DCAA audit requirements force startups to implement cost accounting systems that cost more than the contract

Defense contracts over $2M trigger DCAA audit rights, requiring the contractor to maintain a cost accounting system compliant with CAS (Cost Accounting Standards). For a 15-person startup, implementing CAS-compliant timekeeping, indirect cost allocation, and incurred cost submissions requires $150-300K in accounting software and consultants. A startup winning a $3M OTA contract spends 5-10% of the contract value on accounting compliance before performing any work. This persists because CAS was designed in the 1970s for billion-dollar prime contracts where compliance cost is a rounding error, and Congress has not updated the thresholds or created a simplified standard for small businesses.