SPEED Act Guts Protective Accounting Rules and Overcharges Will Result

A discussion about acquisition reform and accounting standards is generally a precursor for a nap. But the House Armed Services leadership offered a bill that should cause us to wake up and pay attention because it will lead to the Defense Department getting ripped off.

There have long been complaints that the acquisition process is too slow, and that there is so much red tape that companies don’t want to do business with the Defense Department. Previous attempts at “acquisition reform” have been led by defense companies that want less regulation and accountability, and more profit — and most of those attempts have been unsuccessful.

Members of Congress, some of whom have accepted hundreds of thousands of dollars in campaign funding from the defense industry and invest in defense companies, are once again obliging the companies with a new push at defense acquisition reform. This time, they’re focusing on some wonky aspects of the Cost Accounting Standards process — the system that ensures costs are appropriately charged to federal contracts. The latest proposed industry gift is the Streamlining Procurement for Effective Execution and Delivery Act — SPEED Act — which is purportedly designed to accelerate the contracting process “in the most cost-effective manner practicable.”

In promoting the bill they proposed, The House Armed Services Committee borrowed a line from Top Gun, asserting they have “the need for speed.” On its face, a speedier process sounds great, and with weapons systems behind schedule and over budget, what is there to lose?

A lot!

Reforming military acquisition was also a big goal in the 1990s when then-Vice President Al Gore pursued his Reinventing Government campaign. But the government relied too heavily on industry complaints in formulating the reforms. Defense companies pushed for more commercial buying and for cuts to contract oversight. Predictably, that first round of “reform” played out horribly, especially for taxpayers and for the military itself: Contracting costs skyrocketed and weapons delays continued to be commonplace.

The Cost Accounting Standards that Congress is tinkering with now had little to nothing to do with the problems. As of June 2, 2025, the Government Accountability Office, Congress’s auditing and investigative arm, has 1,359 open recommendations for the Defense Department, 79 of which are listed as “priority” — and not one of them focuses on changing cost accounting requirements. Instead, the problem has to do with how the system is used, not the system itself.

As Pentagon experts Winslow Wheeler and Thomas Christie pointed out, “Pentagon acquisition officials too often have violated the regulation’s intent by approving ‘low-balled’ estimates of the costs and time required to deliver new capabilities, and ignoring independent assessments that were often available and more realistic.”

In the decades since the disastrous Reinventing Government effort, rather than addressing the real problem, policymakers have continued to enact even more industry-promoted reforms to the acquisition process, which have also failed to solve overbudget and overdue defense projects. With the SPEED Act, Congress and industry are yet again setting the stage for another round of decimating changes that will have disastrous results.

While the bill includes some neutral provisions related to “data-driven decision-making,” testing, contract terminations, data rights, and acquisition workforce training, its other clauses will result in bad deals, overcharges on both complex and simple contracts, and failure, which the bill encourages: It says that a more risky acquisition approach allows “learning through failure.” The SPEED Act

• prioritizes speed above the cost to the taxpayer;
• prioritizes “best value” of rushed requirements above cost efficiency, and risks steering contracts to well-connected or undeserving companies;
• promotes buying commercial products and services, and the general principles of “offered for sale” and “similar,” all of which result in overcharges for defense-only solutions because they are exempt from providing certified cost or pricing data that would ensure the federal government gets a fair deal; and
• raises certain monetary thresholds, which results in overcharges.

While those sections of the bill are bad, another provision is truly anti-taxpayer: It will allow contractors to overcharge on contracts at will. Specifically, Title III of the SPEED Act seeks to end the use of Cost Accounting Standards (CAS) and replace that system with Generally Accepted Accounting Principles (GAAP).

Cost Accounting Standards apply to cost-based contract pricing arrangements, including cost-reimbursement contracts, to ensure that individual contractors uniformly measure, assign, and allocate costs to government contracts.

The principle was the thought child of then-Admiral Hyman G. Rickover in 1968, who grew frustrated with the accounting shenanigans of companies doing business with the government. He called into question their attempts to “exploit” the system and “increase profits on Government contracts.”

Then-Comptroller General Elmer B. Staats summed up Rickover’s thoughts by quoting four statements:

• “the lack of uniform accounting standards is the most serious deficiency in Government procurement today”;
• “industry will not establish such standards because it is not to their advantage to do so”;
• the accounting profession “has had ample time and opportunity to establish effective standards” but pays “only lip service to the concept”; and
• “if uniform accounting standards are ever to be established the initiative will have to come from Congress.”

That nearly 60-year-old summary will hold true once again if Generally Accepted Accounting Principles replace Cost Accounting Standards. The co-sponsors of the bill argue that shifting to the accounting principles will balance “regulation and efficiency,” but as history had shown, the lack of Cost Accounting Standards resulted in misallocating contract costs, overcharges, and extra money to companies.

