Guide · Nontraditional Defense Contractors
Nontraditional Defense Contractor: Definition, Status and What the FY2026 NDAA Exempts
A nontraditional defense contractor is any company that hasn’t performed a fully CAS-covered DoD contract or subcontract in the year before a solicitation. There’s no certification or official list; you represent it. Since December 18, 2025, Section 1826 of the FY2026 NDAA exempts its DoD work from certified cost or pricing data, FAR Part 31 and the DFARS business systems clauses, unless waived.
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By Alexander Mungov, CPA, former DCAA Supervisory Auditor
Last updated: September 10, 2026
The definition, in plain terms
Under 10 U.S.C. 3014, a nontraditional defense contractor (NDC) is “an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the Department of Defense for the procurement or transaction, any contract or subcontract for the Department of Defense that is subject to full coverage under the cost accounting standards.” It applies to procurements and to other transactions under 10 U.S.C. 4021(a) and 4022.
It’s a DoD term. The FAR doesn’t define it; the DFARS repeats the statute at 202.101. Four points matter in practice:
- Only full CAS coverage counts. Modified coverage doesn’t cost you status, and neither do CAS-exempt awards such as small business, commercial, or competitively priced firm-fixed-price contracts.
- Subcontracts count. A fully covered subcontract under a DoD prime disqualifies you like a prime contract would.
- It’s tested per procurement. The look-back runs from each solicitation, so status can change between bids.
- It’s an entity test. How affiliates and business units of traditional contractors are treated is still open.
DoD’s Other Transactions Guide notes that “many entities will fall into the NDC category, including nearly all small business concerns, and even those firms that work exclusively with DoD.”
Status
Certification, lists and assertions
There is no NDC certification and no official list. Status is self-represented and checked by the buyer.
No certification, registration or list
No agency certifies NDC status and there’s no government registry. OTA consortium membership isn’t a certification either, though consortia generally ask members to state their status in writing.
Asserting it on a DoD proposal
Where the solicitation includes DoD’s certified cost or pricing data provision (252.215-7994 under the Part 215 deviation), you request an exception with a statement that you haven’t performed a fully CAS-covered DoD contract or subcontract in the year before the solicitation, and you give the contracting officer the right to examine your records before award to verify it.
How it’s checked on an OTA
DoD’s Other Transactions Guide tells agreements officers to validate and document NDC status before award, including relationships between companies claiming it. There’s no prescribed method, but an officer may run an FPDS report on your CAS clause history.
What to keep on file
Every DoD contract and subcontract performed in the past year and the CAS clause in each. FAR 52.230-2 means full coverage; 52.230-3 means modified coverage. Your statement is a representation to the government, so treat it like one. If a past representation is questioned, we work alongside your counsel.
Section 1826
What the FY2026 NDAA exempts
Section 1826 of Public Law 119-60, a note to 10 U.S.C. 3014, took effect on enactment, December 18, 2025. For DoD contracts, subcontracts and agreements, “products and services provided by nontraditional defense contractors” are exempt from ten requirements, each “or successor regulation”:
- DFARS 252.242-7006, Accounting System Administration
- DFARS 252.234-7002, Earned Value Management System
- DFARS 252.215-7002, Cost Estimating System Requirements
- DFARS 252.242-7004, Material Management and Accounting System
- DFARS 252.245-7003, Contractor Property Management System Administration
- DFARS 252.244-7001, Contractor Purchasing System Administration
- DFARS 252.242-7005, Contractor Business Systems, the payment withholding clause
- DFARS 215.407: defective pricing, make-or-buy, forward pricing rate agreements, should-cost reviews and estimating systems
- 10 U.S.C. 3702, certified cost or pricing data (the Truthful Cost or Pricing Data statute, still commonly called TINA), at any dollar value
- FAR Part 31, Contract Cost Principles and Procedures
The head of the contracting activity can waive or modify the exemption for a product or service by written determination, delegable only to a senior contracting official or higher, and can apply one or more of the ten requirements to a contract with a written best-interest justification. The Secretary of Defense must notify the congressional defense committees within 60 days of a waiver, including efforts to adapt the acquisition so a waiver wouldn’t be needed. That step suggests waivers won’t be routine.
