WASHINGTON, September 18 — The Pentagon is moving to strip away the accounting scaffolding that has kept defence contractors at arm’s length from the rest of American industry. Deputy Secretary Steve Feinberg issued a memorandum directing the Department of War to eliminate audit, accounting and compliance requirements that have separated defence contractors from the broader U.S. economy, the department said Tuesday. The technical reality is a wholesale shift in how the department buys.
Under the current framework, companywide accounting rules and duplicative audits have limited competition and raised prices rather than controlling costs, according to the memo. The directive sets deadlines for senior leaders to open competition, narrow the scope of government-unique cost accounting, and lean on the financial controls and audits companies already maintain.
From CAS to GAAP
The detail that matters is the standard itself. The memo directs the department to move from Cost Accounting Standards (CAS) to Generally Accepted Accounting Principles (GAAP), and to extend that change to every tier of the supply chain. For contractors, that is the difference between maintaining a parallel universe of government-specific cost ledgers and simply reporting the books they already keep for everyone else.
Feinberg framed the shift as a matter of identity. Selling to the department should function as a line of business rather than a corporate identity, he said, and the defence industry should be able to draw on the strength of the private sector.
“Our nation’s greatest strength is its private sector, and our defense industry must harness and mimic it — unleashing industry first, and protecting taxpayers by confining our most burdensome oversight tools to the narrow set of work that genuinely demands them,” Feinberg said. “Transparency and partnership runs both ways: the Department opens its buying to market forces, pays fair prices with honest margins, and in exchange industry shares, when asked, the cost and pricing information it already keeps.”
Deadlines and the wider reform push
The memo’s appendix assigns a series of dated actions across department leadership. It directs USW(A&S) and USW(C) to jointly define and baseline measures of progress — including eliminated requirements, CAS coverage levels and audit cycle times — within 90 days, and to report quarterly thereafter. This is not a standalone gesture.
The industrial base memo extends a reform push directed by an executive order calling on the department to modernize its acquisition process and drive innovation across the defence industrial base. In November 2025, the department redesignated its acquisition system as the Warfighting Acquisition System, a change the Air Force began implementing in January through new portfolio acquisition executive roles.
The memo also carries out an executive order making fixed-price and performance-based contracts the default and preferred method of federal procurement, with cost-reimbursement contracts reserved as the exception. Building on that shift, Under Secretary Michael Duffey has established program czars reporting directly to Feinberg for top-priority weapon systems. The department has also worked to embed private-sector executives into its acquisition, production and supply chain functions through the BOND initiative.
Most recently, Feinberg directed the acquisition workforce to obtain actual cost and pricing data across every tier of the supply chain for contracts valued at $10 million or more — a directive that preceded this week’s industrial base memo. What to watch next is whether the 90-day baselining exercise produces numbers that survive contact with the audit cycle, and whether GAAP reporting at every tier of the supply chain holds up once the first contracts are written under the new rules.
