PilieroMazza has been covering the Department of War’s (DOW) acquisition overhaul since Secretary Hegseth’s November 2025 memorandum: “Transforming the Warfighting Acquisition System to Accelerate Fielding of Capabilities.” The latest overhaul news relates to contractor cost and pricing. On August 18, 2026, DOW released a memorandum entitled “Supplier Cost and Pricing Transparency,” closely followed on September 14, 2026, by “Fostering One Strong Industrial Base.” Together, the memoranda outline a new cost and pricing framework that pairs commercial accounting and market-based acquisition with broader Government access to contractor and subcontractor data. For defense contractors, the tradeoff is clear: DOW promises faster, simpler acquisition, but that speed will come with higher expectations for cost transparency throughout the supply chain.
August 18 Memo: “Supplier Cost and Pricing Transparency”
DOW’s August 18 memo is focused on expanding the Department’s access to actual cost and pricing data throughout the defense supply chain. DOW’s point is clear: contractors should prepare for greater transparency at both the prime and subcontractor levels, increased enforcement of reporting requirements, and closer scrutiny of negotiation outcomes. The following is a brief summary of the highlights:
- DOW is directing full supply-chain transparency at every tier for negotiations valued at $10 million or more. Except for Commercial Off-the-Shelf (COTS) items, Contracting Officers (COs) must have access to actual-cost information at both the prime and supplier levels to support fair-and-reasonable-price determinations—an approach broader than the traditional focus on certified cost or pricing data. Contractors and subcontractors entering negotiations at or over $10 million will be subject to these measures regardless of whether the data must be certified. The memo also directs the Under Secretary of War for Acquisition and Sustainment (USW(A&S)) to establish fair and reasonable profit margins using commercial best practices tailored to each product and service line. Contractors should expect closer scrutiny of both their cost baselines and the methodologies used to evaluate profit.
- DOW proposes direct, automated access to contractor systems. The memo directs USW(A&S) to explore using application programming interfaces (APIs) to pull cost information from contractors’ enterprise resource planning (ERP) or other financial systems. Although automation could reduce repetitive submissions, it raises questions concerning data scope, validation, cybersecurity, access controls, proprietary-information protections, record retention, and responsibility for inaccurate or incomplete transmissions. DOW clarified in its October 1, 2026, memo that any initiative would proceed through formal rulemaking and remain voluntary. Contractors considering participation should engage counsel so their contracts, IT, finance, and legal teams can evaluate and mitigate the significant risks together.
- Contractors with CSDR obligations will face immediate enforcement. The memo targets thousands of delinquent Cost and Software Data Reporting (CSDR) submissions and directs program managers and COs to enforce prime and subcontractor compliance under 10 U.S.C. § 3227 and DOW Instruction 5000.73. USW(A&S) must ensure delinquent reports are submitted within 30 days. DOW will use CSDR data to evaluate sole-source contracts over time; where that data is not used in non-commercial, sole-source acquisitions, USW(A&S) and Defense Contract Audit Agency (DCAA) will compare actual costs with prices paid. Making those comparisons routine may allow historical performance to shape future pricing and negotiations.
- DOW does not intend to cap profit. DOW says that it does not intend to limit profit when a contractor realizes efficiencies after negotiating a fair and reasonable price based on a realistic baseline. In the same breath, the memo says that DOW plans to negotiate aggressively for revised terms “where negotiation outcomes are not aligned with sound business deals.” Defense contractors will need to watch this space closely to see how DOW intends to balance these seemingly opposed commitments through implementation and guidance in the coming weeks and months.
Key Takeaways:
- Prepare for supply-chain-wide cost transparency. For negotiations valued at $10 million or more, contractors should consider preparing by identifying affected suppliers, strengthening subcontract data access and confidentiality terms, and preparing to provide actual cost information at both the prime and subcontractor levels. Counsel can help define appropriate disclosure obligations, preserve proprietary-data protections, and allocate responsibility when a supplier fails or refuses to provide requested information.
- Assess automation risks and monitor implementation. Before volunteering system access, contractors should determine whether their financial systems can securely isolate responsive data and closely track forthcoming rules, guidance, and contract language implementing the memorandum.
