New CAS Rules Take Effect October 1, 2026: What Federal Contractors Need to Know

The Cost Accounting Standards (CAS) landscape is changing significantly on October 1, 2026. Here's what the new rules mean for federal contractors, accounting teams, and GovCon businesses.

The Cost Accounting Standards Board (CASB) has finalized two significant changes to the federal cost accounting framework. Effective October 1, 2026, the rules raise the threshold for basic CAS applicability from $2.5 million to $35 million, increase the threshold for full CAS coverage and Disclosure Statement requirements from $50 million to $100 million, eliminate the $7.5 million trigger-contract concept, and rescind most of CAS 407.

For many contractors, these changes could reduce the administrative burden associated with CAS. But they do not mean that cost accounting, documentation, or pricing discipline becomes less important.

Contractors should review their contracts, business-unit structure, CAS status, accounting practices, and upcoming proposals before relying on the new thresholds.

What Is CAS?

Cost Accounting Standards (CAS) are federal standards governing how certain contractors measure, assign, and allocate costs associated with government contracts.

CAS is separate from the Federal Acquisition Regulation (FAR), although the two frameworks work together in federal contracting.

In practical terms, CAS can affect how a contractor:

• Measures and accumulates costs

• Assigns direct and indirect costs

• Establishes and applies indirect cost allocation practices

• Maintains consistency in accounting practices

• Documents and discloses certain accounting practices

• Supports contract pricing and cost information

Not every federal contractor is subject to CAS. Small businesses remain exempt, and other contractual and statutory exemptions continue to apply. The new rules significantly change the dollar thresholds used when determining CAS applicability.

What Is Changing on October 1, 2026?

The CAS Board issued two final rules on September 1, 2026, both with an effective date of October 1.

1. The Basic CAS Threshold Increases to $35 Million:

The basic CAS applicability threshold is increasing from $2.5 million to $35 million.

Under the new rule, negotiated contracts and subcontracts not exceeding $35 million are generally exempt from CAS, subject to the other exemptions and applicability rules.

The previous $7.5 million trigger-contract concept is also eliminated.

This is one of the most significant changes for emerging and mid-sized government contractors because the dollar threshold alone will no longer bring many contracts into the CAS framework.

The CAS Board estimates that raising the basic threshold could reduce the number of CAS-covered business segments by approximately 60%, while retaining more than 90% of the dollars currently subject to CAS.

2. Full CAS Coverage Threshold Increases to $100 Million:

The threshold for full CAS coverage is increasing from $50 million to $100 million.

The threshold for Disclosure Statement requirements is also increasing from $50 million to $100 million. The new rule clarifies that Disclosure Statement applicability is assessed at the individual business-unit or segment level.

This could be particularly relevant for contractors that have grown beyond the small-business exemption but have historically operated under full CAS coverage.

Eligible contractors currently subject to full CAS coverage under the old $50 million threshold may be able to transition to modified coverage at the beginning of their next full cost accounting period beginning on or after October 1, 2026.

However, the transition is not automatic. The business unit must have no unresolved CAS noncompliances and must not meet the requirements for full coverage under the new $100 million threshold.

3. CAS 407 Is Being Rescinded:

The second October 1 rule rescinds CAS 407, Use of Standard Costs for Direct Material and Direct Labor.

The CAS Board concluded that most of CAS 407 overlaps with GAAP and other existing CAS requirements and therefore is no longer necessary.

Limited requirements concerning standard costs and related variances at the production-unit level that are not addressed by GAAP will be retained and moved to CAS 418, Allocation of Direct and Indirect Costs.

Importantly, contractors should not interpret the rescission as permission to immediately abandon their existing standard-cost procedures.

The CAS Board stated that it did not identify instances where rescinding CAS 407 would require changes to currently compliant disclosed cost accounting practices. Contractors remain subject to CAS 401 and applicable CAS contract clauses concerning consistency in accounting practices.

What Does CAS Change Mean for Government Contractors?

The impact will vary depending on a contractor's contracts, business size, accounting structure, and current CAS status.

Small and Emerging GovCons:

Small businesses remain exempt from CAS. For other contractors, the increase from $2.5 million to $35 million means that many negotiated contracts that would previously have crossed the basic CAS threshold based on value alone will no longer do so. This could reduce the amount of CAS-specific administrative work required as companies pursue larger opportunities.

However, CAS exemption does not mean exemption from good cost accounting practices. Contractors still need accurate financial records, consistent accounting policies, appropriate cost allocation, and support for the costs and pricing information they provide to the government.

Mid-Sized Contractors:

The changes may be particularly important for mid-sized contractors that have grown beyond the small-business exemption. A contractor currently subject to full CAS coverage under the old $50 million threshold should determine whether it can transition to modified coverage under the new rules.

Finance and contracts teams should review:

• Current CAS-covered contracts

• Business-unit or segment structure

• Current Disclosure Statement obligations

• Existing CAS noncompliances

• Contract values

• Upcoming solicitations

• Accounting practices affected by CAS 407

The transition rules are tied to the beginning of the business unit's next full cost accounting period, so October 1 does not necessarily mean that every contractor's CAS status changes immediately.

