Recent developments in government contracting highlight continued regulatory modernization, evolving artificial intelligence policy, and bid protest guidance on small business participation requirements. The latest updates include changes to the Cost Accounting Standards (CAS), a new executive order directing agencies to design a voluntary framework for federal engagement with developers of covered frontier models, and a Government Accountability Office (GAO) decision addressing how agencies calculate small business participation under solicitation requirements.
Cost Accounting Standards Board Rescinds Four CAS Standards
The Cost Accounting Standards Board (the Board) has published a final rule rescinding several CAS requirements as part of its ongoing effort to align the standards more closely with generally accepted accounting principles (GAAP). As of June 30, 2026, modified or full CAS coverage is triggered when a contractor receives $35 million or $100 million, respectively, in CAS-covered contracts during an accounting period.
The final rule rescinds CAS 408, governing accounting for compensated personal absences, and CAS 411, governing accounting for material acquisition costs. It also rescinds CAS 404 and CAS 409, which address capitalization and depreciation of tangible assets, while preserving certain provisions that the Board concluded remain necessary to protect the government's interests. Those retained requirements will be relocated to CAS 405, which governs accounting for unallowable costs.
According to the Board, the rescinded standards substantially overlap with GAAP, making separate CAS requirements unnecessary in most circumstances. The rule reflects a broader regulatory trend toward eliminating duplicative accounting requirements when commercial accounting standards already provide appropriate guidance.
The rule also addresses the treatment of accounting practice changes resulting from the revisions. Changes associated with the rescission of CAS 408 are expressly exempt from contract price and cost adjustments under a new exemption at 48 CFR § 9903.201-9(b). The Board otherwise indicated that it does not expect contractors to make significant accounting practice changes to remain compliant. The final rule becomes effective August 7, 2026.
Contractors subject to CAS should review their accounting practices governing capitalization, depreciation, compensated absences, and material acquisition costs to determine whether updates are necessary. Particular attention should also be given to the retained provisions moving into CAS 405, as those requirements will continue to govern the identification and treatment of unallowable costs.
Executive Order Directs Development of Voluntary Frontier Model Sharing Framework
A recent executive order directs designated federal officials to design a voluntary framework under which AI developers may provide the government with access to covered frontier AI models for up to 30 days before planned release to other trusted partners, subject to specified protections.
Although the contemplated framework is voluntary, several practical questions remain regarding industry participation. While the executive order contemplates confidentiality and intellectual property protections, companies may continue to evaluate how government testing could affect the protection of proprietary information, product release timelines, and future regulatory actions. Recent developments illustrate concerns about how voluntary government engagement may intersect with subsequent regulatory action.
The order also directs agencies to establish a voluntary clearinghouse to coordinate vulnerability scanning, validation, and patch distribution with AI developers and critical infrastructure operators. In addition, agencies are instructed to expand programs supporting AI-enabled cybersecurity tools and facilitate access to cybersecurity tools and services, including, where appropriate, covered frontier models, for state and local governments and critical infrastructure operators.
These initiatives may create opportunities for AI developers and cybersecurity providers through government-supported programs, procurement opportunities, and grant funding. At the same time, companies should carefully evaluate issues involving confidentiality, intellectual property, data handling, vulnerability disclosure, liability, and downstream government use before participating.
Developers should also monitor whether voluntary participation gradually becomes an informal expectation for companies seeking government contracts, national security partnerships, or participation in critical infrastructure initiatives.
Read our LawFlash, Executive Order Promotes Public-Private Cooperation on AI Innovation and Security, for a more detailed discussion of this order.
GAO Upholds Navy’s Small Business Participation Evaluation
GAO recently denied a protest challenging the Navy’s rejection of an incumbent contractor’s $113 million proposal after the agency determined that the proposal failed to satisfy the solicitation's small business participation requirement.
The solicitation required offerors to demonstrate that at least 30% of the total estimated task order value would be provided to small business concerns. The protester argued that the agency should have included pass-through fees associated with managing and overseeing small business subcontractors when calculating that percentage.
GAO found the Navy’s interpretation reasonable. The agency concluded that the disputed amounts compensated the prime contractor for managing subcontractors rather than representing amounts paid to the small business subcontractors themselves. Excluding those costs reduced the protester's participation rate to approximately 29.6%, below the required 30% threshold.
The decision serves as a reminder that contractors should carefully distinguish between amounts paid directly to small business subcontractors and costs incurred by the prime contractor in administering those subcontractors. Where a solicitation requires a specified percentage of contract value to be provided “to” small business concerns, agencies may reasonably exclude prime contractor management, oversight, and pass-through costs from the calculation.
The decision also reinforces that, despite recent changes affecting certain diversity and subcontracting initiatives, contractors remain subject to FAR requirements and solicitation-specific obligations concerning participation by small and disadvantaged businesses.
Looking Ahead
These latest developments reflect continued efforts to modernize procurement regulations, establish new frameworks for emerging technologies, and reinforce compliance with longstanding contracting requirements. Contractors should continue to monitor evolving accounting standards, carefully evaluate participation in emerging AI initiatives, and ensure that proposal strategies accurately reflect solicitation requirements governing small business participation and other evaluation criteria.