FAR and CAS Changes in 2025-2026: What Government Contractors Need to Know

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 DoD certified cost or pricing data threshold from $2.5 million to $10 million. Both figures are written into the US Code itself. Neither has an implementing regulation behind it yet, and a third change, the one raising full CAS coverage to $100 million, has not happened at all.

These FAR CAS changes in 2026 affect any government contractor holding a federal contract or planning to bid on one, and the gap between statute and regulation is the part worth understanding.

Regulatory changes are usually learned 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.

Four of those rows carry a condition the date column cannot hold:

• FAR 52.232-40, accelerated subcontractor payments. The clause is included here because most primes still have not flowed it down. Check subcontracts signed in prior years, not only new ones.
• CAS applicability at $35M. The statute carries no contract-date condition, but Section 1806(d)(3) ordered implementing rules within 180 days and none have issued. 48 CFR 9903.201-1 is unrevised.
• Full CAS coverage at $100M. The 180-day deadline passed in June 2026 with only a proposed rule on file.
• TINA at $10M for DoD. The codified FAR 15.403-4 still reads $2.5M, but DoD contracting officers work from class deviation 2026-O0048 (Rev. 1), whose DFARS 215.403-3(a) carries the $10M figure. Civilian agencies, and NASA and the Coast Guard, stay at $2.5M. See the TINA compliance threshold guide.

The FAR Overhaul: 40 Years of Rules, Rewritten

In April 2025, Executive Order 14275 directed federal agencies to rewrite the FAR from scratch, per public reporting. 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. Civilian agency Phase 1 deviations took effect in November 2025, per acquisition.gov reporting on the FAR overhaul. On December 19, 2025, the Department of Defense issued 31 additional class deviations covering nearly every DFARS section, effective February 1, 2026. Verify current status at acquisition.gov/far-overhaul, as the deviation list is updated on a rolling basis.

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)]. The scope matters here. Section 1804(c) amended 10 U.S.C. 3702, which is the DoD authority. Civilian agencies run on 41 U.S.C. 3502, which Congress left alone, and FAR 15.403-4 still states $2.5 million for everyone.

So a $5 million DoD contract entered after that date no longer triggers the certified cost or pricing data requirement as a matter of statute, while the same contract at a civilian agency still does. Fewer pricing audits on the defense side. Less paperwork. Lower compliance costs for mid-size contractors, once the FAR catches up.

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 [NDAA Section 1806(d)]. Section 1806(d)(1) did that by amending 41 U.S.C. 1502(b)(1)(B) directly, striking the old cross-reference to the TINA threshold and writing in the number. It carries no contract-date condition, so whatever else is true, the June 30, 2026 date belongs to the TINA change and does not apply here.

What it does carry is paragraph (3) of the same subsection, two lines below the amendment, which gave the Administrator for Federal Procurement Policy 180 days to issue such regulations as are necessary to implement the amendments made by this subsection. That deadline passed in June 2026 and no regulations have issued. So the statute reads $35,000,000 today, and the rule Congress asked for to implement it does not exist. Most practitioner commentary treats the increase as taking effect through that rulemaking.

The full CAS coverage threshold is a different story. Section 1806(a) does not raise it. It directs the Administrator for Federal Procurement Policy to revise the rules to move 48 CFR 9903.201-2 from $50 million to $100 million, within 180 days. That deadline ran out in June 2026. The only document filed under RIN 0348-AB85 is the proposed rule of March 20, 2026, and the regulation still reads $50 million. So does the Disclosure Statement trigger at 9903.202-1.

Which leaves a genuine split, and it is worth being plain about it. A contractor with net CAS-covered awards of $60 million is still under full CAS coverage today, because the $100 million figure is not in force. A contractor whose largest single contract is $8 million sits below the $35 million statutory applicability figure, but 48 CFR 9903.201-1 still describes that threshold by pointing at TINA. The regulation’s own citation now points at the amended statute while its words still say TINA, so the same sentence pulls in two directions. Contracting officers administer from the regulation. Get the determination in writing before you change what you file.

