What aerospace and defense contractors should do now to protect margins, strengthen execution and prepare for a more commercially oriented acquisition environment
The federal acquisition landscape is undergoing one of its most significant transformations in decades. Alongside the Federal Acquisition Regulation overhaul, two interconnected policy actions signal a fundamental shift in how the U.S. government intends to buy products and services.
Executive Order 14402, Promoting Efficiency, Accountability, and Performance in Federal Contracting, established fixed-price contracting as the government’s default and preferred procurement method. The Department of War memorandum, Fostering One Strong Industrial Base, issued Sept. 14, 2026, subsequently outlined a strategy to reduce reliance on government-specific Cost Accounting Standards and move toward broader acceptance of generally accepted accounting principles, to the extent permitted by law.
Together, these initiatives are intended to increase competition, reduce compliance burdens, strengthen the defense industrial base and improve acquisition efficiency. They also point toward greater use of fixed-price contracting, market-based pricing and commercial business practices throughout the acquisition life cycle.
For aerospace and defense contractors, that creates opportunity. It also transfers more risk from the government to the contractor.
Compliance relief does not eliminate performance risk. It relocates it.
Many defense contractors have built their operating models around cost-reimbursement contracts supported by extensive CAS compliance, business-system oversight, audit requirements and government-specific accounting infrastructure. Under the emerging framework, the government is signaling that cost-reimbursement contracting should become the exception rather than the rule, remaining particularly relevant for research and development and for certain major-system acquisition efforts.
A reduced emphasis on government-specific accounting rules may initially look like compliance relief. But the larger change is economic. In a fixed-price environment, contractors are responsible for estimating costs accurately, controlling scope, managing program performance and delivering defined outcomes while protecting margins.
Moving from cost-reimbursement work to fixed-price contracting is no small undertaking, especially for organizations that have not historically priced or delivered products and services this way. The change affects more than contract structures. It can require a different approach to estimating, program management, financial controls, risk appetite, supplier oversight and executive decision-making.
As contractors prepare for this shift, five areas deserve immediate attention.
1. Strengthen estimating capabilities
Under a cost-reimbursement structure, estimating weaknesses may be partially absorbed through allowable-cost recovery. Under a fixed-price structure, those weaknesses can become losses.
Contractors should assess the maturity of their estimating systems, historical cost databases, pricing methodologies and proposal-development processes. That review should consider the quality and traceability of bases of estimate, escalation assumptions, learning curves, labor productivity, material volatility, risk reserves and independent reviews.
Organizations also need disciplined processes for converting historical cost experience into forward-looking commercial judgments. Accurate forecasting becomes significantly more important when profitability depends on the ability to perform within the negotiated price.
2. Modernize program and margin controls
Fixed-price contracts require disciplined project management, schedule forecasting, risk management and early intervention. Contractors need an integrated view of financial and operational performance that shows whether a program is moving toward or away from its expected margin.
That means connecting actual and committed costs, technical milestones, schedule performance, estimate-at-completion data, change activity and earned value or comparable performance insights, where appropriate. Near-real-time visibility can help identify cost growth, schedule slippage, scope ambiguity and other warning signs before margin erosion becomes difficult to reverse.
Dashboards should do more than report what has already happened. They should support timely decisions by establishing escalation thresholds, corrective-action triggers and clear accountability for emerging risks.
3. Evaluate accounting and compliance impacts
The policy direction toward broader use of GAAP does not mean CAS requirements will disappear immediately. Existing statutes, regulations and contract-specific obligations remain relevant, and any transition is likely to affect programs, business units and contract types differently.
Contractors should map their current portfolios to determine where CAS coverage, certified cost or pricing data, cost-allowability rules and government business-system requirements continue to apply. They should then model the likely future state to identify which compliance structures should be retained, simplified or redesigned.
The goal should not be to dismantle controls prematurely. It should be to preserve the capabilities that support reliable pricing and execution while reducing unnecessary complexity as requirements evolve.
4. Revisit contract portfolio strategy
Contractors should analyze their mix of fixed-price, incentive, time-and-materials and cost-reimbursement work. That analysis should consider not only revenue, but also margin volatility, working-capital demands, labor and material exposure, change-order recoverability and the organization’s ability to manage performance risk.
Companies may need to reconsider which opportunities fit their risk appetite and where additional contractual protections are necessary. Bid/no-bid decisions, pricing reviews and executive approvals should reflect the organization’s capacity to estimate, finance and execute the work, not simply its desire to win it.
Market-based pricing also changes the competitive equation. Contractors will need to understand what customers are willing to pay, how competitors may price comparable offerings and where their delivery models create meaningful performance or cost advantages.
5. Assess supply chain readiness
The Department’s memorandum also places greater emphasis on transparency throughout the supply chain. Fixed-price risk does not stop at the prime-contract level. It extends to subcontractors and suppliers whose pricing, financial condition and performance can directly affect program outcomes.
Prime contractors should ensure that subcontractors possess sufficient financial discipline, reporting capabilities and cost visibility to meet future procurement expectations. At the same time, contractors should improve their insight into supplier pricing, financial health, lead times, concentration risk and performance trends.
Suppliers should be segmented according to criticality and exposure. Contractors can then apply targeted reporting requirements and contractual flow-downs where appropriate and develop contingency plans for suppliers whose financial condition or operating performance could put program outcomes at risk.
Prepare for a different basis of competition
The organizations that thrive in this new acquisition environment will not be those that simply reduce compliance costs. They will use strong governance, accurate pricing, disciplined execution, data-driven decision-making and commercial business practices to compete in a market increasingly shaped by fixed-price contracting.
At Protiviti, we view these reforms as more than regulatory changes. They represent a strategic opportunity for contractors to strengthen profitability, improve operational resilience and become trusted partners in the next generation of federal acquisition.
Organizations that begin preparing now can make deliberate choices about where to compete, how to price risk and which capabilities must mature before the market makes those decisions for them.
