The Federal Acquisition Regulation (FAR) is undergoing its most significant rewrite in 40 years. The FY 2026 National Defense Authorization Act (NDAA) raised the Cost Accounting Standards (CAS) applicability threshold from $2.5 million to $35 million and the certified cost or pricing data threshold from $2.5 million to $10 million. These FAR CAS changes in 2026 affect every government contractor holding a federal contract or planning to bid on one.
Most contractors learn about regulatory changes the hard way: during an audit. A Defense Contract Audit Agency (DCAA) auditor shows up, references a rule your bookkeeper has never seen, and suddenly your indirect rates face re-examination. The changes rolling out between late 2025 and mid-2026 are not minor adjustments. Congress rewrote cost accounting thresholds. The White House ordered a full FAR rewrite. DoD changed how it defines business system deficiencies. Missing even one of these shifts puts your billing rates and contract eligibility at risk.
Summary of FAR CAS Changes in 2025-2026
Seven distinct regulatory changes hit government contractors between October 2025 and June 2026. Each change carries specific compliance deadlines and affects different contractor sizes. The table below maps every change to its effective date, who it hits, and what action you need to take.
| Change | Effective Date | Who It Affects | Action Required |
|---|---|---|---|
| FAR threshold increases (MPT to $15K, SAT to $350K) | October 1, 2025 | All contractors | Update procurement procedures and internal policies |
| FAR 52.232-40 accelerated subcontractor payments | October 1, 2025 | Prime contractors with small business subs | Pay small business subs within 15 days of receiving government payment |
| DFARS material weakness definition [DFARS Case 2021-D006] | January 17, 2025 | Contractors subject to business system reviews | Review business systems against new materiality standard |
| FAR overhaul class deviations (EO 14275) | November 3, 2025 (Phase 1) | All contractors | Monitor acquisition.gov for deviation-by-deviation impacts |
| CAS applicability threshold raised to $35M | Contracts after June 30, 2026 | Contractors with CAS-covered contracts under $35M | Evaluate whether CAS still applies to your contracts |
| TINA threshold raised to $10M | Contracts after June 30, 2026 | Contractors submitting certified cost or pricing data | Reassess pricing data requirements on new proposals |
| CAS Board proposes eliminating CAS 404, 408, 409, 411 | Final rule expected mid-2026 | Full CAS-covered contractors | Track GAAP conformance rulemaking; prepare for transition |
The FAR Overhaul: 40 Years of Rules, Rewritten
In April 2025, Executive Order 14275 directed federal agencies to rewrite the FAR from scratch. The Office of Federal Procurement Policy (OFPP) and the FAR Council are stripping the regulation back to its statutory core, removing non-statutory rules, and rewriting the rest in plain language. This is the first full FAR overhaul since the regulation was created in 1984.
The government is rolling this out in two phases. Phase 1 uses class deviations: interim rule changes that take effect immediately while formal rulemaking follows later. Most Phase 1 deviations took effect on November 3, 2025. On December 19, 2025, the Department of Defense issued 31 additional class deviations covering nearly every DFARS section, effective February 1, 2026.
For small contractors, the practical impact is real but uneven. Some deviations simplify compliance. Others create new flow-down requirements. FAR Part 19 (Small Business) was streamlined to make set-aside rules clearer, but contracting officers and small subcontractors now face changed compliance obligations and new payment flow-down clauses. The bottom line: read every solicitation carefully. Clauses you memorized last year might not apply the same way today.
FAR Threshold Increases: More Room to Operate
FAR Case 2024-001 adjusted acquisition thresholds for inflation for the first time since 2020, effective October 1, 2025 [FAC 2025-06]. The micro-purchase threshold (MPT) rose from $10,000 to $15,000. The simplified acquisition threshold (SAT) rose from $250,000 to $350,000. These numbers change how agencies buy and how contractors compete.
A higher MPT means agencies buy more items without competitive bidding. A higher SAT means more contracts qualify for simplified procedures, reducing paperwork for both the government and the contractor. For a small security company or janitorial firm bidding on contracts under $350,000, the process is now faster and less document-heavy.
One threshold change dwarfs the others. The Truth in Negotiations Act (TINA) threshold for certified cost or pricing data jumps from $2.5 million to $10 million for contracts entered after June 30, 2026 [FY 2026 NDAA, Section 1804(c)]. A $5 million contract that previously required certified cost or pricing data will no longer trigger that requirement. Fewer pricing audits. Less paperwork. Lower compliance costs for mid-size contractors.