- Get CSDR and cost records in order. Contractors should cure reporting delinquencies, reconcile historical costs and prices paid, and maintain support for realistic baselines and post-award efficiencies before those records shape future sole-source negotiations. Contractors facing material reporting gaps or inconsistent submissions should consider engaging counsel to assess contractual exposure, coordinate corrective action, and manage communications with COs, program officials, or DCAA.
September 14 Memo: “Fostering One Strong Industrial Base”
DOW’s September 14 memo is focused on easing government-unique accounting requirements while expanding DOW’s access to existing cost and pricing data. Contractors should prepare for a more commercial acquisition model that reduces Cost Accounting Standards (CAS) burdens without reducing pricing scrutiny. The following is a brief summary of the highlights:
- GAAP will become DOW’s preferred accounting framework. DOW states in the memo that it intends to move away from government-unique CAS and accept Generally Accepted Accounting Principles (GAAP) across all contracts to the maximum extent permitted by law. At every tier of the supply chain, DOW expects that contractors and suppliers will rely on the accounting systems they already use rather than build and maintain separate government-specific systems. The memo also implies that this will make things easier when DOW needs to ask for cost and pricing information “necessary to foster transparency and fairness,” as contractors can turn over the information as it is already maintained in their records.
- Fixed-price contracts are the default. Consistent with Executive Order 14402, DOW will generally use fixed-price contracts and reserve cost-based contracts for basic research and major-system development. Competition, comparable sales, and reliable pricing history will establish price where meaningful market benchmarks exist; for major sole-source development and procurement without those benchmarks, DOW may rely on cost data from contractors’ existing records. Although this model may be less invasive than traditional cost-accounting oversight, contractors will still need organized, credible support for proposed prices.
- DOW will press CASB for broader, contract-specific exemptions. DOW plans to pursue the CAS-to-GAAP transition through the Cost Accounting Standards Board (CASB). Within 60 days of issuing the memo (November 13, 2026), DOW plans to propose making CAS exemption the default; limiting remaining CAS coverage to sole-source, cost-based development or incentive-fee procurements; and applying CAS only to relevant contracts rather than to a company or business unit as a whole. Importantly, until the CASB acts, DOW has required that any solicitation that could bring a business unit not previously subject to CAS under full CAS coverage must only be issued if the USW(A&S) approves it in writing.
- Implementation is forthcoming. The memo’s appendix directs implementation and states that subsequent guidance may not impose requirements beyond the memo and applicable law.
Key Takeaways:
- Expect less CAS burden, but continued pricing scrutiny. DOW plans to favor GAAP-based accounting and contractors’ existing records rather than government-unique systems and formats, but DOW’s overall plan is still to scrutinize pricing and profits more than ever before. Contractors should align accounting records, price support, subcontract terms, and compliance procedures with a more commercial—but still transparent—acquisition model.
- Prepare stronger market-based price support. Fixed-price contracting is king, but where no meaningful market benchmark exists, contractors may have a chance to drive pricing with evidence of competition, comparable sales, and reliable pricing history.
- Monitor narrower, contract-specific CAS coverage. DOW will ask the CASB to make CAS exemptions the default and generally confine remaining coverage to relevant sole-source, cost-based development or incentive-fee contracts.
What Comes Next
Together, the August 18 and September 14 memoranda signal a more commercial acquisition system that may reduce government-unique accounting burdens while substantially expanding DOW’s access to contractor and subcontractor cost and pricing information. Defense contractors should consider assessing their accounting systems, CSDR compliance, pricing support, subcontract terms, and protections for proprietary and financial data before any forthcoming rules and guidance take effect. Contractors should also monitor these developments and consider participating in the industry comment process for such rules. Experienced government contracts counsel can help contractors evaluate new disclosure and CAS risks, negotiate appropriate prime and subcontract provisions, protect sensitive data, and respond strategically to DOW requests for greater cost and pricing transparency.
If you have questions on working with DOW, cost and pricing, subcontracts, or government contracts in general, please contact Lauren Brier, Josie Farinelli, Krissy Crallé, or another member of PilieroMazza’s Government Contracts Group.
____________________
If you’re seeking practical insights to gain a competitive edge by understanding the government’s compliance requirements, tune into PilieroMazza’s podcasts: GovCon Live!, Clocking in with PilieroMazza, and Ex Rel. Radio.
