Department of Defense memo seeks enhanced contractor cost transparency and automated financial data integration

The Pentagon aims to increase transparency of defense contractors’ costs and is exploring software that can retrieve data directly from firms’ financial systems, according to a memo reviewed by Breaking Defense.

Signed by Deputy Defense Secretary Steve Feinberg on Tuesday, the memo instructs senior leaders and agency heads to “reset” expectations for supplier cost and pricing information, ensuring that profit margins remain under control. It emphasizes full supply‑chain transparency for all contractors and subcontractors, affecting contracts of $10 million or more, regardless of whether cost and pricing data requires certification.

Feinberg directs the Under Secretary of Defense for Acquisition and Sustainment to establish fair and reasonable contract profit margins by applying commercial best practices tailored to each product or service line.

A key element of the proposal is a software tool that would give the Defense Department direct, machine‑to‑machine access to defense contractors’ financial systems.

To reduce regulatory burdens, USW(A&S) will explore an automated solution consistent with commercial standards, employing APIs to pull cost information from contractors’ enterprise resource planning or other financial systems.

Although framed as a means of easing burdens, the technology may strain defense firms that have long viewed cost‑and‑pricing requests as overly burdensome, requiring extensive internal administration.

Industry groups such as the Aerospace Industries Association contend that these requirements hinder commercial and non‑traditional firms from doing business with the Pentagon.

The memo does not specify how the proposed automated solution would be implemented or financed, and the Pentagon did not immediately respond to a request for comment.

Recent legislative changes, including the 2026 National Defense Authorization Act, have raised the threshold for submitting certified cost and pricing data to $10 million for contracts awarded after June 2026, up from $2.5 million.

In the new memo, Feinberg states that the department does not intend to limit profitability when contractors achieve efficiencies through fair, negotiated pricing based on realistic baselines, aiming to ensure transparency and equitable contracting.

While some industry concerns exist about a potential tool that could access corporate financial systems, experts suggest the software may not extract every data point; instead, it would standardize data sharing, possibly leveraging artificial intelligence to analyze information.

Retired Army Maj. Gen. John Ferrari, a senior fellow at the American Enterprise Institute, notes that AI can assist but may produce inaccurate conclusions if users lack the expertise to interpret results.

The memo also requires program managers and contracting personnel to ensure that industry submits mandatory Cost and Software Data Reporting (CSDR) information on time, the Pentagon’s system for capturing contractor expenditures on a given program.

“Thousands of these cost reports are currently delinquent across our acquisition portfolio,” Feinberg stated. “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 directive tasks the department’s acquisition wing with ensuring delinquent reports are submitted within 30 days and that CSDR data is used to assess the quality of sole‑source contracts over time.

Cost and pricing information will now be gathered for cost‑plus contracts, allowing the Pentagon to verify fair pricing amid budget overruns or technical challenges.

The influx of data may require the department to hire financial experts capable of interpreting complex cost information.

As Ferrari warned, without skilled analysis, AI‑driven insights could yield misleading results, underscoring the need for human expertise alongside advanced technology.

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