Section 1826 doesn’t list the Cost Accounting Standards. A CAS-covered contract under modified coverage still carries them.
Implementation
How DoD has implemented Section 1826 so far
DoD is writing Section 1826 into its FAR overhaul class deviations one part at a time, and several clause numbers have changed.
Part 215: 2026-O0048, Rev. 1 (July 22, 2026)
Implements Section 1826(a)(8) and (9). Unless waived, NDCs don’t submit certified cost or pricing data or make-or-buy plans, the forward pricing rate agreement and should-cost sections don’t apply, and the estimating system clause stays out of their contracts. Provision 252.215-7013, prescribed for all solicitations, lists these exemptions. PGI 215.403-71(b)(5) sets the waiver path.
Part 231: 2026-O0032, Rev. 1 (August 4, 2026)
Implements Section 1826(a)(10): “Do not apply part 231 or FAR part 31 to contracts with nontraditional defense contractors.”
Part 234: 2026-O0011, Rev. 1 (August 5, 2026)
The earned value subpart doesn’t apply to contracts awarded to NDCs. The EVMS clause is now 252.234-7999.
Part 244: 2026-O0015, Rev. 1 (July 29, 2026)
NDCs are exempt from maintaining an acceptable purchasing system (DFARS 244.071), and purchasing system reviews don’t apply to them. The clause is now 252.244-7998.
Part 245: 2026-O0046, Rev. 1 (September 9, 2026)
A partial implementation: 252.245-7003 is left out of NDC contracts unless waived. The Government Property clause (FAR 52.245-1) still applies when you hold government property.
Part 242: 2026-O0050 (March 6, 2026)
No NDC exemption text. Issued before DoD began implementing Section 1826 and not yet revised, it renumbers the accounting system clause to 252.242-7999, MMAS to 252.242-7997 and Contractor Business Systems to 252.242-7998 with no NDC carve-out. The statute exempts them and their successors on its own terms. If one appears in a solicitation you’re bidding as an NDC, raise it before award.
Losing status
How status is lost, and why it’s rarer now
You lose NDC status by performing a DoD contract or subcontract subject to full CAS coverage, and regain it once a full year before a new solicitation passes without one. Whether a contract that moved from full to modified coverage still counts in the look-back isn’t settled, so read it conservatively.
Under the CAS Board’s final rule (91 FR 56056, effective October 1, 2026), a business unit is fully covered only if it receives a single CAS-covered award of $100 million or more, or received $100 million or more in net CAS-covered awards in its preceding cost accounting period. Both tests were $50 million. DoD applied $100 million from July 30, 2026, to business units with only DoD contracts (Class Deviation 2026-O0006, Rev. 1).
A contract also has to be CAS-covered to count, and CAS now applies only to negotiated contracts above $35 million. A company would typically need a very large, non-exempt negotiated DoD award to stop being nontraditional. Our guide to the FY2026 TINA and CAS thresholds has the details.
Related authorities
OTAs, follow-on production and commercial treatment
Prototype OTAs
Under 10 U.S.C. 4022(d), a prototype OT needs at least one NDC or nonprofit research institution participating to a significant extent, all significant participants being small businesses or NDCs, one third of the cost from non-federal sources, or a senior procurement executive finding of exceptional circumstances.
Follow-on production
Those conditions don’t apply to follow-on production under 4022(f), which can be awarded without further competition if the prototype was competed and successfully completed. If the follow-on is a FAR contract and the performer still qualifies, Section 1826 keeps Part 31 and the business system clauses off it.
