The DPCAP and DCAA Efficiency Assurance Memo: You Keep the Savings

1Efficiency retention on risk-based awardsMargin you earn on a fixed-price award is not, by itself, waste

The memo covers fixed-price contracts, fixed-price incentive arrangements and Other Transaction Agreements, where, it says, industry carries the performance, technological and cost risk. FAR 16.202-1 describes the firm-fixed-price contract the same way: it "places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss".

Where the price was fair and reasonable when it was negotiated, whether competition, commercial price analysis or cost evaluation set it, the memo says: "Their financial benefits, resulting from ingenuity and operational discipline, are rightfully retained by industry". Then the sentence that gives the memo its weight:

"Realized margin achieved through superior execution, productivity gains, or private investment represents the intended outcome of risk-based contracting and is not, by itself, an indicator of waste"

Why it matters: the Director of DCAA signed it beside DPCAP. The agency that audits your books has put its name to the position that a high margin on a fixed-price award does not, alone, point to waste.

What to watch: the words "by itself". Keep the record of where your margin came from. The memo names internal capital, modernized workflows, sound commercial practices and manufacturing efficiencies, and a margin you can trace to one of those is the margin it describes.

2Prospective capture of efficienciesYour next price will carry what you learned on this one

The savings stay on the contract that earned them. The work after it is another matter:

"The Department will determine how prior efficiencies should inform the price for future procurements such as follow-on production lots"

When follow-on efforts are negotiated, the memo says, acquisition and financial teams will "account for learning curves and other efficiencies while also incentivizing industry to continue to pursue innovation".

The Deputy Secretary's order of September 14, 2026, which this memo answers, was more specific. It asked for a statement that "a performer that becomes more efficient against a fairly negotiated price keeps the savings for that contract, and the Department captures efficiencies only prospectively, in the next negotiation, at a fair margin".

Why it matters: our reading, not a statement by DPCAP. The memo keeps the order's direction, prospective capture, but it does not print the order's limits on it: "only prospectively", "in the next negotiation" or "at a fair margin". It leaves how much of your efficiency moves into the next price to each negotiation.

What to watch: your follow-on proposal. Expect it to be priced off the actual costs and learning curve of the current lot, so keep your own learning curve analysis and show the investment you are still making, which the memo says the Department will keep encouraging.

3Incentive contracts and tiered profit sharingSole-source production may come with a tiered profit share

On incentive contracts the memo restates the existing rule. Under FAR 16.403-1, the Department negotiates share lines and you keep your pre-negotiated share of any cost savings. For long-term sole-source production programs the memo goes further: "acquisition teams are encouraged to consider tailored mechanisms, including tiered profit-sharing models".

DPCAP's memo of October 1, 2026, strongly encourages contracting officers to use it on sole-source or long-term production and describes how it works: "This approach involves negotiating a realistic base profit margin, then sharing profits from realized efficiencies over time". The Department's share "should be realized through non-cash value, such as prospective price reductions or additional deliverables".

Why it matters: the Department's share comes back as lower prices or more deliverables, not cash. And when the mechanism is used with a prime, the October 1 memo requires contracting officers to have the prime flow similar terms down to key suppliers.

What to watch: the base margin. In any tiered profit-sharing proposal, read how the base is set and how the Department's share is taken, and if you are a key supplier, check your next subcontract for the flow-down.

4Enforcement prioritiesWhat the assurance does not waive

The memo is plain about what kind of document it is:

"This posture statement will inform the Department's enforcement priorities. It does not supersede law, alter any authority vested by statute, limit or direct the specific findings or conclusions of any audit, or diminish the Department's resolve to combat fraud, waste, and abuse under the False Claims Act ..."

It then lists what stays in force: the False Claims Act (31 U.S.C. 3729); remedies for defective pricing under 10 U.S.C. Chapter 271 where certified cost or pricing data is required, the price adjustment of FAR 15.407-1; price adjustments where the Cost Accounting Standards apply, under FAR 52.230-2; and final indirect cost rate settlements and incurred cost audits on cost-reimbursement work, under FAR 52.216-7.

The order listed fraud, defective pricing, CAS adjustments and final rate settlement. The memo adds incurred-cost audits and the findings of any audit.

Why it matters: the assurance protects the margin, not the data behind the price. A margin on a price built from defective certified data is still a defective pricing matter, and DCAA's audit findings are not limited by the memo.

What to watch: your cost-type work. If you hold both kinds of contract, the assurance reaches only the fixed-price side, and your incurred cost proposal and final rates are audited as before.

5Modernized profit policyProfit policy is next

The memo's last section says "These precepts will be reflected in the Department's forthcoming profit modernization initiative", as outlined in DPCAP's October 1 memo, Implementation of Supplier Cost and Pricing Transparency. That memo tells contracting officers to tailor profit models "with sector-specific profit benchmarks to inform negotiation objectives but not to constitute caps", and says the principles will go to industry for feedback and formal rulemaking to revise DFARS profit policy.

The September order gave that rulemaking 90 days to begin, so that "negotiated margins reflect value delivered, risk carried, and private capital invested". Today a contracting officer building a profit objective on a certified-data action uses a structured approach, by default the weighted guidelines method of DFARS 215.404-4.

Why it matters: the order says this statement scopes enforcement priorities and will be incorporated in the profit policy revision. Until that revision is written, the assurance shapes how the Department enforces, not the terms of your contract.

What to watch: the Federal Register for a DFARS profit policy case and its comment period. That is where you can argue for how risk, investment and speed should be weighed in your margin.

Documents and data used in this piece

Disclaimer. This piece is commentary on a published Department of War policy memorandum. It is not legal advice, and it is not a determination about any contractor, contract or price. Confirm how the memo applies to you with counsel or a government contracts professional. Read the memorandum in full.

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