performance or producibility.

Effective immediately, the DoW established the following thresholds for sole source peer reviews related to facilitization costs:

• Sole source actions greater than $50 million and less than $500 million will follow a streamlined peer review process focused on key pricing elements such as facilitization costs, prime and major supplier historical costs incurred, and resultant realized profits on prior efforts. 
• Sole source actions greater than or equal to $500 million and less than $1 billion will follow the peer review approach currently required by DFARS and Procedures, Guidance, and Information (PGI) 201.170.

Read the August 10 DoW memo.

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HKA’s Government Contracting Group