Commercial treatment
10 U.S.C. 3457 lets DoD treat an NDC’s products and services as commercial, and requires it for services using the same employee pool and pricing method as commercial work. DoD implements it at DFARS 212.001-70(d) in the Part 212 deviation; no commerciality determination is needed. Section 1826 matters most where this isn’t used: sole-source, cost-type and non-Part 12 follow-on work.
Still in force
What still applies to an NDC
- A fair and reasonable price. Section 1826 removes 10 U.S.C. 3702, not 3705, which requires data other than certified cost or pricing data as needed to judge price. DoD’s 252.215-7013 lists FAR 15.403 as exempt, which on its face goes further than the statute, but FAR 15.402 and 15.404 still require a fair and reasonable price.
- Audit rights in your contract. The Audit and Records clause (FAR 52.215-2) isn’t on the list. Where it’s included, auditors can examine the records behind costs you bill on cost-type and time-and-materials work.
- Accounting system adequacy. FAR 16.301-3 allows a cost-reimbursement contract only if the contractor’s accounting system can adequately segregate, accumulate and allocate costs to it. That’s a Part 16 limitation, not an exempt item.
- Allowability. The Allowable Cost and Payment clause (FAR 52.216-7) measures allowable cost against FAR subpart 31.2. With Part 31 off for NDCs, allowability becomes a matter of each contract’s terms.
- Civilian agencies and primes. Section 1826 is DoD only. NASA, DHS, DOE and GSA work follows the regular FAR, and primes still flow down their own terms and must support what they pay you.
Evaluation
What the auditor actually looks at
Here’s how an NDC’s proposal and books still get reviewed, based on the public regulations and how these reviews generally run.
Your status claim. The contracting officer or price analyst reads your exception request and may check your CAS clause history before award. A claim that turns out wrong is worse than never making it.
Price analysis first. Expect comparisons to your commercial sales, prior prices paid, competing quotes, market or parametric data and the government estimate. On sole-source work with nothing to compare, the request moves to data other than certified: labor hours and rates, material quotes, indirect rates. DCAA can be asked to review that data even though nothing is certified. For OTAs, DoD’s guide tells agreements officers to exhaust other ways of establishing price reasonableness before asking for cost information.
Your accounting system, if the award is cost-type. Section 1826 removes the 252.242-7006 criteria and withholding, not the FAR 16.301-3 question. That’s often answered by a pre-award review along the lines of an SF 1408 survey: timekeeping, direct and indirect cost segregation, a job cost ledger, and billing tied to the books.
Cost-share contributions. On a prototype OT that relies on cost sharing, DoD’s OT Guide says contributions should be allowable, allocable, reasonable and consistently accounted for. That’s cost-principle language even without Part 31.
What goes away. No certificate of current cost or pricing data, no post-award defective pricing audit, and under the statute no business system reviews or withholding, unless the exemption is waived.
Unsettled
Open questions to watch
Cost-type contracts without Part 31
The Part 216 and 231 deviations don’t say what replaces subpart 31.2 in the Allowable Cost and Payment clause, how indirect rates get set, or how final rates and closeout work for an NDC. Read each contract’s cost terms closely.
Prime flowdowns
The statute covers subcontracts, but primes write their own terms, and many will keep asking NDC subcontractors for cost data and audit rights.
Waiver frequency and level
The congressional notice points to few waivers. The Part 215 guidance tracks the statute’s delegation limit, while the Part 234 and 244 texts let the head of the contracting activity delegate to the chief of the contracting office.
Business segments
DoD’s commercial-item guidance says a business segment of a traditional contractor can meet the NDC definition. Whether that carries over to Section 1826 hasn’t been addressed.
Practical
Should you still keep DCAA-ready books?
Yes, for most growing defense companies. Status can be lost in one award, and a waiver can put Part 31 or a business system clause back into a contract. Cost-type work still needs a system that passes FAR 16.301-3. Investors and acquirers ask about government accounting in diligence. And civilian agency work comes with the full FAR.
