Last year, we broke down the origins of cost-plus contracting and the defense reform crowd's movement to turn contract types into a morality play: fixed-price good, cost-plus bad.

Since then, a lot has happened.

In April, the White House directed agencies to make fixed-price contracts the “default and preferred method of procurement” and ordered a review of large non-fixed-price awards. It explicitly carved out R&D and pre-production development—the work where requirements and costs are hardest to predict.

Translation: cost-plus isn't going away where uncertainty is real (what we foot-stomped in our cost-plus coverage last year).

At the same time, Congress has been dismantling some of the bureaucracy surrounding government cost accounting.

For the uninitiated, defense companies operate under 2 accounting rulebooks—one for the real world (called GAAP) and one for working with the U.S. government (called CAS).

The FY26 NDAA loosened some of the accounting rules that make defense contracting painful. It raised the threshold for certified cost data from $2M to $10M and gave qualifying nontraditional contractors relief from rules governing cost disclosure, allowable costs, and government-specific accounting systems.

Separately, the Cost Accounting Standards Board has replaced some CAS rules with commercial GAAP.

Then a few weeks ago, the Pentagon dropped a new memo to reset the Pentagon’s expectations for supplier cost and pricing information.

That expectation: DoW will demand much deeper actual-cost visibility for negotiations above $10M—even when certified cost data isn't required. That includes supplier-level costs, price-versus-actual-cost comparisons, profit benchmarking, etc.

It also includes language about potentially direct API connections into contractor financial systems for the Pentagon to directly pull financial data from companies that want U.S. government contracts.

While the idea may have some promise, the danger is implementation.

This directive could radically change the DoW-industry relationship—and not necessarily for the better.

The Pentagon could inadvertently recreate the compliance burden Congress is simultaneously trying to dismantle, particularly for commercial and nontraditional companies.

It could also collide with the economics that underpin the defense-tech boom.

Many of the companies that have lobbied for fixed-price contracts are also the start-ups using investor dollars to develop tech, hoping to sell it to the Pentagon at high margins so the return-on-investment math works.

Traditional government contracts generally produce 7-15% profit (cost-plus and fixed-price), but almost all venture-backed startups are looking for double that—at least.

Anduril says its most mature products generate about 40% profit margins, and for now, reinvests that money into new products that may not generate revenue for years (or ever).

While you can argue about what percentage is enough, it’s useless without also knowing where it goes.

Profits could go to several places: paying off debts, paying investor dividends, paying back investors, reinvesting in product development, or some combination of these.

Without these details, the profit percentage is a hollow metric.

Does the government really think it can implement an API that plugs into a business that not only calculates cost and profit but also gets enough data on a business’s cash flow and financial engineering to distill where the profits are going?

And does the government really think it can keep this secure?

It’s hard to imagine the cyber-attack surface exposed by having one government system connected to all defense industry financials. #OPMhack2015

No doubt defense companies are already mounting lobbying campaigns to soften the memo’s implementation, but time will tell how that plays out.

The contract type tells you where the risk goes.

Pricing transparency tells you whether it was a good deal.

But a good deal for whom? That remains to be seen.

Taiwan proposed an 18% increase in its 2027 defense budget to a record $31.4B to counter growing military pressure from China.

TRIVIA

In the 1970s, the Air Force conducted oddly named initiative called COLD JUICE. What was it’s purpose?

A) Test aerial refueling for strategic airlift
B) Establish an airborne fuel reserve for evacuating a nuclear attack
C) Develop refueling procedures for Arctic operations

AIM-424 Malice. The Navy revealed that Raytheon is developing the newly disclosed AIM-424 Malice, a 1,500-pound air-to-air missile with a range of over 250 nautical miles. Testing began in January 2026, captive-carry trials followed in April, and F-35 fit checks came in August. Carriage is planned for the F/A-18E/F, F-35C, and F/A-XX (if that ever gets awarded), and yes, it does fit inside an F-35.

Defense tech bubble. Venture capital in defense tech vastly outpaces actual procurement budgets. Investor Jordan Blashek warns that bloated startup valuations face a reckoning in the next 18 months, forcing a wave of down-rounds, mergers, recaps, and strategic acquisitions. 

ICYMI

"You're going to see the shift of dollars from what we call exquisite systems that were developed during the Cold War to more modern mass attritable autonomous systems driven by AI."

— Emil Michael, Under Secretary of Defense for Research and Engineering

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ANSWER
A) Operation COLD JUICE grew out of a key lesson from the 1973 Operation NICKEL GRASS airlift to Israel: strategic airlift was only as global as the overseas bases willing to support it. European basing and overflight restrictions exposed that vulnerability.

On August 30, 1974, COLD JUICE I proved the C-5 could use aerial refueling to bypass intermediate stops, flying roughly 10,000 miles nonstop from Delaware to the Philippines in 21 hours with two KC-135 refuelings. Eight COLD JUICE missions were eventually completed, with lasting impact: it ushered in the phrase “strategic airlift” and developed the concept of tanker cells for large-scale force movements.