Government Contracts Intelligence Briefing

On September 1, 2026, the Office of Management and Budget’s Cost Accounting Standards Board (the Board) published two final rules in the Federal Register that together represent the most significant deregulation of the Cost Accounting Standards (CAS) program in years. Both rules are effective October 1, 2026. Government contractors, particularly those near current CAS thresholds, those managing indefinite delivery contracts (IDCs), and those relying on standard costing, should assess the impact now.

CAS Thresholds Rise Sharply, and IDC Rules Are Clarified (91 FR 56056)

The Board’s second rule increases nearly every dollar threshold in the CAS program and settles a long-open question about how CAS exemptions apply to task- and delivery-order contracts.

Higher applicability and coverage thresholds

• The basic CAS applicability threshold (below which contracts and subcontracts are exempt from CAS entirely) rises from $2.5 million to $35 million, implementing Section 1806 of the 2026 NDAA. The separate $7.5 million “trigger contract” concept is eliminated.
• The threshold for full CAS coverage and Disclosure Statement filing doubles from $50 million to $100 million.
• Agency heads may now waive CAS on their own authority for contracts up to $100 million (up from $15 million), aligning the regulation with a 2017 statutory change.
• The Board estimates the $100 million coverage threshold alone will reduce the number of business segments subject to full coverage and Disclosure Statement requirements from 773 to roughly 564 (a nearly 30 percent drop).

Disclosure Statement relief and transition mechanism

• The rule clarifies that a Disclosure Statement is required only for the specific segment or business unit that independently meets the coverage threshold instead of on a total-company basis and removes the separate 30 percent/$10 million segment exemption at 9903.202-1(c)(ii) as no longer necessary.
• Contractors currently subject to full coverage under the old $50 million threshold, but who would not meet the new $100 million threshold, may transition to modified coverage at the start of their next full cost accounting period on or after October 1, 2026, provided they have no unresolved CAS noncompliance. That eligibility also carries over to certifying modified coverage on new solicitations and awards.

Indefinite delivery contracts: a new, asymmetric framework

• Multiple-award indefinite delivery contracts (IDCs): CAS exemptions (including the new $35 million threshold) are now determined order-by-order, using the ceiling value of each individual task or delivery order.
• Single-award IDCs: CAS applicability is determined once, at award of the IDC, using the ceiling value of the entire contract and not order-by-order. A single-award IDC is entirely exempt only if the whole vehicle is limited to commercial products/services, or is firm-fixed-price and was competitively awarded without certified cost or pricing data.
• The Board rejected industry comments urging symmetrical, order-level treatment for both types of IDCs, reasoning that single-award vehicles present materially higher vendor-lock-in risk and warrant earlier, contract-level CAS determination.

Hybrid and statutory exemption changes

• Consistent with Section 1806(d) of the 2026 NDAA, the statutory CAS exemptions (e.g., commercial products/services, firm-fixed-price/adequate price competition) now apply to portions of a contract or subcontract, addressing hybrid contract structures that mix CAS-covered and exempt work.

CAS 407 Is Rescinded and Folded Into CAS 418 (91 FR 56061)

The Board’s companion rule continues its multi-year initiative to conform CAS to Generally Accepted Accounting Principles (GAAP). This rule rescinds CAS 407 (Use of Standard Costs for Direct Material and Direct Labor) in its near entirety.

• The Board concluded that 12 of CAS 407’s 16 requirements are now duplicative of GAAP (as codified in the FASB Accounting Standards Codification) and existing CAS 401 disclosure-and-consistency obligations, eliminating roughly 2,000 words of regulatory text.
• A narrow set of requirements addressing standard costs and variances at the “production unit” level (a concept GAAP does not address) survives, but is relocated into CAS 418 (Allocation of Direct and Indirect Costs) rather than kept as a standalone standard.
• The Board expressly found that rescission should not require any contractor to change its disclosed cost accounting practices, since compliant CAS 407 practices are, in the Board’s view, already GAAP-compliant.
• Because no practice change is expected, the Board stated that any future change a contractor makes to its standard costing or variance treatment will be considered a unilateral change under 9903.201-6(b)(2)—meaning the contractor, not the government, bears the cost of the change rather than receiving an equitable price adjustment.

Practical Impact for Contractors

• Contractors should re-run their CAS applicability analysis. Contracts and subcontracts between $2.5 million and $35 million that were previously CAS-covered may now be fully exempt; entities between $50 million and $100 million in CAS-covered awards may qualify for modified coverage or fall out of the Disclosure Statement requirement altogether.
• Evaluate the transition option. Contractors currently on full coverage under the old $50 million threshold should confirm they have no unresolved CAS noncompliance issues and calendar the start of their next full cost accounting period on or after October 1, 2026, to capture modified-coverage eligibility.
• Segment-level Disclosure Statement review. Because the requirement now runs at the business unit or segment level rather than on a consolidated basis, multi-segment contractors should revisit which segments actually need a Disclosure Statement on file.
• Audit the IDC portfolio for treatment under the new asymmetric rule. Contractors holding single-award IDCs should assess CAS exposure at the ceiling value of the vehicle itself, even if individual task orders are small, a materially different (and in some cases more conservative) analysis than for multiple-award vehicles, where each order is assessed independently.
• Leave standard costing practices alone absent a business reason to change them. Because any future change to standard costing or variance allocation will be treated as unilateral, contractors should think carefully before revising these practices, since the cost of the change will not be recoverable through a price adjustment.
• Watch for the related NDAA rulemaking. The Board has confirmed a separate, forthcoming rulemaking to address 2026 NDAA changes to the contract price adjustment requirements in 41 U.S.C. 1503.
• New and mid-size entrants benefit disproportionately. Contractors that recently outgrew small business size status, or that are newly considering federal work, face a substantially higher, less complex point of entry before CAS compliance infrastructure becomes necessary.

What’s Next?

Both rules take effect October 1, 2026. Contractors should not wait for the start of a new fiscal year to act: applicability determinations for new solicitations, proposals, and IDC awards made on or after that date will be governed by the new thresholds and IDC framework immediately. Contractors with segments near the $35 million or $100 million lines, or with single-award IDCs in their portfolio, should prioritize a CAS applicability review in the coming weeks.