DCAA’s October 6, 2026, memorandum addresses exemptions for nontraditional defense contractors from certain cost, pricing, and business system requirements. DCAA may still provide audit and advisory support, and contractors may still need to provide cost data. Questions remain about implementation and how individual exempt contracts will be reviewed.
Highlights
- Exemption Guidance. DCAA’s October 6, 2026, memorandum addresses 10 statutory exemptions for qualifying nontraditional defense contractors involving cost, pricing, and business system requirements.
- Eligibility and Waivers. Qualification depends on DoW contract performance subject to full Cost Accounting Standards coverage during the relevant period. The head of the contracting activity can waive an exemption through a written determination.
- Partial Implementation. DoW has implemented the Congressionally directed exemptions through DFARS class deviations, with additional business system provisions still in process.
- Continued DCAA Support. DCAA may still provide audit and advisory services involving contractor eligibility, pricing, and cost data requests. How incurred cost reviews will handle contracts exempt from FAR Part 31 remains unclear.
- Contractor Preparation. Contractors should maintain verifiable listing of awarded contracts and subcontracts including their CAS coverage and prepare still develop basis of estimates using supporting cost data even when TINA does not apply.
On October 6, 2026, the Defense Contract Audit Agency (DCAA) issued a memorandum (26-CCLD-010). This memorandum informed DCAA auditors that the:
“National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2026, which was enacted into law on December 18, 2025,…Section 1826, now codified at Title 10, United States Code (U.S.C.) § 3014, specified 10 exemptions for nontraditional defense contractors (NDCs) from key cost, pricing, and business system requirements.” (Emphasis Added)
Is DCAA saying that all Department of War (DoW) contracts and subcontracts awarded to NDCs after December 18, 2025, should be exempt from Truthful Cost or Pricing Data Act, FAR part 31, and DFARS Business System requirements? We certainly hope so. That is the opinion of many in the GOVCON industry, including us. We addressed the impact of NDAA 2026 Section 1826 on NDCs in our article, “2026 NDAA Expands the Benefits of Being a Non-Traditional Defense Contractor.”
The new memorandum does not really say much about how the audits of government contractors exempt from so many requirements will change or the impact on audit risk for contracts requiring the exemptions.
What Does the DCAA Memorandum Provide
Definition of a Non-Traditional Defense Contractor
The 10 U.S.C. § 3014 definition of an NDC is
“an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the Department of Defense for the procurement or transaction, any contract or subcontract for the Department of Defense that is subject to full coverage under the cost accounting standards prescribed pursuant to section 1502 of title 41 and the regulations implementing such section.”
The key takeaway is that only contractors doing business with Department of Defense (also known as the Department of War (DoW)) can meet the definition of an NDC. So, a contractor could have a full cost accounting standards (CAS) covered contract with the Department of Homeland Security and only modified CAS covered contracts with DoD and still qualify as an NDC. This is likely to create some issues.
What an NDC is Exempt From
All contracts, subcontracts, and agreements awarded to NDC by DoW are exempt from:
- Defense Federal Acquisition Regulation Supplement (DFARS) 252.242-7006 (Accounting System Administration)
- DFARS 252.234-7002 (Earned Value Management System)
- DFARS 252.215-7002 (Cost Estimating System Requirements)
- DFARS 252.242-7004 (Material Management and Accounting System)
- DFARS 252.245-7003 (Contractor Property Management System Administration)
- DFARS 252.244-7001 (Contractor Purchasing System Administration)
- DFARS 252.242-7005 (Contractor Business Systems)
- DFARS 215.407 (Special Cost or Pricing Areas / Defective Pricing)
- 10 U.S.C. § 3702 (Truthful Cost or Pricing Data / Truth in Negotiations)
- Federal Acquisition Regulation (FAR) Part 31 (Contract Cost Principles and Procedures)
It is important to remember that the head of the relevant contracting activity can waive the exemption with a written determination.
