Interview transcript:
Terry Gerton We are in our first full week of January, and we’ve started it with big news over the weekend, the capture of Nicolas Maduro in Venezuela. What impact does that have on the government contracting community? Tell us what you’re hearing.
Stephanie Kostro We have started 2026 with a bit of a surprise for some of us, right? And in terms of contractors, you know, contractors have long been involved in U.S. engagements around the world. This is no different. And so as we move forward, whether it’s military operations or if it’s critical infrastructure protection for oil and gas lines in Venezuela, etc., depending on where the White House wants to go with this plan they have, contractors will be certainly a part of that. We’ve heard in the news media about the president talking to oil and gas companies. I would also say government contractors have a role to play in what’s coming up, and I hope that we can collaborate and cooperate with the White House, with the agencies involved, to make sure that contractors’ voices are being heard and that we’re being used effectively.
Terry Gerton We’re certainly going to hear more about that over the next few days as the operation unfolds, but let’s change topics a little bit; still looking forward to what you’re hearing in 2026. The Revolutionary FAR Overhaul was a big topic in 2025 and now it’s playing out in practice. What are you seeing in the Department of Defense’s class deviations?
Stephanie Kostro Well, we were seeing a lot of activity, Terry, over the holidays. To go back a little bit into the Revolutionary FAR Overhaul, which is this massive rewrite of the Federal Acquisition Regulations, we saw lots of class deviations released from the FAR Council last year, and there was direction from the president as part of this overhaul to undertake a rewrite of all the supplements of the FAR. And every agency has its own supplemental documentation regarding the acquisition regulations. The Department of Defense/Department of War, they have one of the largest supplements, if not the largest supplement, so undertaking a rewrite of that documentation is a massive effort as well. In mid-December, on December 19th, we saw coming out of the department 31 separate class deviations that would take effect on February 1st, which is not too far away, and they’ll guide contract writing until the formal rulemaking process can catch up. This was a large tranche of Phase 1 class deviations. We were unpacking the 31 pieces of language as we speak. In addition to the actual changes to the DFARS language are changes to non-statutory policies and procedures that are found in what’s called at the department procedures, guidance, and information, or PGI. This is the supplemental body of work to the supplement itself. As we go through all of these documents, it’s really important for contractors to look at them carefully, figure out how they’ll impact their work, their business, and the mission of the agency that they’re supporting, and to give feedback to the Department of Defense/Department of War regarding how these are going to play out.
Terry Gerton What are you seeing in the first 31? What stands out to you, at least in the initial look?
Stephanie Kostro There are several that do stand out to me. We’ve had this conversation before about this push in the government to go towards commercial products and commercial services. When you think about the Department of Defense, you think a lot of the very bespoke, military-focused products and services or solutions. But they do actually acquire lots and lots of commercial services and commercial products. And we heard this in the November 7th Arsenal of Freedom speech from Secretary Hegseth, about this need to incorporate more commercial components to what the department is acquiring. When I looked at the class deviations, I saw some of the subparts on applicability of certain laws for commercial products, commercial services and commercially available off-the-shelf items. I also saw a lot of activity there on simplified acquisition procedure, so they’ve retained rapid contracting for combatant commanders, authority within the DFARS, and some other special contracting methods. So this is really reflective of what we’ve seen in the FAR Overhaul, but more specific to the service members and the warfighters.
Terry Gerton I’m speaking with Stephanie Kostro. She’s president of the Professional Services Council. Stephanie, there are contractors who work across agencies. How are they keeping track of all these deviations if every agency has their own new rule book?
Stephanie Kostro It is such a challenge to think through. You’ve got the FAR, which is what governs so much of acquisition within the federal space, but every single agency does have its own supplement. They’re trying to make sure that they’re aligned, or at least not misaligned. That said, it is a challenge for your run-of-the-mill contractor, particularly for small businesses who don’t necessarily have the resources or the knowledge base to go, hey, this is tweaked in this way, but that other agency is tweaking it in a different way, and that’s what it means for my business. I understand that there will be training opportunities that the government’s putting together, not just for government employees and the contracting officer and the acquisition corps, but also for contractors. And I’m encouraged that it will be coursework that both the contracting officers in the government and the contacting folks outside the government can take together and understand what is going on. But you’ve put your finger on one of the major complications that we’re facing, which is, okay, the FAR is being changed, but all of the agencies are going to interpret changes differently for their own purposes, and what does that mean for industry?
Terry Gerton And you mentioned that the new DFARs deviations go into effect 1 February. Do contractors have an opportunity right now to provide feedback or is this a done deal?
Stephanie Kostro So the class deviations are out. We do have a line of communication open to folks at the department to say, hey, you know, this could be an unintended consequence of this particular phraseology or language, etc. They will take effect February 1st. I believe that they’re open to modifying them before the actual rulemaking process starts. And we’re hoping that as a trade association — PSC, we have 400 member companies — we’ll go out to them and say, hey, what is a burr under the saddle or what is real sticking point for you here? And we’ll convey that, or they can convey it themselves. There seems to be an openness to receiving that feedback, but again, not sure what they’ll do with it, particularly as different supplements from different agencies may be misaligned. And so again, it’s very complicated. I think we’ll be playing this out through all of 2026.
Terry Gerton Well, speaking of complications and burrs under the saddle, also over the holidays there was a leak of a draft executive order that might limit buybacks, dividends, and executive compensation for military and defense contractors. What are you hearing about that?
Stephanie Kostro So it’s been fairly quiet on that since last you and I talked Terry. There was an executive order, as you mentioned, in draft form that was being discussed in the media. We still haven’t seen the language, we haven’t heard much more about meeting with decision-makers about that. We are very hopeful that when language does come out or is shared, or if these conversations happen, that the White House and others will be open to contractor feedback regarding how this impacts industry. I would mention, PSC, we often highlight, as I did earlier in this discussion, we have 400 member companies. Collectively, our companies, between commercial and government contracts, contribute $1 trillion to the U.S. economy. And that’s just our 400 member companies. So we are a big player in the national economy between commercial and government contracts. So as we have these discussions, I hope that concerns will be taken under advisement.
Terry Gerton Even the leak of this executive order had immediate impact in the stock market. What are you hearing from your member companies about the potentially negative effects of these requirements?
Stephanie Kostro These new requirements, as I understand — again, haven’t seen the language — but as I understand they’ve been drafted, would have impacts on shareholders, would have impacts on the broader economy. Already the rumor of it had an impact on some share prices. I really hope that as we work together — we’ve had a long history of public private partnership and of collaboration with the government — and again, we are here to help with federal missions and making sure the taxpayers in America get what they’re paying for in terms of mission success, whether it’s Internal Revenue Service or Department of Defense/Department of War or Homeland Security, border security, etc. But these companies need to remain viable. They need to be able to pay their workers, able to do the work themselves. That is the conversation that we want to have about the longer-term impacts of some of these potential actions. And I hope, again, that the government will take that under advisement.
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