Contractors misleadingly argue that Cost Accounting Standards are “mostly duplicative of [Generally Accepted Accounting Principles],” suggesting replacing that system with accounting principles will “free up” time and resources for the Defense Department and companies doing business with the agency. But those accounting principles are no substitute for Cost Accounting Standards. Industry’s claim is nothing more than an effort by large contractors to avoid accountability and to rake in larger profits at the public’s expense.

The Cost Accounting Standards system addresses issues such as the allocation of costs to contracts that the accounting principles do not address at all. In some cases where Cost Accounting Standards provide measurement and period assignment criteria that may overlap with Generally Accepted Accounting Principles, Cost Accounting Standards almost always prescribe criteria that are more favorable to the government’s and taxpayers’ interests than do the accounting principles. Cost Accounting Standards also include mechanisms for the government to recoup costs if a contractor is noncompliant, an additional reason it is the more pro-taxpayer standard.

The Government Accountability Office has reviewed legislative efforts to gut the Cost Accounting Standards process. In 2020, it stated:

[Cost Accounting Standards] Board members told GAO they were considering all options for refining CAS but noted that GAAP and CAS are focused on two separate goals — GAAP on businesses’ high-level financial performance, CAS on allocating costs to individual government contracts. The Board and other government officials said that eliminating CAS requirements to rely purely on GAAP would limit the government’s ability to protect its interests. … Board members, as well as [Defense Contract Audit Agency] and [Defense Contract Management Agency] officials, noted that eliminating CAS requirements to rely purely on GAAP standards would limit the government’s ability to compare contract proposals, assess actual costs to avoid overcharges by contractors, and protect its interests. For example, DCMA officials stated that the government has $3.1 billion in pending litigation for identified CAS noncompliances.

A March 2025 opinion piece by the Stimson Center also differentiated Cost Accounting Standards from Generally Accepted Accounting Principles. It found that the accounting principles, generally a reporting tool “to protect investors,” is not the appropriate process to use and would result in wasteful government spending.

GAAP provides the basis for financial reporting at the highest level, the 30,000-foot view of a company’s financial performance, including its cash flows and profitability. … In contrast, Cost Accounting Standards provide contractors with criteria to measure and assign costs to specific contracts. It outlines how to allocate costs between government contracts and non-Federal work — guidance that is still absent from GAAP. Cost Accounting Standards are also the mechanism through which the government recoups funds when contractors do not consistently apply established cost accounting practices, charging the government for unreasonable costs.

The effort to gut Cost Accounting Standards has been happening for years. The premise is that gutting that process will speed up and ease the “burdensome” acquisition process, spur innovation, and attract nontraditional federal contractors. But the cost accounting system has exemptions for small businesses contracts and subcontracts and for commercial items, all of which already benefit many companies looking to enter the defense contracting arena.

POGO has been involved in defense procurement reform for decades, and at every step of the way, we’ve seen effective industry influence that bends “reforms” to their advantage. Congress has obliged industry, yet there is little evidence to support industry’s premise and little that shows any positive results of gifts to industry.

In 2022, POGO argued that prior attempts to reform the cost accounting process for government contracts haven’t worked in the public’s interest:

That coverage is more than an audit issue. It is also a framework for requiring consistency in pricing and reimbursement of costs billed to the government when cost-based contracts and cost-based pricing arrangements are used by agencies and contractors. Raising the Cost Accounting Standards threshold is a win for companies seeking to evade accountability and a loss for protecting taxpayer dollars.

It’s clear to us that the SPEED Act will take us back 60 years, to a time when companies blatantly took advantage of the federal government. They will once again be able to make “excessive profits and disguise them as overhead costs or hide them in other ways in the absence of a set of uniform Cost Accounting Standards,” which will lead to new $436 hammers and $10,000 toilet seat covers.

Simply stated, Generally Accepted Accounting Principles are about protecting investors from being defrauded when they are considering the value of a company; Cost Accounting Standards are about protecting the government and taxpayers when they are considering the value of a contract.

The Defense Department doesn’t need a financial balance sheet for its defense companies; it needs a standard process to hold them accountable for their contract costing. The SPEED Act’s efforts to gut the Cost Accounting Standards system will lead to an accounting nightmare for government officials and no remedy, even if the government paid unreasonable costs. Generally Accepted Accounting Principles are not designed to provide accountability to a company’s customers; it is designed to provide accountability to its shareholders.

Despite the previous efforts to reform the system, we still hear the same calls that the system takes too long, is too burdensome, and not innovative enough. As mentioned before, the GAO has many open recommendations to address those problems, some involving acquisition and contracting, but none are about the Cost Accounting Standards system. GAO’s silence on that system, both in its recommendations and in a recent report and an assessment to Congress about how to speed things up at the Defense Department, speaks volumes. Congress should start with those recommendations rather than with industry wish list items. Tinkering with the Cost Accounting Standards system will only make things worse.