CAS Threshold Overhaul: The Biggest Shift in Decades
The FY 2026 NDAA raised the CAS applicability threshold from $2.5 million to $35 million per contract, effective for contracts entered after June 30, 2026 [NDAA Section 1806(d)]. The full CAS coverage threshold rises from $50 million to $100 million in net CAS-covered awards [NDAA Section 1806(a)]. These are the largest CAS threshold increases since the standards were created in 1972.
The impact is immediate and measurable. A construction company with three government contracts totaling $40 million was previously subject to full CAS coverage. Under the new thresholds, that same company falls below the full coverage line. A contractor with a single $8 million contract previously needed a CAS Disclosure Statement and had to follow all 19 CAS standards. After June 30, 2026, CAS does not apply to that contract at all.
Do not confuse threshold relief with a free pass. Contractors above $35 million per contract still face CAS. DCAA still audits your indirect rates. FAR Part 31 cost principles still govern allowability. The threshold change removes a layer of compliance for smaller contracts. It does not remove the obligation to maintain an adequate accounting system.
CAS Board Proposes Eliminating Four Standards
On September 11, 2025, the CAS Board published a notice of proposed rulemaking to eliminate CAS 404 (Capitalization of Tangible Assets), CAS 408 (Compensated Personal Absence), CAS 409 (Depreciation of Tangible Capital Assets), and CAS 411 (Acquisition Costs of Material) in favor of Generally Accepted Accounting Principles (GAAP). The White House announced plans to eliminate over 60 accounting requirements across these and other standards.
The logic is straightforward. CAS 408 requires specific methods for accruing vacation and sick leave costs. GAAP already covers this under ASC 710. Maintaining both standards creates duplicate compliance work with no additional government protection. The CAS Board concluded that GAAP protections are sufficient for these four areas.
The public comment period closed on October 14, 2025. The final rule has not been published as of February 2026. If finalized, contractors with full CAS coverage would follow GAAP instead of these four standards for capitalization, leave accruals, depreciation, and material costs. One exception: CAS 404-50(d)(1), which prevents duplicative cost charges during mergers and acquisitions, would be preserved and relocated to CAS 406. Track this rulemaking. It changes how your bookkeeper handles fixed assets, PTO accruals, and depreciation schedules on CAS-covered contracts.
DFARS Business Systems: A New Standard for Deficiencies
On January 17, 2025, DoD finalized a rule replacing the term “significant deficiency” with “material weakness” across all DFARS business system evaluations [DFARS Case 2021-D006]. This implements Section 806 of the FY 2021 NDAA. The change is not cosmetic. It redefines when the government withholds your payments.
Under the old standard, a “significant deficiency” triggered payment withholds. The bar was low. Under the new standard, a material weakness requires “a reasonable possibility that a material misstatement will not be prevented, or detected and corrected, on a timely basis.” DCAA auditors now assess both the materiality and pervasiveness of a deficiency before recommending a withhold.
The practical result: fewer payment withholds for minor issues. A single missing timesheet signature no longer automatically escalates to a system-level finding. DCAA’s May 2025 Memorandum for Regional Directors (MRD 25-PSC-001) instructs auditors to evaluate the nature, frequency, and potential impact of noncompliance before classifying a deficiency. Noncompliances below the material weakness threshold are now classified as “system deficiency” or “less than material noncompliance.” For a small contractor whose cash flow depends on timely government payments, this distinction matters. Review your DCAA compliance posture against this new materiality framework.
CMMC 2.0 and What It Means for Your Accounting System
Cybersecurity Maturity Model Certification (CMMC) 2.0 Phase 1 enforcement began on November 10, 2025. Over 220,000 contractors and subcontractors now face cybersecurity certification requirements as a condition of contract award. Most contractors handling Controlled Unclassified Information (CUI) need a Level 2 certification, which requires a third-party assessment starting November 10, 2026.
CMMC is a cybersecurity rule, but it hits your accounting system directly. Your accounting software stores contract values, labor rates, indirect rate calculations, and cost data. All of it qualifies as CUI on many defense contracts. A QuickBooks system holding DCAA-sensitive data needs the same cybersecurity controls as your engineering files.
