Cost Rules, Rewritten: Why FY 2026 NDAA Section 1826 Matters to Defense Contractors

A recent Federal News Network interview on The Federal Drive spotlights an acquisition-policy development that could be as operationally disruptive as it is deregulatory: Section 1826 of the National Defense Authorization Act signed into law for Fiscal Year 2026. External reporting and early practitioner analysis confirm that the relevant legislation is the FY 2026 NDAA, and that it includes a provision labeled “Exemptions for Nontraditional Defense Contractors,” alongside other reforms aimed at reducing compliance friction for a much wider set of vendors than historically associated with the term “nontraditional.” (Dentons)

The interview’s core claim is that qualifying nontraditional defense contractors will be exempt, for DoD contracts, from three pillars of the traditional cost-accounting and oversight framework: FAR Part 31 cost principles, certified cost or pricing data requirements under the Truthful Cost or Pricing Data Act (often discussed under the legacy “TINA” label), and DoD contractor business systems requirements. That proposition is directionally validated by independent commentary describing Section 1826 as an instruction to DoD to provide these exemptions for covered contracts, subcontracts, or agreements, with a narrow waiver mechanism that requires written justification and congressional notice—features that, in practice, may constrain frequent use of waivers. (Haynes Boone)

The interview also asserts that the provision’s reach is likely vast because the statutory definition of “nontraditional defense contractor” is tied to the absence of a current, or recent, full CAS-covered contract: a contractor that is not currently performing—and has not performed within the preceding year—a DoD contract or subcontract subject to full CAS coverage may qualify. That framing is consistent with third-party explanations of the definition and helps explain why the change is not limited to venture-backed tech entrants; it can encompass a wide swath of the defense market, including small businesses, which are already broadly excluded from CAS coverage by rule. (Dentons)

A related claim in the interview is that the effect could extend to “more than 90%” of the defense industrial base. While “industrial base” can be measured in different ways (firms versus dollars), the Baroni Center at George Mason University has publicly stated that the current legal definition of nontraditional firms excludes only about 7.5% of firms in the DoD market—implying that, by firm count, well over 90% could fall within the definition. (Costello College of Business)

For federal contractors, the significance is not merely reduced paperwork; it is a reallocation of pricing, audit, and performance risk. FAR Part 31 has long served as the government’s shared grammar for cost allowability in cost-reimbursement environments and for cost realism negotiations; removing it for a large contractor cohort invites DoD to craft alternative, “vastly streamlined” rules while still respecting statutory cost limitations. Similarly, relief from certified cost or pricing data can reduce defective pricing exposure and the internal transaction costs of sweeping “current, accurate, complete” certification processes, but it does not eliminate the government’s obligation to determine price reasonableness, nor the contractor’s need to substantiate its commerciality, competition, or other pricing rationale when leverage shifts back to the contracting officer. Finally, business systems exemptions may lessen the threat of payment withholds tied to system deficiencies, but they also increase the probability that agencies will compensate through other tools—contract-specific data requirements, tailored clauses, heightened surveillance in high-risk programs, or selective waivers where price assurance or cost containment is politically salient.

Credit: This post is based on “A sweeping NDAA change could strip away decades of cost rules for most defense contractors,” a December 24, 2025 interview by Terry Gerton (Federal News Network) with Dan Ramish, Partner at Haynes Boone.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. Readers should consult qualified counsel and review implementing guidance and contract-specific clauses before relying on any summarized requirement or exemption.