In December 2025, PilieroMazza explained some key highlights of the 3,000-page 2026 NDAA for defense contractors, tracking how these important updates will affect their ability to compete and how they align with DOW’s Acquisition Overhaul. In this blog, we dive deeper into one of these NDAA updates—Section 1826—which all small businesses, defense contractors, and prospective defense contractors need to understand, as it could significantly ease compliance burdens across the existing defense industrial base and invite new competitors into the space. For more insights on this and related topics, register here for our webinar on January 28, 2026, and here to access Parts 1 and 2 in this series.
What is Section 1826?
Section 1826 of the NDAA establishes three broad exemptions for “non-traditional defense contractors” from particular Department of War (DOW) contracting requirements. Specifically, a non-traditional defense contractor will now be exempt from (1) FAR Part 31 cost principles, (2) certified cost or pricing data requirements under the Truthful Cost or Pricing Data Act (formerly known as the Truth in Negotiations Act or TINA), and (3) DOW’s business systems rules.
Who qualifies as a “non-traditional defense contractor”?
Under Section 1826, a “non-traditional defense contractor” is any contractor that is not currently performing a Cost Accounting Standards (CAS) contract and has not performed a CAS-covered contract in the last year. Importantly, and perhaps unsurprisingly, many contractors would qualify as “non-traditional.”
Section 1826’s use of the term “non-traditional defense contractor”, largely aligns with the definition used in the context of DOW’s Other Transactions Authority (OTA)—a major priority of the current administration and the DOW Acquisition Overhaul. With respect to a procurement or with respect to a transaction authorized under DOW’s OTA, a non-traditional defense contractor is one that “is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the [DOW] for the procurement or transaction, any contract or subcontract for the [DOW] that is subject to full coverage under the cost accounting standards…and the regulations implementing such section.”
As the George Mason Baroni Center for Government Contracting estimated in its 2025 report, only 7.5% of the existing defense industrial base could not qualify as a non-traditional defense contractor. These statistics, combined with the current administration’s prioritizing non-FAR-based contracting like OTA that thrive on non-traditional defense contractor participation, indicate that the compliance exemptions in Section 1826 will likely be enjoyed by a whole swath of companies.
What are the exemptions?
- FAR Part 31 governs which costs the government will reimburse under cost-reimbursement contracts and whether such costs are considered (un)allowable. Examples of typical unallowable costs include entertainment and amusement and social activities; lobbying and donations; interest expense; certain reorganization costs; and fines and penalties. Due to Section 1826’s exemption, businesses that qualify as non-traditional defense contractors may be relieved from allowability compliance concerns. As an important caveat, this does not mean that contractors will be able to charge anything and everything to the government, as there may be other controlling statutory or regulatory schemes.
- Under the Truthful Cost or Pricing Data Act (formerly TINA), contractors were required to disclose all facts that a prudent buyer or seller would reasonably expect to affect price negotiations, and to certify that the data are current, accurate, and complete. However, this next major exemption eliminates the requirement to submit certified cost or pricing data when there is insufficient competition or market forces to establish a fair and reasonable price. This allows for contractors to have greater flexibility on pricing work for the government.
- Finally, the DOW’s business system rules require contractors maintain compliant systems for accounting, estimating, earned value management, material management and accounting, property management, and purchasing. If the DOW identified material weaknesses in these systems, it was permitted to withhold contract payments. However, with the final exemption, these resource and cost-intensive compliance programs will no longer be required, allowing for small businesses to have a better chance at gaining a foothold in the defense industrial base.
Importantly, while the exemptions seem to align with DOW’s plans for its Acquisition Overhaul, contractors eager to take advantage of the exemptions should be forewarned that the Secretary of War does retain the power to “waive” these exemptions.
Key Takeaways
- Reduced Compliance Burden: Government contracting is a heavily regulated field that often requires multiple compliance systems to not run afoul of the many statutory and regulatory obligations. These exemptions provide reprieve, allowing contractors to focus more on delivering the results for which the government contracted.
- Limited “Waiver” Possibility: The NDAA permits the Secretary of War to “waive” a non-traditional defense contractor’s entitlement to the above exemptions (i.e., to impose the FAR Part 31 cost principles on non-traditional defense contractors). While notable, this does not seem likely to arise often. Imposing FAR Part 31 on non-traditional defense contractors would run counter to the very goal that Secretary Hegseth set regarding speed and delivery of weapon systems to the warfighter. Moreover, Section 1826 states that imposing these cost principles would require notifying Congress and explaining DOW’s efforts to adapt its procurement approach before resorting to said imposition.
- Small Business Opportunities: The definition of “non-traditional defense contractor” is quite broad and may allow for traditional defense contractors to claim the title. However, as small businesses are already exempt from CAS requirements, they will automatically qualify as non-traditional defense contractors. As such, small businesses may have better opportunities to compete for contracts that were once closed off to them.
For more on this topic, register for PilieroMazza’s webinar on January 28, where we’ll cover Section 1826 as part of our broader discussion on “Warfighting at Warp Speed: Why Defense Contractors Must Track the DOW’s Acquisition Overhaul.” Should you have any questions regarding the NDAA, DOW acquisition, FAR or non-FAR procurements, or defense contracts, contact Lauren Brier, Josie Farinelli, Adel Mansour, or another member of PilieroMazza’s Government Contracts Group.