The compliance timeline is strict with no grace period. Phase 2 (November 2026 to November 2027) expands Level 2 requirements across more solicitations. Phase 3 (November 2027 to November 2028) adds Level 3 requirements for sensitive programs. Full enforcement across all DoD contracts begins November 10, 2028. Most organizations need 6 to 12 months to prepare for a third-party assessment. Waiting until you see the requirement in a solicitation is too late. Start your gap analysis now.
Accelerated Payments to Small Business Subcontractors
FAR 52.232-40, effective October 1, 2025, requires prime contractors to pay small business subcontractors within 15 days of receiving accelerated payment from the government [FAC 2025-06]. The clause must be flowed down to every small business subcontract, including those for commercial products and services. No additional fees or charges to the subcontractor are permitted.
For a prime contractor running a $3 million facility maintenance contract with five small business subs, this changes cash flow management. Government payment hits your account on Monday. By two weeks from Monday, every small business sub must be paid. Miss the window, and you violate a mandatory contract clause.
For small businesses on the subcontractor side, this is good news. Faster payments reduce the cash flow strain that kills small GovCon firms. If you are a small business sub and your prime is not paying within 15 days of receiving government payment, you have a contract compliance issue to raise with the contracting officer.
Frequently Asked Questions
What are the biggest FAR CAS changes in 2026?
The FY 2026 NDAA raised the CAS applicability threshold from $2.5 million to $35 million and the TINA threshold from $2.5 million to $10 million, both effective for contracts after June 30, 2026. The FAR overhaul under Executive Order 14275 is also rewriting the entire Federal Acquisition Regulation through class deviations and formal rulemaking.
Does the CAS threshold increase mean my company no longer needs CAS compliance?
Only if all your individual CAS-covered contracts fall below the new $35 million threshold and your total net CAS-covered awards fall below $100 million. The change applies to contracts entered after June 30, 2026. Existing contracts retain their original CAS coverage requirements until they close out.
How does the DFARS material weakness rule affect DCAA audits?
DCAA auditors now use a higher bar before recommending payment withholds. The January 2025 final rule replaced “significant deficiency” with “material weakness,” requiring auditors to assess both the materiality and pervasiveness of a finding. Minor or isolated deficiencies no longer automatically trigger system-level withholds.
When do CMMC 2.0 requirements become mandatory?
Phase 1 enforcement began November 10, 2025, with select solicitations requiring CMMC Level 1 or Level 2 self-assessments. Third-party assessments for Level 2 start November 10, 2026. Full mandatory compliance across all DoD contracts (except COTS) takes effect November 10, 2028. Most organizations need 6 to 12 months to prepare.
What should small contractors do right now to stay compliant?
Run a compliance gap analysis against the new thresholds and rules. Confirm your accounting system meets DFARS material weakness standards. Start CMMC preparation if you handle CUI. Update subcontract clauses to include FAR 52.232-40 accelerated payment terms. Use the compliance readiness check to identify your biggest exposure areas.
Key Takeaways
- Check your CAS exposure before June 30, 2026. If your individual contracts fall below $35 million and your total CAS-covered awards fall below $100 million, you might be freed from CAS requirements on new contracts. Run the numbers with your accountant. The savings in compliance costs are significant for mid-size contractors.
- The TINA threshold jump to $10 million reduces pricing audit burden. Contracts between $2.5 million and $10 million no longer require certified cost or pricing data after June 30, 2026.
- Update your subcontract templates now. FAR 52.232-40 requires 15-day accelerated payments to small business subs. Flow-down is mandatory.
- Start CMMC preparation immediately. Third-party Level 2 assessments begin November 2026. Your accounting system stores CUI. Protect it accordingly.
- Monitor acquisition.gov/far-overhaul monthly. The FAR rewrite produces new class deviations on a rolling basis. Missing one could mean bidding with outdated contract clauses.
Federal procurement rules are shifting faster in 2025-2026 than in any period since the FAR was created. The contractors who track these changes protect their billing rates, avoid audit surprises, and win more work. The ones who don’t find out during their next DCAA audit.
Not sure where your firm stands? Take the free Compliance Readiness Check or review our DCAA compliance services to identify gaps before your next audit cycle. Use our indirect rate calculator to see how threshold changes affect your rate structure.
