What Defense Contractors Should Know About the FY26 NDAA Conference Agreement
The fiscal year 2026 National Defense Authorization Act has cleared both chambers of Congress and now awaits President Trump's signature. With a total authorization of $900.5 billion, the legislation includes several significant reforms to defense acquisition policy and contracting procedures. However, not all of the ambitious commercial contracting reforms survived the conference process. Here's what defense contractors need to know about what made it into the final bill and what got left on the cutting room floor.
What Made It Into the Final Bill
Portfolio Acquisition Executives Reform (Section 1802)
Status: INCLUDED with clarifying amendments
The final bill formally establishes Portfolio Acquisition Executives (PAEs), transitioning from the traditional Program Executive Officer structure to portfolio-based management of related capabilities. PAEs are senior officials responsible for plans, budgets, and execution across portfolios of defense acquisition programs, including life-cycle management. Program managers report directly to PAEs, and PAEs report directly to service or component acquisition executives.
PAEs receive substantial authorities that will directly impact contractors. They can modify, discontinue, or terminate programs experiencing cost growth, performance deficiencies, or schedule delays. They are statutorily required to prioritize Other Transaction Agreements for prototypes and commercial procurement, employ iterative development cycles, and liaise directly with operational users for regular feedback. Critically, the statute prohibits matrixed or dual-reporting arrangements for PAE personnel except by written authorization, ensuring PAEs have dedicated resources across contracting, cost estimating, engineering, testing, and other functions.
For contractors, this fundamentally changes DoD engagement. Rather than navigating multiple program offices, contractors will interact with portfolio-level leadership making decisions across related programs, enabling faster technology insertion but also facing more rigorous portfolio-level performance reviews. PAEs' authority to terminate underperforming efforts and mandate to prioritize OTAs and commercial procurement creates opportunities for innovative companies but may pressure traditional contractors to adapt.
Combatant Command Experimentation Authority (Section 873)
Status: INCLUDED with clarifying amendments
The final bill grants combatant commands direct authority to conduct experimentation, prototyping, and technology demonstrations to address operational needs they identify. This places innovation authority closer to the warfighter, potentially accelerating the feedback loop between operational requirements and technology solutions. For defense contractors, this creates new pathways to engage directly with the commands that will ultimately use their products.
BOOST Program for Technology Transition (Section 1833)
Status: INCLUDED with clarifying amendments
The final bill requires the Director of the Defense Innovation Unit to establish the Bridging Operational Objectives and Support for Transition (BOOST) program to support transition of technologies into established capability development and procurement activities.
This provision directly addresses the "valley of death" between successful prototypes and production programs of record. For contractors working with DIU, this creates a structured pathway to help demonstrated technologies bridge into larger-scale procurement. The provision complements Section 913, which authorizes DIU to establish regional outreach centers domestically and internationally. This was a House-only provision.
SOCOM Urgent Innovative Technologies Initiative (Section 863)
Status: INCLUDED
The final bill creates a pilot program for U.S. Special Operations Command to accelerate research, development, testing, procurement, and initial sustainment of innovative technologies meeting emerging mission requirements. This establishes a streamlined acquisition pathway enabling SOCOM to move rapidly from identifying operational needs to fielding solutions, with annual reporting requirements.
For contractors working in special operations areas (advanced communications, autonomous systems, low-observable technologies, advanced materials, specialized equipment), this creates a dedicated fast-track channel. The inclusion of "initial sustainment" authority allows SOCOM to procure and maintain innovative technologies without immediately transitioning to traditional contracts, addressing the common challenge where prototypes lack adequate support infrastructure. This was a House-only provision.
Nontraditional Defense Contractor Exemptions (Section 1826)
Status: INCLUDED with clarifying amendments
The final bill exempts nontraditional defense contractors from certain business requirements, as originally proposed in the Senate bill. This regulatory relief addresses barriers that have discouraged commercial companies from working with the Pentagon.
As defined by section 3014 of title 10, nontraditional defense contractors are entities that have not performed defense contracts or subcontracts subject to full cost accounting standards for at least one year. This exemption could significantly lower the barrier to entry for commercial technology companies and startups that have been reluctant to engage with defense contracting due to burdensome compliance requirements.
Commercial Product Preference Reforms (Sections 1822-1824)
Status: INCLUDED with clarifying amendments
The final agreement includes several provisions strengthening the Department of Defense's preference for commercial solutions:
Formal Non-Availability Process (Section 1822): The legislation establishes a formal process for determining when commercial products or services are unavailable. Before using non-commercial solicitation procedures, contracting officers and program managers must submit written memoranda explaining their decision based on market research and requirements analyses.
The provision also expands compliance requirements to consultants, researchers, and advisors supporting market research and requirements drafting, ensuring that the preference for commercial solutions is considered from the earliest stages of requirements development.
Commercial Solutions Openings Expansion (Section 1823): The bill expands the purposes for which commercial solutions openings solicitation procedures may be used and creates authority for sole-source follow-on procurements, provided the procedures of sections 4022 or 3204 of title 10 are followed. This could streamline follow-on awards for successful commercial solutions while maintaining appropriate oversight.