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.

Four CAS Standards Are Being Rescinded, Effective August 7, 2026

This one has moved from proposal to final rule. The CAS Board published a notice of proposed rulemaking in September 2025 covering 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), and the final rule published on July 8, 2026 with an effective date of August 7, 2026.

It does not treat the four alike, which matters if you are deciding what to stop doing: CAS 408 and CAS 411 are wholly rescinded, while CAS 404 and CAS 409 are mostly rescinded with the surviving provisions moved elsewhere in the CFR. Do not read this as permission to drop 404 and 409 entirely. The White House announced plans to eliminate over 60 accounting requirements across these and other standards.

The logic is straightforward. CAS 408-40 governs accrual methods for compensated personal absence on CAS-covered contracts. GAAP standards already address these accrual requirements. Maintaining both creates duplicate compliance work with no additional government protection. The CAS Board concluded that GAAP protections are sufficient for these four areas.

The final rule published on July 8, 2026 and takes effect on August 7, 2026. Read what it actually does, because “eliminates four standards” overstates it. CAS 408 and CAS 411 are wholly rescinded. CAS 404 and CAS 409 are mostly rescinded, with the surviving provisions moved elsewhere in the CFR. Contractors under full CAS coverage follow GAAP for capitalization, leave accruals, depreciation, and material costs, but should not assume 404 and 409 have disappeared entirely. It changes how your bookkeeper handles fixed assets, PTO accruals, and depreciation schedules on CAS-covered contracts.

What Replaced “Significant Deficiency” in DFARS Business System Evaluations?

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.

This particular withholding, under DFARS 252.242-7005, applies only to contracts subject to the Cost Accounting Standards. Small businesses are exempt from CAS at any contract value [48 CFR 9903.201-1(b)(3)], so if you qualify as a small business, this specific withholding does not reach you. That exemption does not cover everything: a cost-reimbursement contract can only be awarded when your accounting system is adequate [FAR 16.301-3(a)(3)], no matter your size.

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. As reflected in DCAA audit guidance issued in May 2025, auditors are instructed 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 and Your Accounting System

Your accounting software stores contract values, labor rates, indirect rate calculations, and cost data that qualifies as Controlled Unclassified Information (CUI) on defense contracts. DoD codified it as the CMMC Program at 32 CFR part 170, and the “CMMC 2.0” label you still see in circulation is retired branding. Full CMMC guidance and certification timelines are covered in the Audit Defense Library.

When Must Prime Contractors Pay Small Business Subcontractors Under FAR 52.232-40?

FAR 52.232-40 requires prime contractors to pay small business subcontractors within 15 days of receiving accelerated payment from the government, to the maximum extent practicable. One correction worth making, because it changes where you look: this clause is not new. It entered the FAR in 2013, its current text is dated March 2023, and FAR 32.009-2 directs contracting officers to insert it in all solicitations and contracts.

If you have been treating it as a 2025 requirement, the subcontracts to check are the ones you signed in 2023 and 2024, not the ones you are about to sign. 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

Key Takeaways

• Check your CAS exposure now, not in June. The $35 million contract-level figure has been in the statute since December 2025, but the implementing rule Congress ordered alongside it is overdue and 48 CFR 9903.201-1 is unrevised. Check the small business exemption at 48 CFR 9903.201-1(b)(3) first, because it settles the question outright for a lot of small businesses. Then run the numbers with your accountant and get the contracting officer to confirm in writing.
• Do not plan around the $100 million full-coverage figure. It is not in force. Full coverage and the DS-1 filing still trigger at $50 million until OFPP issues the rule it has already missed the deadline for.
• The DoD TINA jump to $10 million reduces pricing audit burden. DoD prime contracts between $2.5 million and $10 million entered after June 30, 2026 no longer require certified cost or pricing data by statute. Civilian agencies stay at $2.5 million, and FAR 15.403-4 has not been updated.
• Update your subcontract templates now. FAR 52.232-40 requires 15-day accelerated payments to small business subs. Flow-down is mandatory.
• 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 do not 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.