New Executive Order Makes Fixed-Price Contracts the Default
On April 30, 2026, President Trump issued an executive order (EO) making fixed-price contracts the default contract model for federal procurement. Titled “Promoting Efficiency, Accountability, and Performance in Federal Contracting, the EO seeks to curtail the use of cost-reimbursable contracts and push federal agencies towards a “performance-based model” that encourages cost control and expeditious deliverables.
As reported in the EO, government spending in Fiscal Year 2024 revealed the expenditure of $120 billion on cost-reimbursement contracts. These are contracts that permit contractors to bill for their “allowable, allocable, and reasonable” costs incurred during performance plus a profit. And so, citing a need for more cost predictability, a reduction in “bloated” overhead and stronger performance incentives, the EO aims to adopt a contract model focused on driving performance, rewarding superior work and penalizing poor performance. Defaulting to fixed-price contracts, as defined in Federal Acquisition Regulation (FAR) Part 16, aims to “protect taxpayer dollars, hold contractors accountable, and achieve demonstrable returns on investment.”
Under the EO, contracting officers will need to justify the use of other than fixed-price contracts to the agency head. Additionally, if these contracts exceed certain agency-specific thresholds, the relevant agency head must approve their use. The following agency thresholds apply: $100 million (Department of War); $35 million (NASA); $25 million (Department of Homeland Security); and $10 million (all other agencies).
The EO provides exceptions for contracts in support of responding to emergencies, major disasters or contingency operations as defined in FAR Part 2. Another exception from the EO’s reach is contracts involving research and development and pre-production development for major systems acquisition under FAR Parts 34 and 35.
The EO directs that within 90 days of the order, each agency shall review and attempt to modify, restructure or renegotiate its ten largest (by dollar value) non-fixed-price contracts “to facilitate use of fixed prices and performance-based incentives for contract deliverables to the maximum extent practicable.” In this same 90-day window, agencies must begin semi-annually reporting to the Office of Management and Budget (OMB) any approved use of a non-fixed-price contract, as well as additional opportunities to adjust current non-fixed-price contracts to fixed-price contracts.
Other key timelines include OMB’s issuance of guidance to agencies on consistent implementation of the EO (45 days) and the Administrator for Procurement Policy’s proposed rule changes and development of training for program and contracting employees on “the formation, use, negotiation, and management of fixed-price contracts” to minimize the EO exceptions (120 days). In the meantime, the EO calls for the maximum use of FAR deviations for compliance.
Key Takeaways:
- Identify any other-than fixed-price contracts that may be the target for your government customer to modify, restructure, or renegotiate.
- Understand your rights and obligations under your current contracts and carefully review any proposed changes, including accompanying release and waiver language.
- Assess whether any work statements or deliverables are amenable to a fixed-price or performance-based structure or should remain a cost-type contract.
- Define any work scopes or deliverables clearly so that a fixed-pricing model adequately accounts for estimated costs and risk allocation.
If you have any questions regarding the EO, fixed-price, or other contract models; reviewing and negotiating proposed modifications or restructuring of current cost-type contracts; or any other matters related to contracting with the federal government, please reach out to your Cohen Seglias contact or any member of the Government Contracting Group.