Limitation on Flowdown Requirements (Section 1824): The agreement limits required flowdown of contract clauses for subcontracts and supply agreements providing commercial products or commercial services, reducing compliance burden on commercial suppliers in the defense industrial base.
Consumption-Based Solutions (Section 1825)
Status: INCLUDED
The final bill makes permanent the procedures for consumption-based solutions that can be metered and billed based on actual usage with predetermined pricing based on fixed price units. This is particularly relevant for cloud computing and software-as-a-service providers working with the Department.
Contested Logistics Prototyping Expansion (Section 871)
Status: INCLUDED
The final agreement expands the contested logistics demonstration and prototyping program and requires the Secretary of Defense to establish best practices to reduce time needed to return repaired equipment to service by developing additive manufacturing facilities closer to the point of use. This represents a significant opportunity for companies working on distributed manufacturing, 3D printing, and forward-deployed production capabilities.
The original Senate provision would have made this program permanent by removing its three-year sunset and expanded it to include digital manufacturing. While the final version expands the program's scope, contractors should note that the permanency aspect may have been modified.
What Didn't Make It
OTA Follow-On Production Without Competitive Prototype
Status: NOT INCLUDED
The Senate bill included a provision that would have allowed follow-on production authorities under Other Transaction Agreements without requiring a competitive prototype, provided the capability had been demonstrated in a relevant environment and the acquisition executive made a written determination.
This was potentially the most significant OTA reform in the Senate bill, as it would have substantially accelerated the fielding of successful prototypes by eliminating the need to conduct a separate competition for production. Its exclusion from the final bill represents a missed opportunity to streamline the transition from prototype to production for innovative technologies.
Nontraditional Contractors Treated as Commercial
Status: NOT INCLUDED
The Senate bill contained a provision that would have required contracting officers to treat nontraditional defense contractors at any tier of the contract as commercial products and commercial services unless a written determination was approved by the head of the contracting activity. This presumption of commercial status didn't survive the conference negotiations.
While Section 1826 provides exemptions from certain requirements for nontraditional contractors, the final bill stops short of automatically treating these contractors as commercial entities.
Modified Definition of Nontraditional Defense Contractor
Status: NOT INCLUDED
The Senate sought to expand the definition of nontraditional defense contractor to include business entities that do not qualify as a covered segment under DFARS 231.205-18. This definitional change would have broadened the pool of companies eligible for streamlined contracting procedures, but it was not included in the final agreement.
Cloud Computing Competition Review
Status: NOT INCLUDED
In the Senate committee report, members expressed concern about vendor concentration in defense cloud computing and directed the DOD Inspector General to review sole-source awards in cloud computing contracting over the past three years. The review was intended to examine sole-source task orders, assess the thoroughness of justifications and market research, and make recommendations to address systemic competition concerns.
While this provision didn't make it into the final bill as a formal requirement, the conference agreement does include extensive language directing the Inspector General to conduct an audit of cloud computing contracts focusing on national security risks from foreign personnel access.
Portfolio Acquisition Executive Capstone Requirements
Status: NOT INCLUDED
While Section 1802 establishes the role of Portfolio Acquisition Executives, the Senate bill contained an additional provision that would have established capstone requirements for three or more portfolio acquisition executives in consultation with the Joint Requirements Oversight Council. These capstone requirements were intended to enable greater speed, agility, and innovation in fielding military capabilities by setting overarching strategic guidance for portfolio-level decision-making.
This provision did not make it into the final bill, meaning that while PAEs are now formally established, they will not have the statutory capstone requirements that would have provided additional strategic direction and authority.
Implications for Defense Contractors
The final FY26 NDAA represents a mixed outcome for commercial contracting reform. While several important provisions strengthening commercial preferences and reducing regulatory barriers made it through, some of the more aggressive reforms did not survive. Notably absent are provisions around OTA authorities and automatic treatment of nontraditional contractors.
For Commercial Technology Companies: The nontraditional contractor exemptions and commercial product preference reforms provide meaningful regulatory relief. However, companies should not expect the automatic presumption of commercial status that the Senate proposed. Understanding which requirements can be waived and which must be met remains critical. The shift to Portfolio Acquisition Executives means contractors should understand how their offerings align with broader capability portfolios rather than just individual programs. Importantly, PAEs are statutorily required to prioritize commercial procurement and OTAs, which should accelerate adoption of these methods.
For Companies Working on Prototypes: The BOOST program provides a formal pathway for successful prototypes to transition into production programs of record, addressing the long-standing "valley of death" challenge. Companies working with DIU should engage early with the BOOST program to understand transition requirements. The PAE mandate to prioritize OTAs for prototypes reinforces this pathway. However, the absence of OTA follow-on production authority means that even with BOOST support, contractors should still plan for potential separate competitions for production contracts.
For Operational Innovation: The combatant command experimentation authority, contested logistics prototyping expansion, and SOCOM Urgent Innovative Technologies Initiative create new opportunities for contractors who can work directly with operational commands and develop solutions for forward-deployed scenarios.
For Cloud and Software Providers: The permanent authorization of consumption-based contracting procedures provides a stable framework for recurring revenue models. However, increased scrutiny around foreign personnel access and vendor concentration suggests contractors should prepare for enhanced vetting requirements.
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