DCAA and DCMA Have Their Orders –  Now Watch the Implementation

By Jacob Bertram

The September 14, 2026, memorandum, “Fostering One Strong Industrial Base,” could fundamentally change how the Department of Defense (DoD)/War oversees contractor accounting systems, audits costs, establishes forward pricing rates, and allocates responsibilities between the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency (DCMA).

The word could is important.

The memorandum establishes an unmistakable direction: rely more heavily on commercial accounting, existing audit evidence, competition, and demonstrated risk, and less on duplicative government reviews and government-unique compliance systems. But the practical impact will depend on the policies, class deviations, audit guidance, review criteria, and organizational decisions that follow.

Contractors should pay close attention not only to what the memorandum says but also to what DCAA, DCMA, and the acquisition components actually do next.

DCAA is directed to begin with the risk, not the audit program

The memorandum directs the Department to ensure that audits are risk-based. That specific directive falls to the Under Secretary of War (Comptroller), who will apply it across the Department, including within DCAA’s audit programs. Before undertaking additional audit work, the Department must consider a contractor’s audited financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) and internal-control attestations.

It also establishes several important limits:

• An office should not request another audit of a cost or system that has already been audited.
• Closed years should not be reopened without indicators of fraud or material misstatement.
• Each audit must identify the specific risk, its materiality to a government decision, the required records, and why existing evidence is insufficient.

If implemented faithfully, this would shift the starting question from “Which standard audit program applies?” to “What material risk remains, and what additional work is necessary to address it?”

That is a meaningful distinction. Government oversight should not repeat work merely because another organization performed it. An independent financial-statement audit will not answer every government-contracting question, but DCAA should consider it before requesting the same records, retesting the same controls, or conducting another broad examination.

The follow-up guidance will reveal how substantial this change really is. Contractors should watch for revisions to DCAA audit programs, risk-assessment documentation, evidentiary standards, and procedures for relying on independent public accountants. If the existing programs remain substantially unchanged, the policy may have limited effect at the field-audit level.

DCMA and DCAA must overhaul forward-pricing support

The memorandum directs DCMA to work immediately with DCAA to overhaul the establishment and maintenance of Forward Pricing Rate Agreements (FPRAs).

The new approach is supposed to use rate information maintained in the contractor’s ordinary course of business. FPRAs are to be used only when they accelerate recurring, high-volume negotiations and create a more efficient process for both government and industry.

That direction challenges the idea that an FPRA is automatically beneficial or that contractors should maintain a separate government-oriented forecasting process simply to support one. An FPRA makes sense when it avoids repeated negotiation of the same rates. It makes less sense when the time spent developing, auditing, negotiating, and maintaining the agreement exceeds the time saved by the individual pricing actions it is intended to simplify.

The real reform will be found in the details: what qualifies as recurring and high-volume, which records DCAA will accept from ordinary business systems, how long the process may take, and whether contracting officers will use the resulting agreements consistently.

Separate business-system reviews are supposed to shrink

The memorandum directs the Department to consolidate estimating-system and material-management-and-accounting-system requirements into simplified, commercially aligned accounting-system criteria. The Department will retire their separate reviews.

It also calls for:

• Narrowing earned value management (EVM) to major programs where it is justified by risk.
• Retiring the separate government system-validation regime for EVM.
• Relying on government-wide property requirements rather than a separate review overlay.
• Raising the threshold for contractor purchasing-system reviews and reserving reviews for cases of demonstrated risk.
• Establishing a 90-government-day deadline for disposition of contractor corrective-action plans.
• Accepting certification by a registered independent public accounting firm against published criteria in place of a Department review.

These changes would significantly affect both DCMA’s business-systems oversight role and DCAA’s accounting, estimating, and related audit work. They do not eliminate the need for adequate systems. They change who should perform the examination, how many examinations are necessary, and whether the criteria align with normal commercial accounting practices.

The Department must now publish the simplified criteria and issue the necessary class deviations. Until those documents are published, contractors cannot know whether several overlapping reviews will truly become one streamlined assessment or whether the same requirements will simply be consolidated under a different title.

DCAA and DCMA may also face a broader realignment

The Director of Administration and Management is directed to develop options within 90 days for aligning the contract-oversight enterprise. That work must examine the roles and charters of DCAA, DCMA, the military departments, and other Department organizations; eliminate duplication; and address workforce effects.

The memorandum protects mission-critical contract-administration functions, including product acceptance, payment support, property administration, government flight operations, and supplier quality assurance. It does not similarly prescribe that every existing audit or business-system function remain where it is today.

