Some government requirements exist for a reason. Others can end up consuming more effort than risk.

Terry Gerton There was really big news on September 1st. The Cost Accounting Standards Board finally released a big new rule following the 2026 NDAA dealing with monetary thresholds for cash coverage. Now people may not stay up late on a Friday waiting for that, but it is big news. What’s been going on since the NDAA between then and now with the new rule?

Dan Ramish So back in March, the Cost of Counting Standards Board proposed implementing regulations to address the threshold increases that were called for under section 1806 of the NDAA. And there were a number of other positive reform changes that the CAS Board ended up including along with that, most notably changes to coverage of indefinite delivery contracts, which had been an area of ambiguity within the CAS rules for some time. The CAS Board then accepted comments. There was, I think, a 30-day comment period on the proposed rule. And it was that, in the intervening five months, CAS Board made productive use of that time, engaging with industry and incorporating significant improvements from the proposed rule based on public comments. And so with this September 1st, 2026 rule, they most notably include a new provision for a transition mechanism that gives existing contractors an off-ramp from full CAS coverage, which was one of the things we actually spoke about the proposed rule back around March or April and had noted that there was this gap where mid-tier contractors might be stuck with an obligation to comply with CAS coverage if they had contracts that were above the old threshold of $50 million, but below the $100 million threshold that they’d still have to comply with full CAS for a time. And now the cast board listened to the input from industry and stakeholders and included a fix in the final rule.

Terry Gerton There are some pretty complicated features in here. Why don’t you just walk us through as people are beginning to read the rule and its footnotes, what will they find?

Dan Ramish So, first big reform in the rule, the final rule raises the CAS applicability threshold from $2.5 million to $35 million. And that means that contracts and subcontracts below $35 million are now completely exempt from CAS. And that replaces, there was an old mechanism that was more complicated, a trigger contract, where there was a coverage test exempting smaller contracts until the contractor received the $7.5 million contract. That more complicated framework is gone with just a single higher applicability threshold. It also decouples the cost counting standards from the truthful cost per pricing data threshold, which had been kind of linked together for a long time. The CAS Board estimated in the rulemaking documentation that raising the basic threshold to $35 million will reduce the number of CAS covered business segments by approximately 60 percent. And at the same time, maintain over 90 percent of current CAS covered dollars. So a really beneficial change to kind of maximize the transparency benefits of the CAS rules, while minimizing the regulatory burden. The other key headline change was the CAS board doubled the threshold for full CAS coverage from $50 million to a $100 million. Those, those two key changes were straight out of the NDAA. And that change really increasing the full-cast coverage threshold really provides meaningful relief for mid-tier contractors because full CAS coverage is much more intrusive and involves more major changes to processes and procedures and controls for a government contractor, compliance with all the traditionally 19 standards, now 15 standards with some of the other reforms that have been made. Whereas modified CAS is less onerous because it only requires compliance with four central standards, which are more aligned with the requirements that the contractors have to comply with under the FAR anyway. So, and the board analyzed this change too to look at the kind of cost benefit, and they estimated that this will reduce the number of entities subject to full coverage by nearly 30 percent, from about 773 entities down to 564. And so, and there again, would maintain coverage of more than 99% of the dollars. Then the rule also raises the agency had waiver authority from $15 million to a $100 million, affording agencies greater latitude to waive CAS requirements. And finally, the rule resolves the longstanding ambiguity around CAS coverage of indefinite delivery contracts, as I mentioned, or IDCs, as the board refers to them. And it provides that multiple award IDCs are evaluated at the order level, whereas single award IDC will be evaluated at the contract level based on the ceiling value for the overall contract. And there have been a lot of debate over the years between industry and DCAA about how to handle IDC recognizing that a ceiling value is not representative of a binding commitment on the part of the government. But at the same time, you know, the many orders are issued under these vehicles, more and more government business goes through indefinite delivery vehicles and doing it at the order level, you know, was somewhat more controversial. And so the CAS Board tried to strike a balance here by calling for separate treatment of multiple award versus single award IDCs. And many of these changes trace back to recommendations that were made by the Section 809 panel, the congressional blue ribbon panel that issued reports back in around 2018.

Terry Gerton Dan Ramish is a partner at Haynes Boone. Dan, you mentioned up front the off-ramp change that they made here. Walk us through why that’s such a big deal.

Dan Ramish The off-ramp change, the proposed rule would have applied the new coverage thresholds only prospectively to new contracts. And because CAS coverage is determined for each contract rather than for the contractor, and because it’s made at the time of award, without an off- ramp mechanism, contractors that had existing contracts above the old $50 million threshold for full CAS coverage but below the new $100 million threshold would have had to continue to comply with full CAS for years until their ongoing contracts expired. So there were a number of public comments submitted and some of the comments pointed out that this would put existing government contractors at a disadvantage compared to new market entrants who would be able to immediately benefit from the higher threshold. And, you know, the CAS Board looked at the issue and agreed that having a mechanism was desirable and in the spirit of the board’s deregulatory actions. And so the final rule fixes the issue by allowing contractors that are currently subject to full CAS coverage under the old $50 million threshold to transition affected contracts to modified CAS coverage with two preconditions. One, they have to have no unresolved CAS non-compliances. And two, they can’t independently meet the $100 million threshold. And as long as those two conditions are met, it’d be possible for contractors to move their existing contracts from full CAS to modified CAS. The CAS Board did mention one other important note that it expects contractors will continue to follow their existing practices as they comply with CAS. And so any current or future cost accounting practice changes that related to the transition from full CAS to modified CAS would be considered unilateral and subject to contract price adjustment requirements.

Terry Gerton It does sound like the board took in on good faith a lot of the industry recommendations. Did they hold fast against any of the things that industry hoped they would see?

Dan Ramish Yes, there were two areas. I mentioned already the IDC issue. Industry really favored having a single standard that addressed CAS coverage requirements at the order level for all indefinite delivery contracts. And the CAS board really felt like single award contracts were different and deserve different treatment for a couple of reasons. They said that the Then a single award IDC establishes a long-term relationship without maintaining competition for task or delivery orders. And that increases the potential for vendor lock-in, which further reduces competition and creates risk to the government. And the board also noted, particularly in the proposed rule, that they alluded to the data that, in contrast to multiple award contracts, single award contracts 65% of single award IDCs receive orders reaching at least 90 percent of the ceiling value. So, the board said, well, maybe if you have a multiple award contract, the ceiling value isn’t money you’ll ever reach, but that threshold is more representative of the true value of the IDC if it’s a single award.

Terry Gerton When does all of this take effect?

Dan Ramish So the final rule is effective October 1st, 2026. So the start of the government’s next fiscal year. And for the off rent mechanism, eligible contractors will be able to transition affected contracts and subcontracts from full to modified CAS coverage at the start their business units next full cost accounting period, beginning on or after October 1. So the earliest practical transition date depends on the contractor business unit’s fiscal year, Some may be able to transition immediately when the final rule goes into effect, whereas others will have to wait until sometime later in 2027.

Terry Gerton And what do contractors need to be doing now to get ready for the switch?

Dan Ramish So these changes will impact CAS coverage of contracts and subcontracts. And so contractors should assess their current status and look at the transition mechanism and see what they’ll be able to do and also be mindful of the potential for unilateral changes based on cost accounting practices that are affected by the transition mechanisms. Hopefully, contractors will be able get strong relief from these new changes. Frankly, at a time when we’ve had a lot of motion and noise within government procurement, this is a really meaningful change for a lot contractors, particularly mid-tier contractors.