DoD Asks Industry How to Lower Cost Accounting Barriers for Commercial Firms — What It Signals for Small Business Contractors

Published August 27, 2026 | TIKC NewsWire

The Pentagon is asking industry a rare question: what is slowing you down, and how do we fix it? DoD is looking for ideas on how to streamline data and audit requirements for business systems as it seeks to lower compliance costs and make it easier for commercial firms to do business with the department. In an open letter to DoD stakeholders, Michael Duffey, the department’s top acquisition official, and Michael Powers, acting Pentagon comptroller, asked industry to recommend “common sense contract accounting changes.”

Why This Matters — The Compliance Barrier Has Been Real

Defense contracting’s accounting requirements are among the most complex in the federal marketplace. Cost Accounting Standards create significant compliance infrastructure requirements — dedicated accounting systems, cost pools and allocation methodologies, annual CAS disclosure statements, and regular DCAA audits. For commercial firms, standing up a CAS-compliant accounting system can cost hundreds of thousands of dollars and require years to fully implement.

What Changes Could Actually Look Like

The letter solicits industry recommendations. Based on prior reform efforts, the most likely targets include simplification of earned value management system requirements for smaller programs, modification of CAS applicability thresholds, streamlining of DCAA audit procedures for firms below certain revenue thresholds, and reducing business systems compliance requirements that trigger on cost-type contracts.

How Small Businesses Should Respond

The open letter creates an unusual opportunity to directly shape DoD procurement policy. The most effective responses will be specific — naming the exact requirement that creates disproportionate burden, quantifying the compliance cost, and proposing a specific modification with a clear rationale.

The Bottom Line

The Pentagon’s open request for accounting reform recommendations is the clearest signal in years that DoD’s compliance burden may be getting lighter. If you have avoided defense contracting because of accounting compliance barriers, watch this process closely. Brick by brick — the walls that have kept commercial firms out of defense contracting may finally be coming down.

Frequently Asked Questions

What are Cost Accounting Standards and why do they matter?

Cost Accounting Standards are a set of 19 standards governing how contractors accumulate and allocate costs under government contracts above certain thresholds. CAS compliance requires dedicated accounting systems, disclosure statements, and DCAA audits — a significant barrier for commercial firms entering the defense market.

What is the Duffey-Powers letter asking for?

Pentagon acquisition chief Michael Duffey and acting comptroller Michael Powers issued an open letter soliciting industry recommendations for common sense changes to contract accounting data and audit requirements that would lower compliance costs for commercial firms doing business with DoD.

How can small businesses participate in this process?

Submit specific recommendations through the DoD acquisition policy channels identified in the Duffey-Powers letter. Effective responses name the exact requirement creating disproportionate burden, quantify the compliance cost, and propose a specific modification. Industry associations can amplify individual firm recommendations through collective submissions.

References

Federal News Network. (2026, August). DoD Eyes Accounting Reforms to Lower Barriers for Commercial Firms. https://federalnewsnetwork.com/defense-main/2026/08/dod-eyes-accounting-reforms-to-lower-barriers-for-commercial-firms/