That doesn’t mean a big-prime compliance function. It means clean timekeeping, a job cost structure, indirect pools you can explain, and unallowable costs identified. See our page on DCAA-compliant accounting systems.
Next steps
If you think you qualify
Pull your CAS history
List every DoD contract and subcontract performed in the past year and its CAS clause. A full-coverage clause in the window ends the analysis.
Map your entities
Know which legal entity is bidding and whether affiliates hold fully covered work.
Write the representation once, carefully
Standard language for proposals and OTA paperwork, reviewed, with the support kept on file.
Read each solicitation for clauses
Look for business system, EVMS or cost principle clauses that shouldn’t be there, and raise them before award.
Watch the $100 million line
Before accepting a large negotiated award, model whether it triggers full coverage and what you’d give up next time.
Regulatory status
A note on the FAR overhaul
This all sits inside the Revolutionary FAR Overhaul launched by Executive Order 14275 on April 15, 2025. DoD uses class deviations in place of the codified FAR and DFARS text, listed on its FAR overhaul class deviation index, and clause numbers can change with each revision. Because the FAR is mid-rewrite and DoD deviations apply, we check the current text of every part we cite on every engagement.
Questions
Frequently asked
What is a nontraditional defense contractor?
An entity that isn’t performing, and hasn’t performed in the one-year period before a DoD solicitation, any DoD contract or subcontract subject to full CAS coverage. The definition is in 10 U.S.C. 3014 and DFARS 202.101. Most small businesses, commercial companies and new entrants qualify.
Is there a nontraditional defense contractor certification or official list?
No. There’s no government certification, registration or list. You represent your status procurement by procurement, and the contracting officer or agreements officer can check it, for example against your CAS clause history in FPDS and your books and records before award.
How do we assert nontraditional defense contractor status?
Where a DoD solicitation includes the certified cost or pricing data provision, you request the exception with a written statement that you haven’t performed a fully CAS-covered DoD contract or subcontract in the year before the solicitation. Otherwise you state it in your proposal or OTA consortium paperwork. Keep the support on file.
What does the FY2026 NDAA exempt nontraditional defense contractors from?
Section 1826 exempts their products and services on DoD contracts, subcontracts and agreements from certified cost or pricing data under 10 U.S.C. 3702, FAR Part 31, DFARS 215.407, the six DFARS business system clauses and the Contractor Business Systems clause. The head of the contracting activity can waive it in writing.
How do we lose nontraditional status?
By performing a DoD contract or subcontract under full CAS coverage. From October 1, 2026, full coverage generally starts with a single CAS-covered award of $100 million or more, or $100 million in net CAS-covered awards in the prior cost accounting period, so fewer companies will cross the line.
Does the exemption apply to civilian agency contracts?
No. Section 1826 covers contracts, subcontracts and agreements of the Department of Defense. NASA, DHS, DOE, GSA and other civilian work still follows the regular FAR, including Part 31 on cost-type contracts.
Do we still need a DCAA-compliant accounting system?
If you want cost-type work, most likely yes. The DFARS accounting system clause is exempt, but FAR 16.301-3 still requires an accounting system that can segregate, accumulate and allocate costs to the contract before a cost-reimbursement award, and status can be lost or waived.
More
Related services
Commercial items and OTAs
Commercial item determinations, NDC commercial treatment, and pricing support for other transactions.
DFARS business systems
The six systems, material weaknesses and withholding, for when the exemption doesn’t apply.
TINA and CAS thresholds after the FY2026 NDAA
The $10 million certified data threshold and the $35 million and $100 million CAS thresholds.
DCAA-compliant accounting systems
A system that can segregate, accumulate and allocate cost well enough for a cost-type award.
Think you’re a nontraditional defense contractor?
Send us your contract list and the solicitation you’re looking at. We’ll check your status, flag clauses that shouldn’t be there, and tell you what records you still need.