On Thursday, December 18, 2025, President Trump signed into law the National Defense Authorization Act for Fiscal Year 2026 (2026 NDAA), which authorizes over $900 billion in funding for the Department of Defense (DOD) and other national security programs. The 2026 NDAA contains many acquisition reform provisions and other critical provisions impacting defense contractors. This client alert provides six key takeaways from these provisions.
- Efforts to Increase Competition by Small Businesses and Nontraditional Defense Contractors
Several provisions of the 2026 NDAA aim to increase participation in defense procurements by small businesses and nontraditional defense contractors (NDCs). Section 824 seeks to do this by expanding the type of past performance that may be considered. This provision directs the Secretary of Defense (Secretary) to issue guidance, within one year, on (1) when DOD should accept past performance on a wider range of projects, such as a requirement without much precedent, by including commercial or non-government projects as relevant past performance; (2) methods for validating non-governmental past performance references; and (3) using alternative evaluation approaches beyond past performance for a requirement without much precedent, such as demonstrations and testing of technologies.
Additionally, Section 824 requires action by DOD to remove barriers to small business and NDC participation in DOD procurements. In this regard, the provision requires that the Defense Acquisition Regulations Council (Council) obtain input from the public to “identify procurement policies and regulations that are obsolete, overly burdensome or restrictive, not adequately harmonized, or otherwise serve to create barriers” to small business and NDC contracting with DOD or that unnecessarily increase bid and proposal costs. The Council then must identify legislative, regulatory, and other actions to increase competition and remove barriers, and the Secretary must implement those actions within two years.
Further, Section 1807 establishes Project Spectrum, an online DOD program intended to provide small and medium DOD contractors with digital resources, training, and services that increase awareness of, and facilitate compliance with, cybersecurity and defense acquisition system requirements.
- Emphasizing Best Value over Lowest Cost
Several provisions reflect the desire for DOD to acquire “best value” solutions over lower cost offerings. For instance, Section 1801 identifies the objectives of the defense acquisition system in terms of prioritizing end-user needs and requires the Secretary to issue guidance for implementing those objectives. Such guidance must require, among other things, “[r]esource decisions for the defense acquisition system to prioritize best value and seek to balance life-cycle costs, schedule, performance, and quantity through continuous trade-off analysis informed by prototyping and direct feedback from end users” and “[a]ctive pursuit of innovative solutions to enhance effectiveness of the armed forces and responsiveness to emerging threats, including the acquisition and integration of commercial products and commercial services.” This guidance mirrors several other provisions that revise procedures and methods for commercial purchasing, aligning with the Trump Administration’s push for the acquisition of commercial products and services. Section 1801 also redefines “best value” as “the optimal combination of cost, quality, technical capability or solution quality, and delivery schedule.”
Also, Section 812 would require DOD purchases under the General Services Administration’s Multiple Award Schedule (MAS) to be based on best value rather than the current standard of “lowest overall cost alternative.” Because the 2026 NDAA makes this change only to Title 10 of the U.S. Code, which addresses DOD acquisitions, it does not apply to civilian agency MAS acquisitions, and those will remain subject to the “lowest overall cost alternative” standard as provided in 41 U.S.C. § 152 unless and until Congress harmonizes the provisions.
- Penalties for Frivolous Bid Protests by Incumbent Contractors
The 2026 NDAA takes action to deter incumbent contractors from filing frivolous bid protests at the U.S. Government Accountability Office (GAO) in order to get an extension of the incumbent contract or award of a bridge contract, due to the automatic stay of performance on the protested contract. Section 875 directs the Secretary to revise the DFARS to establish procedures for a contracting officer to withhold payment of up to 5% of the total amount to be paid to an incumbent contractor who files a protest at the GAO that extends performance via a bridge contract or contract extension. If the protest is dismissed due to lack of any reasonable legal or factual basis, the incumbent contractor will forfeit the withheld payment.
These new procedures are supposed to be implemented within 180 days of the 2026 NDAA’s enactment. It remains to be seen what the impact of the penalty will be and whether it will deter incumbent contractors from filing speculative protests, lead to more protests at the Court of Federal Claims where no automatic stay of performance applies, or potentially lead to contract disputes over forfeited payments.
- Increased Thresholds for Competition and Compliance Requirements
The 2026 NDAA significantly increases acquisition thresholds. Section 1804 raises the prime contract threshold for providing certified cost and pricing data from $2 million to $10 million. This section also substantially raises the threshold for contracting officers to make sole-source awards (from $10 million to $100 million) without requiring higher-level approvals, which is intended to speed up acquisitions. These threshold increases will be effective for applicable contracts entered into after June 30, 2026.
Section 1806 raises the threshold for the applicability of the Cost Accounting Standards (CAS) from $2 million to $35 million, with the threshold for full compliance with CAS increased from $50 million to $100 million. This should relieve the burden on numerous businesses with contracts valued below these thresholds that will no longer have to comply with CAS.
- Cybersecurity Regulatory Harmonization
Section 866 directs the Secretary to harmonize the cybersecurity requirements applicable to the defense industrial base and eliminate duplicative and inconsistent cybersecurity requirements and reduce the number of requirements that are unique to a specific contract. This is supposed to take place by June 1, 2026, with reports to Congress by the end of 2026 and each year thereafter on the actions taken and the status of harmonization.
- What’s Missing?
Notwithstanding over 3,000 pages of provisions, some topics are noticeably absent from the 2026 NDAA. For one, the bill does not contain reauthorization of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs. Funding for the SBIR and STTR programs lapsed on October 1, 2025, and disagreements over reforms to the programs have stalled the reauthorization effort. Also, draft versions of the NDAA had proposed to overhaul and streamline contractor performance evaluations by eliminating subjective ratings and focusing on significant negative events, but this provision ultimately was not included. Lastly, both the House and Senate had contemplated “right to repair” language that would have required contractors to provide certain technical data to permit the government to repair equipment on its own, yet this provision was also left out.
If you have questions concerning the impacts of the 2026 NDAA, please contact Jackie Unger or another member of PilieroMazza’s Government Contracts Group.
