Bigger Threshold, Smaller Footprint: What the 2026 CAS Reforms Mean for Federal Contractors

KEY TAKEAWAYS

• Effective October 1, 2026, the CAS Board’s implementing final rule completes a major overhaul of the Cost Accounting Standards framework, including substantial increases to the thresholds governing CAS applicability, full coverage, Disclosure Statement requirements, and agency waiver authority.
• The basic CAS applicability threshold increases from $2.5 million to $35 million, while the longstanding $7.5 million “trigger contract” is eliminated entirely. As a result, negotiated contracts and subcontracts not exceeding $35 million are generally exempt from CAS, subject to the remaining regulatory exemptions and exceptions.
• The thresholds for full CAS coverage and Disclosure Statement requirements double from $50 million to $100 million, substantially expanding the range in which contractors may remain subject only to modified CAS coverage rather than the full body of Cost Accounting Standards.
• Agency-head waiver authority also increases sharply, as the head of an executive agency may now waive CAS requirements, without prior CAS Board approval, for qualifying contracts valued at less than $100 million, compared with the prior $15 million threshold.

How the Former CAS Framework Increased the Cost and Complexity of Federal Contracting

The Cost Accounting Standards are a body of federal rules governing how contractors measure, assign, and allocate costs to their government contracts. Their purpose is to ensure consistency in how contractors account for costs and prevent cost shifting that could result in overcharges to the Government. Compliance is not inexpensive: a covered contractor must maintain a compliant accounting system, establish and consistently follow written cost accounting practices, and remain subject to Government audit of those practices.

Prior to these reforms, contractors could encounter CAS obligations at comparatively modest award values, as a negotiated contract of just $2.5 million could fall within the CAS regime and impose significant accounting and compliance requirements well before a contractor developed a large federal portfolio. Once CAS applied, coverage operated on two levels: modified coverage, requiring compliance with a limited set of standards, and full coverage, requiring compliance with all applicable standards and, in many cases, submission of a formal Disclosure Statement detailing the contractor’s cost accounting practices. The threshold for full coverage and the Disclosure Statement requirement stood at $50 million.

A central feature of the former framework was the $7.5 million “trigger contract.” Although a contract above the $2.5 million basic threshold could still qualify for an exemption if it was below $7.5 million, that protection disappeared once the contractor was performing a CAS-covered contract of $7.5 million or more. From that point forward, and for as long as that larger award was being performed, other negotiated awards above $2.5 million that would otherwise have qualified for the exemption could themselves become subject to CAS. Growth was, in effect, penalized: one significant award could cause CAS obligations to attach to additional contracts that otherwise would have remained exempt.

The practical consequences extended far beyond accounting compliance. For growing and mid-sized contractors, crossing the trigger could require substantial investments in accounting systems, written practices, internal controls, and compliance resources. Those added costs could influence which opportunities a contractor pursued and how aggressively it expanded its federal business. CAS therefore shaped not only how contractors accounted for costs, but also the economics of competing for government work.

The 2026 Reforms Substantially Narrow the Scope of CAS

The 2026 CAS reforms reflect both legislative amendment and regulatory implementation. Congress first altered the statutory framework through Section 1806 of the Fiscal Year 2026 National Defense Authorization Act (“FY 2026 NDAA”), which raised the basic CAS applicability threshold to $35 million and eliminated the longstanding $7.5 million trigger-contract requirement. The CAS Board then implemented those statutory changes and revised the accompanying regulatory framework in a final rule published on September 1, 2026. 91 Fed. Reg. 56056. Effective October 1, 2026, the rule also raises the thresholds for full CAS coverage and Disclosure Statement requirements, expands agency waiver authority, and clarifies the treatment of indefinite-delivery contracts. Taken together, the statutory and regulatory changes substantially narrow the circumstances in which CAS applies and materially reduce the likelihood that a single award will extend CAS obligations across a contractor’s broader portfolio.

