Stephen Feinberg, Deputy Secretary of Defense, issues a memorandum on “Supplier Cost and Pricing Transparency.”
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The Pentagon is shifting its approach to oversight of defense contractors with a new directive aimed at strengthening cost transparency in military procurement. Last week, Deputy Secretary of Defense Steve Feinberg issued a memorandum instructing contracting officers to obtain actual cost data from defense manufacturers to help ensure fair and reasonable pricing on government contracts. This represents a notable departure from prior acquisition policies under the current administration, which have emphasized reduced regulatory oversight in defense spending.
Policy Context
In early 2025, the presidential executive orders “Unleashing Prosperity Through Deregulation” and “Restoring Common Sense to Federal Procurement” signaled a broad deregulatory stance toward defense procurement. These directives significantly scaled back rules meant to protect against overpricing and fraudulent billing by military contractors. Congress reinforced this shift through the fiscal year 2026 National Defense Authorization Act, raising the threshold for mandatory cost and pricing disclosures from $2.5 million to $10 million. Certified cost data—required to be accurate, complete, and up-to-date—are critical tools that enable contracting officers to evaluate whether defense firms are charging fair prices or pursuing excessive profits.
Historically, Congress has granted numerous exemptions from certified cost data requirements, largely citing the administrative burden placed on contractors, especially smaller firms lacking extensive procurement experience. Yet repeated assessments have failed to substantiate claims that such reporting imposes undue hardship.
Key Considerations
Defense contractors inherently track operating costs as part of standard business planning and profitability modeling. The more pressing issue involves defining what constitutes excessive profit in the context of government contracts. Without clear benchmarks, the full value of enhanced pricing transparency may remain unrealized. In 2021, the Department of Defense Inspector General noted that profit margins above 15%—the maximum specified under the Federal Acquisition Regulation—could be deemed excessive. During an audit of TransDigm Group Inc., a sole-source supplier, the IG identified $21 million in excess earnings, though only after facing intense congressional scrutiny over allegations of monopolistic behavior and obscured cost reporting.
Pentagon officials have also identified cases of inflated pricing involving major contractors such as Lockheed Martin and Boeing. Following an internal review initiated by senior leadership roughly a decade ago, then- Director of Defense Pricing Shay Assad uncovered contracts where profits on Patriot Advanced Capability-3 missiles neared 40%, ultimately securing $550 million in savings upon renegotiation.
Such instances highlight long-standing challenges in identifying and addressing unreasonable profits within the defense sector—problems often detected only after formal investigations backed by congressional oversight.
Bottom Line
Contracting standards exist in large part to help the Pentagon maintain negotiating power in a market dominated by a small number of buyers—often just one buyer—the federal government itself. While not altering statute or regulation, Deputy Secretary Feinberg’s guidance signals a recalibration of acquisition priorities. It suggests growing recognition that weakened contractor oversight has hindered effective price controls. Moving forward, establishing clear definitions of acceptable profit levels will be essential to fully leveraging new transparency measures and ensuring taxpayer interests are protected in future defense agreements.