The Pentagon wants greater transparency from major defense contractors and their supply chains regarding the cost of building weapons and is considering software that would pull data directly from companies’ financial systems, according to a memo reviewed by Breaking Defense.
The memo, approved Tuesday by Deputy Defense Secretary Steve Feinberg, is intended to “reset” the Pentagon’s expectations for contractor cost and pricing information. The department wants to use the data to ensure that contractors’ profit margins remain fair and reasonable.
“Full transparency throughout all tiers of the supply chain applies to all contractors and subcontractors,” Feinberg wrote in the memo, which was addressed to senior Pentagon leaders, defense agency directors and the heads of department field activities.
The requirement would apply to negotiations involving products and services valued at $10 million or more, regardless of whether the cost and pricing data must be formally certified.
Feinberg also directed the undersecretary responsible for acquisition and sustainment to establish fair and reasonable contract profit margins using commercial best practices tailored to individual product and service lines.
Pentagon Considers Direct Connections to Corporate Financial Systems
One of the memo’s key proposals is a software solution that would give the Defense Department automated, machine-to-machine access to defense companies’ financial systems.
“To reduce industry’s regulatory burden and compliance costs, USW(A&S) will explore an automated solution consistent with commercial best practices,” Feinberg wrote.
The system would use application programming interfaces, or APIs, to pull cost information directly from contractors’ enterprise resource planning systems or other financial platforms.
Although the Pentagon says the goal is to reduce regulatory and administrative burdens, the proposal could frustrate defense companies. Contractors have long argued that the department’s cost and pricing requirements are excessively burdensome and force companies to maintain administrative systems and personnel largely to satisfy government demands.
Industry groups, including the Aerospace Industries Association, have also argued that the requirements discourage commercial businesses and nontraditional defense firms from working with the Pentagon.
The memo does not specify how the automated solution would be implemented or funded. It also remains unclear whether adopting the system would create additional costs for industry. The Pentagon did not immediately respond to questions about the memo or how it intends to carry out the directive.
Certified Data Threshold Has Been Raised
In recent years, Congress has changed cost and pricing data requirements in an effort to reduce the burden on industry.
The fiscal 2026 defense authorization law raised the threshold for submitting certified cost and pricing data to $10 million for all contracts awarded after June 2026. The previous threshold was $2.5 million.
Feinberg said the Pentagon does not intend to limit contractors’ profitability when companies achieve efficiencies after negotiating a fair and reasonable price based on a realistic baseline.
Instead, he said, the directive is intended to improve transparency and ensure that contracts are negotiated fairly.
Pentagon Cites Thousands of Overdue Reports
The memo directs program managers and contracting personnel to ensure that industry submits mandatory Cost and Software Data Reporting, or CSDR, information on time.
CSDR is the Pentagon’s system for collecting data on costs incurred by contractors during defense programs.
“Thousands of these cost reports are currently delinquent across our acquisition portfolio,” Feinberg wrote. “The data deficit impairs our ability to assess which programs are providing the most value for the Department and which programs require adjustments to remain on track and on budget.”
The Pentagon’s acquisition organization has been tasked with ensuring that overdue reports are submitted within 30 days and that CSDR data is used to evaluate the long-term quality of sole-source contracts.
More Data Could Require More Financial Expertise
Detailed cost and pricing information is primarily collected for cost-plus contracts, in which the government assumes the financial risk if programs exceed their budgets because of technical problems or other challenges.
Greater visibility into contractor costs would help the Pentagon determine whether it is paying a fair price for the products and services it purchases, said John Ferrari, a retired Army major general and senior nonresident fellow at the American Enterprise Institute.
However, the influx of data could also require the department to hire additional financial specialists capable of interpreting it.
“That’s not a common skill set,” Ferrari said. Artificial intelligence could help analyze the information, he added, but only if officials understand what they are examining and how to draw accurate conclusions.
“If you don’t know what you’re looking at and you don’t know how to make inferences from it, AI can give you exactly the wrong answers,” Ferrari warned.
Ferrari also said that software access would not necessarily mean the Pentagon could extract every piece of information stored in a company’s internal systems. More likely, he said, the tool would standardize and streamline how companies submit cost data to the government, in a process similar to filing taxes electronically.