What About Indefinite-Delivery Contracts?

The new rule also clarifies how CAS applies to indefinite-delivery contracts (IDCs).

For multiple-award IDCs, CAS applicability is generally determined at the individual task or delivery order level, using the ceiling value of the order.

For single-award IDCs, CAS applicability is generally determined when the IDC is awarded, using the IDC's ceiling value.

This distinction matters for contractors working through vehicles such as GWACs, Federal Supply Schedules, and other indefinite-delivery arrangements.

Companies should therefore avoid assuming that the new $35 million threshold can be applied to every IDC in the same way.

CAS Is Not the Same as Certified Cost or Pricing Data

One important point for GovCons: the CAS threshold and the threshold for Certified Cost or Pricing Data are separate requirements.

The CAS changes do not eliminate or automatically change the requirements for submitting certified cost or pricing data.

A contract can therefore be exempt from CAS while still involving separate cost or pricing information requirements.

Contractors should evaluate CAS applicability and cost-or-pricing-data requirements independently rather than treating the two thresholds as interchangeable.

Does the New Rule Mean Contractors Can Relax Their Accounting Controls?

No. The new CAS rules reduce the scope of certain CAS requirements, but they do not eliminate the need for reliable accounting practices.

Contractors still need to know:

• Where costs originated

• Which contract or project benefited from the costs

• Whether costs are direct or indirect

• How indirect costs are allocated

• How labor is charged

• How accounting practices are applied consistently

• What documentation supports reported costs

• Which requirements apply to each contract

For contractors that remain subject to CAS, consistency remains particularly important. The CAS 407 rule, for example, does not eliminate CAS 401 or the applicable CAS contract clauses concerning consistent accounting practices.

What Should GovCons Do Before October 1?

Contractors do not necessarily need to overhaul their accounting systems because of the rule changes. Instead, they should conduct a focused CAS review.

1. Review Your Current CAS Status. Identify contracts and business units currently subject to CAS. Then determine how the new $35 million and $100 million thresholds affect those contracts and business units.

2. Review Disclosure Statement Requirements. Determine whether each relevant business unit independently meets the new threshold for full CAS coverage and Disclosure Statement requirements.

3. Evaluate Eligibility for Modified Coverage. If your organization currently operates under full CAS coverage because of the previous $50 million threshold, determine whether the transition provisions apply. Pay particular attention to unresolved CAS noncompliance.

4. Review CAS 407-Related Procedures. Identify accounting procedures that were specifically established because of CAS 407. Do not automatically remove those controls. Determine whether they remain necessary under GAAP, other CAS requirements, contract requirements, internal policies, or your existing accounting practices

.

5. Review IDCs. If your company works through multiple-award or single-award IDCs, determine which CAS applicability rules apply to the vehicle and individual orders.

6. Review Upcoming Proposals. Make sure pricing and proposal teams are using the applicable CAS requirements for new opportunities rather than relying on outdated thresholds.

7. Keep Your Cost Data Organized. Even when CAS does not apply, contractors may still need reliable cost information to support pricing, billing, financial reporting, and government requests.

CAS Changes: Quick Reference

The threshold changes and agency waiver increase are established by the September 1 CAS Board final rule. CAS 407 is addressed in a separate final rule, also effective October 1.

Frequently Asked Questions

When do the new CAS rules take effect?

The two CAS Board final rules were published September 1, 2026, and both take effect October 1, 2026.

What is the new CAS threshold?

The basic CAS applicability threshold increases from $2.5 million to $35 million for applicable negotiated contracts and subcontracts. Other exemptions still need to be considered.

What is the new full CAS coverage threshold?

The threshold for full CAS coverage and Disclosure Statement requirements increases from $50 million to $100 million.

Is CAS 407 being eliminated?

Yes. The CAS Board is rescinding CAS 407 effective October 1, 2026. Limited requirements relating to standard costs and variances at the production-unit level are being moved to CAS 418.

Do contractors need to change their accounting systems because of CAS 407?

Not necessarily. The CAS Board stated that it did not identify instances where rescinding CAS 407 would itself require changes to currently compliant cost accounting practices. Contractors should review their existing procedures before making changes.

Does the new $35 million CAS threshold mean contracts below $35 million have no federal cost-accounting requirements?

No. CAS applicability is only one part of federal contracting compliance. FAR requirements, contract clauses, cost principles, pricing requirements, and other applicable rules can still apply.

The Bottom Line

The October 1, 2026 CAS changes represent a significant shift in the federal cost-accounting landscape.

For many contractors, the higher thresholds and CAS 407 rescission could reduce CAS-specific administrative requirements. But contractors should not interpret the changes as a reason to stop maintaining accurate, consistent, and well-supported cost records.

The practical priority is to understand which requirements apply to your contracts, review your current CAS status, and make sure your accounting processes can continue to support accurate cost and pricing information.

For GovCons, the companies that understand their requirements, and have the financial systems to produce reliable cost data when needed will be better positioned to navigate the changing compliance environment.

Looking to modernize your government contractor accounting? Explore how SumX connects project accounting, timekeeping, cost allocation, expenses, billing, and reporting in one platform. Request a Demo