Expanded ‘non-traditional’ contractor definition dropped from final NDAA

The final version of the 2026 National Defense Authorization Act that went to the White House this week for President Trump’s signature does not include provisions that would expand the definition of non-traditional defense contractors.

The Senate's version included changes that created a new pathway to that designation, which was tied to a threshold for costs in research-and-development and bid-and-proposal items that could be allocated to defense contracts.

But those changes were removed when the House and Senate reconciled their versions of the bill.

That proposed change would have been significant because any firm that allocates less than $1.1 million in independent R&D and bid-and-proposal costs to cost-reimbursement contracts in a given year would be considered non-traditional, regardless of their total Defense Department revenue.

Companies with the non-traditional designation can directly pursue Other Transaction Authority contracts, which are on the rise. Traditional contractors have to team with a non-traditional to pursue OTAs or agree to significant cost sharing.

Industry observers told us the change also would have allowed major defense technology companies to structure their contracts as firm-fixed price to maintain their non-traditional status, even if their annual defense revenues grow into billions of dollars.