RGCI - Cost Accounting Standards (CAS) Cost Impacts May Include Prior Fixed Price Contracts

The FY 2026 NDAA changed how fixed price contracts are treated in Cost Accounting Standards (CAS) cost impacts, but timing remains critical. Government contractors with CAS covered awards issued before implementation may still face current clause requirements, making award dates and clause language important compliance considerations.

Highlights

  • FY 2026 NDAA Change. Section 1806 amended the Cost Accounting Standards statute to remove certain fixed price contracts from increased cost calculations related to cost accounting practice changes or CAS noncompliance.
  • Implementation Timing. The statutory change has been enacted, but the related CAS and FAR regulatory updates have not yet been completed. This creates timing considerations for contractors evaluating current and future CAS cost impacts.
  • Prior Awards. CAS covered fixed price contracts and subcontracts awarded before implementation of the changes may still be subject to current contract clause requirements.
  • Clause Requirements. Current CAS clauses and FAR 52.230-6 continue to require cost impacts to include both fixed price and flexibly priced contracts and subcontracts.
  • Compliance Impact. Contractors should pay close attention to award dates, clause language, and CAS coverage when evaluating whether fixed price contracts remain part of a cost impact calculation.

Cost Accounting Standards (CAS) covered fixed price contracts awarded after the implementation of the changes required by the Fiscal Year 2026 National Defense Authorization Act (FY 2026 NDAA) (P.L. 119-60), Section 1806, Matters related to cost accounting standards, clearly should not be included in cost impacts based on the direction of Congress. The question of concern is, “Will CAS-covered fixed price contracts awarded prior to the implementation of the changes still be included?” It is likely the Government’s answer to this question will be “absolutely they will.”

The FY 2026 NDAA Change

As explained in our January 7, 2026 article, Do Cost Accounting Standards (CAS) Apply to Fixed Price Contracts and Subcontracts, Subsection 1806(f) has changed the underlying statute at 41 USC 1503: Contract price adjustment to remove fixed priced contracts from the calculation of the amount of any potential increase costs, in the aggregate, related to a cost accounting practice change or CAS non-compliance. As it is now June 2026, and we have not seen a Notice of Proposed Rulemaking (NPRM) issued to address the regulatory implementation of the change to the statute, it is anyone’s guess when the regulations will be changed.

Current Contractual Requirements: Contract Clauses (Prior to FY 2026 NDAA Changes)

The last time the CAS contract clauses were updated was in June of 2020, except for 52.230-6, Administration of Cost Account Standards, clause, which has been the same since June 2010. The key requirements of the current clauses are:

FAR 52.230-2 (Full CAS):

  • (a)(2) requires the contractor to consistently follow its cost accounting practices, and if a practice is changed, agree to contract price or cost adjustments.
  • (a)(3) requires the contractor to comply with the cost accounting standards in 48 CFR part 9904, and if a non-compliance is found, agree to contract price or cost adjustments.
  • (a)(5) requires the contractor to pay the Government back any increased costs plus interest.

FAR 52.230-3 (Modified CAS) and 52.230-4 (Foreign CAS):

  • (a)(3) requires the contractor to consistently follow its cost accounting practices, and if a practice is changed, agree to contract price or cost adjustments. If the change is not found to be desirable, no increased cost will be paid.
  • (a)(4) requires the contractor to comply with the cost accounting standards in 48 CFR part 9904, and if a non-compliance is found, agree to contract price or cost adjustments for any increased costs plus interest.

FAR 52.230-6 (Administration of CAS):

  • (b) requires the contractor to submit a description of any cost accounting practice change 60 days prior to making any unilateral change.
  • (c) requires the contractor to submit a general dollar magnitude (GDM) or detailed cost-impact (DCI) to determine the cost impact.
  • (d), (e), (f), (g), (h) and (i) require that the GDM or DCI include both fixed-price and flexibly-priced contracts and subcontracts, with total increase or decrease cost calculated in accordance with 48 CFR 9903.306(c).

