Navigating Compliance and Agility in A&D Government Contracts

For decades, many government contractors in the aerospace and defense (A&D) sector operated under the philosophy of, “if it isn’t broken, don’t fix it.’ However, in today’s regulatory environment, relying on legacy systems because they still work is a liability.

Experts in a recent podcast series by delaware North America noted that the era of relative stability in government contracting is over. They said that we are witnessing a sharp pivot toward aggressive enforcement, where agencies like the Defense Contract Audit Agency (DCAA) and Defense Contract Management Agency (DCMA) are taking rigid positions on cost challenges. This shift has created a landscape where minor flaws can escalate into material weaknesses, potentially leading to millions of dollars in withholdings or litigation.

As Chad Braley of Capital Edge Consulting and one of the experts in the podcast noted, “Compliance is no longer just a back-office check-the-box exercise; it is a competitive advantage.”

Thus, the mandate for government agencies that want to succeed in 2026 is clear. Agility is now essential not just for winning contracts, but for keeping them.

The High Cost of Process Debt

In the past, A&D organizations heavily customized their ERP systems to navigate strict requirements like International Traffic in Arms Regulations (ITAR) and the nuances of Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). While this worked in the past, it created massive process debt.

Jean Hansen, Partner at Capital Edge, highlighted a sobering statistic. “Twenty-five to fifty percent of budgets are often wasted on process inefficiencies caused by these outdated workflows,” Hansen said. “When systems are rigid, responding to new regulations such as changes to Cost Accounting Standards (CAS) or new cybersecurity (CMMC) mandates requires expensive, slow code remediation.”

Moreover, this rigidity threatens talent retention. The experts concurred that the A&D sector faces an aging workforce, and a younger generation of digital-native workers expects an intuitive user experience that 20-year-old legacy screens cannot provide.

A Clean Core Strategy

The experts noted that the path forward is not to layer more customization onto an aging digital spine. It is to adopt a clean core strategy.

Ken Berg, Partner at delaware North America, argued that contractors must move away from modifying the ERP core to suit every unique process. “Instead, organizations should leverage standard industry functionalities for the majority of their operations and move necessary customizations like specific unique reporting to sidecars or cloud platforms,” he explained.

This approach decouples innovation from compliance. Organizations can update their core finance system to meet new tax laws without breaking the custom apps that engineers use. This shifts the ERP model from CapEx-heavy infrastructure to agile, OPEX-based cloud architectures that offload security burdens to providers like SAP and Microsoft.

What This Means for SAPinsiders

Assess with Phase Zero before migrating. Moving to SAP S/4HANA is a business transformation. The discussion emphasized that instead of diving straight into implementation, organizations should conduct a Phase Zero assessment, such as the one that delaware North America provides, to unpack readiness across people, processes, and technology before the project officially begins. This discovery phase is essential for identifying the Return on Investment (ROI) and areas where standard SAP functionality might not fully cover specific government contracting needs and defining the scope and benefits early. This step prevents scope creep and ensures the team understands the organization change management (OCM) required to upskill its workforce.

De-customize to decouple compliance from innovation. For years, government contractors hard-coded custom logic into their SAP ECC environments to handle unique requirements, which created significant technical debt, making it expensive and slow to adapt to new regulations like changing tariffs or CAS updates. To overcome this, SAPinsiders must pivot to a clean core philosophy. This separation ensures that the core finance and logistics systems remain upgrade-ready and audit-compliant, while custom apps can evolve at the speed of the market.

Data harmonization is the pre-requisite for AI and process mining. Agility in 2026 will be driven by data, specifically the ability to use tools like process mining and AI to monitor compliance and efficiency in real-time. However, these advanced tools fail if they are fed by fragmented data from disparate legacy systems. The discussion highlighted that implementing SAP S/4HANA acts as the forcing function to harmonize data structures across the enterprise. Without this unified single source of truth, organizations cannot effectively deploy the predictive analytics needed to spot compliance risks before they become audit findings.