What Has DoD Implemented into DFARS
DoD has issued class deviations addressing the following:
- DFARS 215.403-71(a)(5) exempts NDCs from submission of certified cost or pricing data. (See July 22, 2026, Class Deviation 2026-O0048, Rev 1)
- DFARS 231.001-70 exempts NDCs from FAR Part 31. (See August 4, 2026, Class Deviation 2026-O0032, Rev 1)
- DFARS 234.201-70(j)(1)(ii) exempts NDCs from the requirements of the clause at DFARS 252.234-7002, Earned Value Management System. (See August 5, 2026, Class Deviation 2026-O0011, Rev 1)
- DFARS 244.071(a) exempts NDCs from establishing and maintaining an acceptable purchasing system. (See July 29, 2026, Class Deviation 2026-O0015, Rev 1)
- DFARS 245.107(3) exempts NDCs from DFARS 252.245-7003, Contractor Property Management System Administration. (See September 9, 2026, Class Deviation 2026-O0046, Rev 1)
The DCAA memorandum stated: “DoW is developing DFARS Class Deviations to implement additional provisions of Section 1826, to include clauses related to other Business Systems.”
What Should Government Contractors Expect From DCAA
The memorandum clarified that even if the contractor meets the definition of an NDC, DCAA auditor can still provide pre-award (i.e., pricing) and post-award (i.e., incurred cost) audit and advisory services to contracting officers. These services can include:
- Verification of the contractor’s status as an NDC.
- Support the determination to waive one of the exemptions.
- Support the contracting officer’s determination of a fair and reasonable price.
- Support the determination of what data should be requested and deal with any denials of access to that data.
The memorandum provides no specifics as to the audit support that can be provided to incurred cost reviews where FAR part 31 has been exempted. We believe that it is likely that auditor will consider performing audit procedures to ensure the costs:
- Have been paid in the normal course of business;
- Are required in the performance of the contract scope of work and not required in the scope of work for another contract;
- Have been accounted for in compliance with generally accepted accounting principles (GAAP); and
- Bring some level of reasonable value to the performance of the contract. Not necessarily that the cost is reasonable as that would be a FAR part 31 requirement.
What Should Government Contractors Do?
Government contractors should:
- Have a verifiable listing of awarded contracts and subcontracts including:
- Awarding Government Agency;
- Date of Award;
- Period of Performance;
- Level of CAS coverage; and
- Dollar value of Award.
- Request notification from the contracting officer when a waiver from the head of the contracting activity is being requested. This should include the basis for such a waiver (i.e., what is the risk the contracting officer is concerned with). Engage as early as possible to resolve the contracting officer’s concern.
- Ensure their estimators understand that cost data may still be required, even if it does not have to be certified. Better to have the data readily available, rather than going back and pulling it after it has been requested. Historical data is going to be expected as the basis of estimate, when it is available, even for NDCs.
Understanding NDC Exemptions and Continuing Requirements
Nontraditional defense contractors should document their eligibility and understand how exemptions and waiver decisions affect their contract obligations. Redstone GCI helps government contractors evaluate CAS coverage and contract history, review applicable contract clauses, and assess certified and other than certified cost or pricing data requirements. Our team of experts also assists with proposal cost volume development, DCAA audit preparation and responses, and training to help accounting, contracts, and estimating personnel understand the requirements that remain applicable. For contractors needing additional contracts expertise or capacity, our outsourced contracts administration services help clarify applicable requirements, keep contract records current, and coordinate responses to contracting officer requests.
Frequently Asked Questions (FAQs)
- What is a nontraditional defense contractor? It is an entity that is not currently performing and has not performed during the year before the solicitation, a DoW contract or subcontract subject to full Cost Accounting Standards (CAS) coverage.
- What requirements can these contractors be exempt from? The exemptions include certified cost or pricing data requirements, all business system requirements, and FAR part 31 addressing cost allowability.
- Does being exempt mean DCAA will no longer audit my company? No. DCAA may still provide audit and advisory support, including checking contractor eligibility and helping the contracting officer evaluate pricing and cost information.
- Can the government waive an exemption? Yes. The head of the relevant contracting activity can waive an exemption through a written determination.
- Could I still need to provide cost data if certification is not required? Yes. The government may still request cost information to determine whether a proposed price is fair and reasonable, including historical costs used to support estimates.
- What records should contractors maintain to support their status? Keep a verifiable list of contracts and subcontracts showing the awarding agency, award date, period of performance, CAS coverage, and award value.