RGCI - Do Cost Accounting Standards (CAS) Apply to Fixed Price Contracts and Subcontracts

Highlights

  • The Fiscal Year 2026 National Defense Authorization Act was signed into law on December 18, 2025, and includes statutory changes affecting the applicability of Cost Accounting Standards to certain government contracts and subcontracts.
  • Amendments in Section 1806 of the FY 2026 NDAA revised CAS applicability thresholds and contract price adjustment requirements, leading to confusion regarding fixed price contracts and subcontracts.
  • This Redstone GCI article explains how the FY 2026 NDAA impacts when Cost Accounting Standards apply at award and how post-award contract price adjustments are limited following cost accounting practice changes.

After the December 18, 2025, enactment of the Fiscal Year 2026 National Defense Authorization Act (FY 2026 NDAA) (P.L. 119-60), there has been some confusion as to whether the Cost Accounting Standards (CAS) will be applicable to firm fixed price contracts and subcontracts. The confusion is the result of a Subsection within Section 1806, Matters Related to Cost Accounting Standards, impacting different parts of the CAS statutes. Specifically, Subsection 1806(d), Amendment to Mandatory Use of Cost Accounting Standards, and Subsection 1806(f), Amendment to Contract Price Adjustment Requirements.

Subsection 1806(d) CAS Applicability from the FY2026 National Defense Authorization Act (NDAA)

This subsection of the 2026 NDAA:

  • Removed the $7.5M trigger contract requirement;
  • Updated the threshold dollar values:
    • Setting $35M as the minimum CAS threshold; and
    • Setting $100M as the threshold for full CAS coverage.
  • Inserting “(or the portion of a contract or subcontract)” to allow for some parts of a contract or subcontract to be CAS-covered while other parts of the same contract or subcontract can be exempt from CAS coverage.

This change will result in 41 USC 1502: Cost accounting standards, reading as follows:

(b) Mandatory Use of Standards.-

(1) Subcontract.-

(C) Nonapplication of standards.—Subparagraph (B) does not apply to—

  1. a contract or subcontract (or the portion of a contract or subcontract) for the acquisition of a commercial product or commercial service;
  2. a contract or subcontract where the price negotiated is based on a price set by law or regulation; or
  3. a firm, fixed-price contract or subcontract (or the portion of a contract or subcontract) awarded on the basis of adequate price competition without submission of certified cost or pricing data; or.
  4. a contract or subcontract with a value of less than $7,500,000 if, when the contract or subcontract is entered into, the segment of the contractor or subcontractor that will perform the work has not been awarded at least one contract or subcontract with a value of more than $7,500,000 that is covered by the standards.

This will impact the wording in CAS 9903.201-1(b) CAS applicability.

Subsection 1806(f) Contract Price Adjustments under CAS

This subsection of the 2026 NDAA:

  • Excludes “any contract or subcontract (or any portion of such contract or subcontract) that is firm, fixed-price, or that is not price-redeterminable based on costs” from the price adjustment resulting from a cost accounting practice change; and
  • Requires that all cost accounting practice changes implemented within the same contractor or subcontractor fiscal year be considered together when determining the potential price adjustment.

This change will result in 41 USC 1503: Contract price adjustment, reading as follows:

(b) Amount of Adjustment.—A contract price adjustment undertaken under section 1502(f)(2) of this title shall be made, where applicable, on relevant contracts that are subject to the cost accounting standards so as to protect the Federal Government from payment, in the aggregate, of increased costs, as defined by the Cost Accounting Standards Board and in accordance with the following requirements:

  1. The Federal Government may not recover costs greater than the aggregate increased cost to the Federal Government, as defined by the Board, on the relevant contracts subject to the price adjustment unless the contractor or subcontractor made a change in its cost accounting practices of which the contractor or subcontractor was aware or should have been aware at the time of the price negotiation and which contractor or subcontractor failed to disclose to the Federal Government.
  2. For such changes in cost accounting practices—
    1. costs recovered by the Federal Government shall exclude any contract or subcontract (or any portion of such contract or subcontract) that is firm, fixed-price, or that is not price-redeterminable based on costs; and
    2. for a fiscal year, for any contract or subcontract (or any portion of such contract or subcontract) that is not a firm, fixed-price contract or subcontract the costs recovered by the Federal Government shall not exceed the net increased costs, if any, paid to the contractor or subcontractor for all changes in cost accounting practices implemented within the same fiscal year.