In practical terms, the new framework changes both when CAS first applies and the level of compliance required once it does:

1. The basic CAS applicability threshold increased from $2.5 million to $35 million. Negotiated contracts and subcontracts valued at or below $35 million are generally exempt from CAS, subject to the remaining statutory and regulatory exceptions.
2. The $7.5 million trigger-contract requirement was eliminated. The prior framework tied CAS coverage in part to whether a contractor had already received a CAS-covered award of $7.5 million or more. That portfolio-based trigger is now gone, and each contract or subcontract is evaluated under the applicable CAS coverage rules without reference to that separate threshold.
3. The threshold for full CAS coverage increased from $50 million to $100 million. Once CAS applies, contractors may be subject either to modified coverage or to full coverage. The new rule raises the threshold for full coverage to $100 million and similarly increases the principal Disclosure Statement threshold, substantially expanding the range of covered awards that may remain subject only to modified CAS coverage.
4. Agency-head waiver authority increased to $100 million. The head of an executive agency may waive CAS requirements for a qualifying contract or subcontract valued at less than $100 million without obtaining prior approval from the CAS Board, materially expanding the discretion available under the waiver provision.

The significance of the reforms is not limited to higher dollar thresholds, as the Disclosure Statement requirement is now assessed at the business-unit or segment level rather than through a company-wide aggregation test. This allows contractors with multiple segments to evaluate filing obligations with greater precision and potentially narrow the number of segments required to maintain a Disclosure Statement.

What This Means for Contractors

1. Reassess CAS applicability under the new thresholds. For new awards, contracts and subcontracts that would have crossed the former $2.5 million threshold may now fall within the exemption for awards not exceeding $35 million. Contractors should likewise reassess whether individual business units continue to satisfy the revised thresholds for full CAS coverage and Disclosure Statement requirements. The new rule expressly provides that Disclosure Statement obligations are determined at the business-unit or segment level.
2. Do not treat the higher thresholds as a blanket exemption for existing contracts. The increase to the basic CAS threshold does not, by itself, remove CAS from contracts awarded under the former applicability rules. DCAA has advised auditors that existing CAS-covered awards generally retain their coverage and that ongoing CAS audit activity should be coordinated with the cognizant acquisition official.
3. Distinguish between single-award and multiple-award indefinite-delivery contracts. For a single-award IDC, CAS applicability is determined when the vehicle is awarded, using the contract ceiling to apply the $35 million monetary threshold. Multiple-award IDCs are treated differently: CAS applicability is determined separately for each task or delivery order using that order’s ceiling value. In both cases, the remaining CAS exemptions must still be considered.
4. Evaluate whether existing full-coverage contracts qualify for transition to modified coverage. A contractor or subcontractor subject to full CAS coverage under the former $50 million threshold may transition affected contracts or subcontracts to modified coverage at the beginning of the business unit’s next full cost accounting period beginning on or after October 1, 2026, provided the business unit has no unresolved CAS noncompliances and does not satisfy the new $100 million full-coverage criteria. Any accounting-practice change associated with that transition remains a unilateral change subject to the applicable contract-price-adjustment requirements.
5. Analyze CAS and certified cost or pricing data separately. Congress severed the former linkage between the basic CAS applicability threshold and the threshold under the Truthful Cost or Pricing Data statute, establishing an independent $35 million threshold for CAS. Contractors therefore should not infer compliance with one regime from the applicability of the other; each has its own thresholds and exemptions and requires a separate analysis.

Taken together, the 2026 reforms materially narrow the reach of CAS and concentrate its most demanding requirements on larger contracts and business units. By raising the threshold for initial applicability, eliminating the trigger-contract mechanism, and substantially increasing the thresholds for full coverage and Disclosure Statements, the new framework removes compliance obligations that previously could attach much earlier in a contractor’s growth. The result is meaningful relief, particularly for emerging and mid-sized federal contractors, but not a wholesale retreat from CAS. Coverage remains contract- and business-unit-specific, existing obligations may continue, and contractors must evaluate each award under the revised framework rather than assume that the higher thresholds eliminate CAS altogether.

For more guidance or legal assistance on government contracting issues, please contact Centre Law & Consulting.

This publication is provided by Centre Law & Consulting, LLC for general informational purposes only. It does not constitute legal advice, does not create an attorney-client relationship, and should not be relied upon or acted upon without seeking advice from a licensed attorney about your specific circumstances. It summarizes the referenced statutes, regulations, and agency guidance as of the date of publication; those authorities may be amended, superseded, or interpreted differently, and they apply differently depending on the facts of each matter. The views expressed are those of the author and do not necessarily reflect those of the firm or its clients. Prior results do not guarantee a similar outcome.