48 CFR 9903.306 (Interpretations):

(c) states: “The statutory requirement underlying this interpretation is that the United States not pay increased costs, including a profit enlarged beyond that in the contemplation of the parties to the contract when the contract costs, price, or profit is negotiated, by reason of a contractor’s failure to use applicable Cost Accounting Standards, or to follow consistently its cost accounting practices. In making price adjustments under the Cost Accounting Standards clause at 9903.201-4(a) in fixed price or cost reimbursement incentive contracts, or contracts providing for prospective or retroactive price redetermination, the Federal agency shall apply this requirement appropriately in the circumstances.”

Inclusion of CAS Contract Clauses

FAR 30.201-4 requires the inclusion of one of the CAS clauses at FAR 52.230-2, 52.230-3, or 52.230-4 based on the level of CAS coverage full CAS (All Standards), modified CAS (401, 402, 405, and 406), or foreign concern CAS (401 and 402), respectively, in all non-exempt (48 CFR 9903.201-1(b)) contracts and subcontracts. It also requires the inclusion of FAR 52.230-6, Administration of Cost Accounting Standards, in all contracts and subcontracts that contain one of the CAS clauses.

FAR Contract Clause Changes

Generally, changes to FAR clauses are not retroactive unless the change specifically states that it is. I believe that it is very unlikely that we will see retroactive application of the FY 2026 NDAA CAS changes. It is likely that DCAA’s influence over the CAS Board through the end of calendar year 2027 will take the more conservative position that fixed price contracts and subcontracts awarded prior to the CAS clauses being changed will still be required to be included in cost impacts.

Maintaining CAS Cost Impact Readiness

CAS cost impacts can be complex, time consuming, and highly dependent on contract clause language, award timing, and the contractor’s cost accounting practices. Redstone GCI assists government contractors with CAS and FAR compliance consulting, cost impact development and review, contract clause assessments, audit support, outsourced accounting support, and compliance training. For contractors managing CAS cost impacts, the challenge is often understanding current requirements, organizing supporting data, and preparing for or responding to Government questions. Our team works with contractors to evaluate affected contracts and subcontracts, support cost impact documentation, and address compliance considerations that may arise during Government review.

Learn More About Our Cost Accounting Standards (CAS) Services

Frequently Asked Questions (FAQs)

  • What are Cost Accounting Standards? Cost Accounting Standards, often called CAS, are rules that require certain government contractors to follow consistent cost accounting practices. They help determine how costs are measured, assigned, and allocated to government contracts.
  • What is a CAS cost impact? A CAS cost impact measures how a change in cost accounting practice, or a CAS noncompliance, affects costs charged or allocated to covered government contracts. The purpose is to determine whether the Government paid increased costs because of the change or noncompliance.
  • What changed under the FY 2026 NDAA? The FY 2026 NDAA changed the underlying statute so certain fixed price contracts are removed from increased cost calculations related to CAS cost impacts. The article focuses on how that change may apply depending on when the contract was awarded and when the regulatory implementation occurs.
  • Does this mean all fixed price contracts are now excluded from CAS cost impacts? Not necessarily. Fixed price contracts awarded after implementation of the FY 2026 NDAA changes should be treated differently, but contracts awarded before implementation may still be governed by the existing CAS clauses.
  • Why do award dates and clause language matter? CAS requirements are applied through contract clauses. If a contract was awarded before the clauses are changed, the current clause language may still require fixed price contracts and subcontracts to be included in the cost impact calculation.
  • Why does this matter for government contractors? Contractors should not assume the statutory change automatically removes all fixed price contracts from current CAS cost impacts. The timing of the award, the clauses included in the contract, and the status of regulatory implementation can affect compliance expectations.

Written by John C. Shire, CPA

John C. Shire, CPA John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant

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Topics: Accounting System Compliance, Contracts & Subcontracts Administration, Government Regulations, Cost Accounting Standards (CAS), Federal Acquisition Regulation (FAR)