(b) Amount of Adjustment.-A contract price adjustment undertaken under section 1502(f)(2) of this title shall be made, where applicable, on relevant contracts between the Federal Government and the contractor that are subject to the cost accounting standards so as to protect the Federal Government from payment, in the aggregate, of increased costs, as defined by the Cost Accounting Standards Board. The Federal Government may not recover costs greater than the aggregate increased cost to the Federal Government, as defined by the Board, on the relevant contracts subject to the price adjustment unless the contractor made a change in its cost accounting practices of which it was aware or should have been aware at the time of the price negotiation and which it failed to disclose to the Federal Government.

This will impact the wording in CAS 9903.201-4, Contract clauses, and CAS 9903.201-6, Findings.

In Layman’s Terms

Fixed price contracts and subcontracts, including the time portion of Time & Material as well as Labor Hour contracts and subcontracts, will continue to be priced based on the applicable CAS requirements when they are equal to or greater than $35M and do not meeting another CAS exemption (i.e., sealed bid, small business, adequate price competition, commercial, price set by law or regulation, or NATO shipbuilding program). However, should the contractor or subcontractor make a cost accounting practice change after the award, the price adjustment will be limited to CAS-covered contracts and subcontracts that are price re-determinable based on cost (i.e., cost type, the material portion of Time & Material, and fixed price re-determinable).

What is the Timing on These Changes to the CAS Regulations?

The 2026 NDAA provides that within 180 days of enactment (i.e., the date the President signed the Act – December 18, 2025), “the Administrator for Federal Procurement Policy shall issue such regulations as are necessary to implement” the changes made by these subsections. By June 18, 2026, we hope to see the CAS regulations changed, or at least an interim rule in place to implement the changes.

Supporting CAS Compliance and Contract Review

Redstone Government Consulting supports government contractors with interpreting Cost Accounting Standards and implementing compliant accounting policies, procedures, and internal controls. Our team assists organizations with evaluating CAS applicability, reviewing contract and subcontract language, and aligning accounting practices with regulatory requirements. For contracts or subcontracts executed on or after June 18, 2026, government contractors should ensure that appropriate CAS clauses and statutory language are properly incorporated. Redstone GCI also provides support related to accounting system adequacy, audit readiness, cost accounting practice changes, and contract compliance to help contractors understand and manage their obligations before execution and throughout contract performance.

FAQs

  • What are Cost Accounting Standards (CAS)? Cost Accounting Standards are a set of rules that govern how certain government contractors measure, assign, and allocate costs to government contracts to promote consistency and transparency.
  • Do Cost Accounting Standards apply to fixed price contracts? In some cases, yes. Fixed price contracts can be subject to CAS at award when they meet applicable dollar thresholds and do not qualify for an exemption such as adequate price competition or commercial item status.
  • What changed under the FY 2026 NDAA? The FY 2026 NDAA updated the dollar thresholds for CAS applicability and clarified how contract price adjustments apply when a contractor changes its cost accounting practices after award.
  • Does this mean fixed price contracts will be adjusted if accounting practices change? No. Under the revised statute, contract price adjustments related to accounting practice changes are limited to contracts that are redeterminable based on cost, not firm fixed price contracts.
  • Why does this matter for government contractors? These changes affect how contractors assess CAS applicability, manage accounting changes, and evaluate potential audit and financial risk across their contract portfolio.

Learn More About Our Cost Accounting Standards (CAS) Services

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

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

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Topics: Accounting System Compliance, Contracts & Subcontracts Administration, DCAA Audit Support, Government Regulations, Cost Accounting Standards (CAS)