This could result in anything from clearer handoffs between DCAA and DCMA to a much more significant redistribution or consolidation of responsibilities. At this point, the memorandum directs the Department to develop options. It does not announce the final organizational structure.

That distinction matters. Contractors should not assume that DCAA or DCMA has already lost a particular responsibility. The 90-day recommendations, any revised charters, and subsequent implementation decisions will indicate whether the Department intends process changes, organizational changes, or both.

The biggest danger is “shadow CAS” (Cost Accounting Standards)

The memorandum expressly directs the Department to prevent “shadow CAS”: the imposition of CAS-like disclosure, system-review, or accounting-practice requirements on exempt awards under another name.

It also prohibits components from recreating retired business-system regimes through local policies, clauses, checklists, or approvals. Every recurring requirement below the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS) must be tied to an identifiable authority or risk suspension and possible expiration.

This may be the most important implementation test. Formal requirements can be eliminated at headquarters and quietly recreated in solicitations, data requests, audit steps, and local review procedures. If that happens, contractors will see little practical change.

What contractors should monitor

The memorandum is important, but it marks the beginning of the reform process, not the final operating model. Contractors should monitor:

• DCAA revisions to audit programs, risk assessments, and reliance on outside audit evidence.
• DCMA and DCAA guidance governing FPRAs and forward-pricing support.
• The new commercially aligned contractor accounting system criteria.
• Class deviations for retiring or consolidating existing business-system requirements.
• Rules for accepting independent public accounting firm certifications.
• The 90-day options for realigning DCAA, DCMA, and other oversight responsibilities.
• Any changes to agency charters, staffing, field-office procedures, and performance measures.
• Solicitations and local instructions that may recreate eliminated requirements.
• The Department’s quarterly measurements of audit cycle time, business-system reviews, CAS coverage, commercial participation, and new entrants.

The Department should ultimately be judged by measurable outcomes: fewer duplicative audits, shorter cycle times, fewer companies pulled into full CAS coverage, faster resolution of business-system findings, and more commercial firms willing to compete.

The memorandum provides DCAA, DCMA, and acquisition leadership with clear direction. What comes next will determine whether it becomes genuine acquisition reform or another policy initiative absorbed into the existing system.

The government-contracting community should closely follow the implementation. The real impact will not be known from the memorandum alone. It will become evident in the rules, procedures, organizational decisions, and field-level behavior that follow.

Is your team ready for what comes next? Lohfeld Consulting Group helps government contractors prepare for changing DCAA and DCMA oversight with audit readiness support, business-systems review preparation, pricing and forward-pricing rate strategy, and acquisition strategy guidance. Contact us to discuss how these changes could affect your company.

Suggested Reading

• The Federal Government Should Stop Paying for the Same Assurance Twice – Jacob Bertram makes the case for a commercial-first model in which DCAA relies on existing GAAP, SOX, and independent audit work and focuses its own auditors on higher-risk contractors.

• FAR Overhaul Timeline: 2026 Changes and 2027 GovCon Outlook – Learn how the Revolutionary FAR Overhaul has moved from class deviations to formal rulemaking and which changes are still coming in 2027.

• How to Survive and Thrive Under FAR Part 1 Changes – See why decentralized, agency-level acquisition guidance creates new fragmentation risk for oversight bodies such as DCAA and DCMA, and what BD teams should do about it.

By Jacob Bertram, Principal Consultant at Lohfeld Consulting Group

Jacob is a senior leader in the federal procurement industry with over 20 years of experience spanning GSA, the Department of Energy, DCMA, and DCAA. He currently advises Fortune 500 companies, government agencies, and federal contractors on acquisition strategy, pricing, audit readiness, and operational efficiency. Jacob is DAWIA Level III certified in Contracting and a member of the Defense Acquisition Corps.

Lohfeld Consulting Group has proven results specializing in helping companies create winning captures and proposals. As the premier capture and proposal services consulting firm focused exclusively on government markets, we provide expert assistance to government contractors in Capture Planning and Strategy, Proposal Management and Writing, Capture and Proposal Process and Infrastructure, and Training. In the last 3 years, we’ve supported over 550 proposals winning more than $170B for our clients—including the Top 10 government contractors. Lohfeld Consulting Group is your “go-to” capture and proposal source! Start winning by contacting us at www.lohfeldconsulting.com and join us on LinkedIn, Facebook, and YouTube^(TM).