Government Contracts
National Defense Authorization Act for Fiscal Year 2026
20th November 2025
On December 18, 2025, President Donald J. Trump signed into law the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2026. The NDAA authorizes funding for the U.S. Department of Defense (DoD) and establishes the defense budget. This federal law, which authorizes over $900 billion for national defense, includes several noteworthy provisions:
- Section 1806 – Matters Related to Cost Accounting Standards (CAS): Describes changes that may profoundly impact how CAS is applied, including changes to CAS applicability, composition of the Cost Accounting Standards Board (CAS Board), and how cost impact calculations resulting from changes in cost accounting practices (CAPs) are performed.
- Increases the CAS applicability threshold to $35 million, which eliminates the trigger contract and decouples the CAS applicability threshold from the Truth in Negotiations Act (TINA) threshold of $10 million (see below). The full CAS threshold will increase from $50 million to $100 million. However, the NDAA contains no language addressing a potential change to the CAS Disclosure Statement threshold (currently $50 million), although the CAS Board will likely raise it to $100 million.Addresses hybrid contracts by providing an exemption for commercial products and services or firm fixed price components of a contract based on adequate price competition without submission of certified cost or pricing data (i.e., allows certain portions of a contract to be exempt from CAS).Moves the CAS Board from the Office of Federal Procurement Policy (OFPP) to the Office of Management and Budget. CAS Board voting membership will comprise the OFPP chairman, government representatives from the DoD and General Services Administration, and two private-sector members, including one government contractor representative and one member of the accounting profession with substantial experience as an accountant. Beginning January 1, 2028, an individual who is a member of an audit entity of an executive agency will not be eligible to serve on the CAS Board (e.g., Defense Contract Audit Agency). There may be up to two nonvoting members from academia, a nonprofit organization, or a private entity with experience in generally accepted accounting principles.Outlines significant potential changes with respect to cost that can be recovered by the government for CAP changes, including:
- Exclusion for firm fixed price and other contracts not based on costsLimited to net increased costs paid for all changes implemented within the same fiscal year
- Speeds up the rulemaking process by eliminating the advance notice of proposed rulemaking phase.
- Increases the CAS applicability threshold to $35 million, which eliminates the trigger contract and decouples the CAS applicability threshold from the Truth in Negotiations Act (TINA) threshold of $10 million (see below). The full CAS threshold will increase from $50 million to $100 million. However, the NDAA contains no language addressing a potential change to the CAS Disclosure Statement threshold (currently $50 million), although the CAS Board will likely raise it to $100 million.Addresses hybrid contracts by providing an exemption for commercial products and services or firm fixed price components of a contract based on adequate price competition without submission of certified cost or pricing data (i.e., allows certain portions of a contract to be exempt from CAS).Moves the CAS Board from the Office of Federal Procurement Policy (OFPP) to the Office of Management and Budget. CAS Board voting membership will comprise the OFPP chairman, government representatives from the DoD and General Services Administration, and two private-sector members, including one government contractor representative and one member of the accounting profession with substantial experience as an accountant. Beginning January 1, 2028, an individual who is a member of an audit entity of an executive agency will not be eligible to serve on the CAS Board (e.g., Defense Contract Audit Agency). There may be up to two nonvoting members from academia, a nonprofit organization, or a private entity with experience in generally accepted accounting principles.Outlines significant potential changes with respect to cost that can be recovered by the government for CAP changes, including:
The timing of the new rules is subject to the CAS Board’s determination within the prescribed limits (e.g., new threshold and price adjustment rules required within 180 days of enactment or by June 16, 2026). However, applicability is likely for contractors’ FY 2027.
- Section 1804 – Adjustments to Certain Acquisition Thresholds:
- Increases the certified cost or pricing data threshold from $2.5 million to $10 million.
- Changes justification thresholds for use of procedures other than competitive procedures (see Section 3204(e)(1) of Title 10, United States Code).
- Increases DoD major system definition thresholds from $115 million to $275 million with respect to total expenditures for research, development, test, and evaluation for the system and from $540 million to $1.3 billion with respect to the eventual total expenditure for system procurement.
- Section 1826 – Exemptions for Nontraditional Defense Contractors: Directs the DoD to exempt nontraditional contractors (entity not currently performing and has not performed within the prior year any contract or subcontract subject to full CAS coverage) from Federal Acquisition Regulation (FAR) Part 31, TINA, and Defense Federal Acquisition Regulation Supplement (DFARS) business system requirements. The head of contracting activity or delegate may waive the exemptions or modify or partially apply them with a written justification of why application of such requirements is in the best interest of the government. Within 60 days of issuing the waiver, the Secretary of Defense must provide a notice of the waiver to the congressional defense committees.
- Section 1821 – Modifications to Relationship of Other Provisions of Law to Procurement of Commercial Products and Services: Directs the DFARS to include a list of defense-unique contract clause requirements based on laws, executive orders, or acquisition policies that may be applied to subcontracts for the procurement of commercial products and services. The DFARS will also include lists of clauses for commercial prime contracts and subcontracts for commercially available off-the-shelf items.
- Section 1822 – Modifications to Commercial Products and Commercial Services: Indicates the head of an agency must determine in writing that market research concluded that no suitable commercial product or service or nondevelopmental item exists prior to acquiring a noncommercial product or service. Prior to acquiring a noncommercial product or service, the relevant program manager must submit a written memo confirming the determination, which must be signed by the portfolio acquisition executive.
- Section 1828 – Review of Commercial Products and Commercial Services Acquisition Approach: Directs the Secretary of Defense to conduct a comprehensive review of the approach used to acquire commercial products and services within 180 days.
- Section 804 – Multiyear Procurement Authority for Covered Systems and Certain Munitions: Allows the Secretary of Defense to submit a request to Congress to enter into multiyear contracts when the following conditions are met:
- A decision has been made to proceed to full-rate production.
- A system is planned to maintain full-rate production for a period of five or more consecutive years.
- Section 875 – Ability to Withhold Contract Payments During Period of Pendency of a Bid Protest: Revises the DFARS to withhold payment from incumbent contractors that file a bid protest that the Government Accountability Office determines lacks “any reasonable legal or factual basis.” It limits the withheld amount to 5% of the total amount payable to an incumbent contractor, except for withholding of payment.
The NDAA for FY 2026 can be found here.
