New Executive Order Directs Federal Agencies to Default to Firm Fixed-Price Contracts

Agencies Directed to Limit Cost-Type Contracting and Increase Reliance on Performance-Based Considerations

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At a Glance

The April 30, 2026, executive order (EO) directs federal agencies to prioritize firm fixed-price and performance-based contracts, limiting the use of cost-reimbursement and other contract types to exceptions with senior-level approval.
The EO mandates reviews of large existing non-fixed-price contracts, enhanced reporting obligations, and forthcoming procurement policy reforms to implement the EO government-wide.
While prior administrations set forth similar policies with mixed results, the EO signals renewed emphasis on cost predictability and performance measurements, with practical implications for proposal development and business planning for contractors.

On April 30, 2026, President Trump issued a new executive order (EO), "Promoting Efficiency, Accountability, and Performance in Federal Contracting," directing executive agencies to make firm fixed-price and performance-based contracts the "default and preferred" procurement approach throughout the federal government. The EO reflects a renewed push to curb the use of cost-reimbursement contracts and create more performance-based metrics in federal contracting, particularly in areas where cost-reimbursement and time-and-materials contract structures have been prevalent.

Although prior administrations have previously undertaken similar initiatives, the durability and practical effects of those efforts has varied across agencies and procurement categories. This most recent EO is structured to more directly influence agency behavior by instituting approval thresholds, reporting requirements, and centralized oversight of contracting activities moving forward. We provide greater detail below on several provisions of the EO and its impact on federal contractors.

Overview of the Executive Order

The EO establishes a government-wide policy that fixed-price contracts, as defined in Part 16 of the Federal Acquisition Regulation (FAR), with performance-based metrics should be used to "the maximum extent consistent with law." Other contract types (such as cost-reimbursement, time-and-materials, and labor-hour contracts) are to be treated as exceptions rather than norms, as such contracts "must be justified in writing by the contracting officer to the agency head" moving forward.

The EO further specifies that non-fixed-price contracts (and the non-fixed-price portion of hybrid contracts) exceeding certain values must be approved in writing by the agency heads — with exceptions for contracts that support emergency response efforts or involve research and development or pre-production development for major systems acquisitions. The threshold amounts detailed in the EO vary by agency and are set forth below:

$100 million for Department of Defense contracts
$35 million for National Aeronautics and Space Administration contracts
$25 million for Department of Homeland Security contracts
$10 million for other agencies

Reporting, Oversight, and Implementation

To reinforce compliance, the EO requires agencies to submit semiannual reports to the Office of Management and Budget (OMB) detailing their use of non-fixed-price contracts and the justifications for those contracting choices. Agencies are also directed to modify, restructure, or renegotiate, to the maximum extent practicable, their 10 largest non-fixed-price contracts by dollar value to facilitate use of fixed prices and performance-based incentives for contract deliverables going forward. In doing so, agencies are directed to utilize applicable class deviations from the FAR.

The EO further directs OMB and the Office of Federal Procurement Policy (OFPP) to issue guidance and, as appropriate, propose regulatory changes to ensure consistent implementation across civilian and defense agencies. Within 120 days of the EO, the OFPP administrator is directed to propose amendments to the FAR (in coordination with the FAR Council) and develop a program to train contracting employees on the formation, use, negotiation, and management of fixed-price contracts.

Context and Prior Efforts

Notably, this is not the first time a presidential administration has sought to push federal procurement toward fixed-price contracting. In March 2009, President Obama issued a memorandum to agency heads highlighting the risks associated with excessive reliance on cost-reimbursement and noncompetitive contracts and encouraging greater use of fixed-price and competitive contracting where feasible. The March 2009 memorandum similarly highlighted concerns regarding cost overruns, accountability, and oversight challenges, particularly for major defense and services contracts.

However, such efforts had uneven effects across federal agencies, and cost-type contracting has remained common for many contracts involving complex or evolving requirements. The most recent EO seeks to overcome similar implementation issues by pairing policy direction with approval thresholds and other reporting requirements, although it remains to be seen how these policies will be implemented across federal agencies with varied procurement needs.

Implications for Government Contractors

For federal contractors, the EO signals a potentially meaningful shift in risk as well as cost allocation and pricing strategy. As outlined in FAR 16.202-1, firm fixed-price contracts are "not subject to any adjustment on the basis of the contractor's cost experience in performing the contract" and place upon contractors "maximum risk and full responsibility for all costs and resulting profit or loss." Contractors should anticipate a renewed push from agencies for firm fixed-price proposals to incentivize contractors to control costs, particularly for contracts involving well-defined requirements and recurring services.

As a result, contractors may need to invest more heavily in cost estimation, risk modeling, and performance planning to remain competitive in fixed-price environments. Performance-based metrics tied to payment may also become more common, increasing agency scrutiny towards deliverables schedules, quality, and measurable outcomes. Incumbents operating under cost-reimbursement vehicles for high-value or long-running contracts should also anticipate agency reviews in the coming months. Accordingly, contractors with substantial non-fixed-price contracts should coordinate closely with their contracting officers regarding potential implications of the EO.

Conclusion

Agencies are likely to issue further internal guidance in the near term, aimed at revising their acquisition planning practices in accordance with the EO and increasing documentation requirements for non-fixed-price awards. Regulatory changes to the FAR may follow, further embedding the EO's policy preferences into standard procurement processes.

For More Information

For further information, you may contact the authors. Faegre Drinker's government contracts team will also continue to monitor additional developments in the coming months.