President Trump signed an executive order on April 30, 2026, mandating that firm-fixed-price contracts become the default contract type across all federal agencies, requiring agency heads to personally approve all non-FFP awards above tiered thresholds and launching a 90-day review of agencies' largest existing cost-reimbursement contracts. The order represents the most sweeping change to federal contract type policy since the Truth in Negotiations Act was enacted in 1962.

What the Order Requires

The executive order establishes firm-fixed-price as the presumptive contract type for all federal acquisitions. Contracting officers who want to use any other contract type — cost-plus-fixed-fee, cost-plus-incentive-fee, time-and-materials, labor-hour, or letter contracts — must now obtain approval from their agency head. The approval thresholds are tiered by agency size and contracting volume:

  • Department of Defense: Agency head approval required for non-FFP contracts valued at $100 million or more
  • NASA: $35 million threshold
  • Department of Homeland Security: $25 million threshold
  • All other agencies: $10 million threshold

These thresholds are not a safe harbor for contracts below the line — the order makes clear that FFP is the preferred type at all dollar levels, and that contracting officers must document their justification for using any cost-type vehicle regardless of value. The threshold determines when the justification must rise to agency head level rather than simply being documented in the contract file.

The 90-Day Review

Within 90 days of the order — meaning by approximately July 29, 2026 — each federal agency must review its ten largest non-FFP contracts, including contracts awarded under assisted acquisitions through other agencies' vehicles. The review must assess whether each contract can be restructured as FFP, either for the current base period or for upcoming option exercises. Agencies must report the results to OMB with specific justifications for any contract they intend to leave in cost-reimbursement form.

OMB will issue implementing guidance by early June 2026. The Federal Acquisition Regulatory Council is expected to launch a formal FAR rulemaking to codify the policy changes in the Federal Acquisition Regulation, though the timeline for that rulemaking — which requires public comment — is expected to extend well into 2027.

Exceptions and Gray Areas

The order explicitly preserves cost-reimbursement authority for research and development contracts, acknowledging that R&D work is inherently unpredictable and that requiring FFP would either drive up prices as contractors priced in risk, or simply prevent the government from getting competitive proposals at all. This exception is significant for the defense industrial base — a substantial portion of DARPA, Navy research laboratory, Army Research Laboratory, and Air Force Research Laboratory spending is on cost-type R&D contracts that will not be affected.

The order is silent on several categories of contracts that routinely use cost-type vehicles: classified programs with unique technical risk, major defense acquisition programs in early development phases, and international cooperative programs. Acquisition policy experts expect OMB's June guidance to address these gaps. The Department of Energy and its national laboratory contractor network — which is almost entirely cost-reimbursement — is likely to receive special treatment given the unique technical and nuclear safety considerations involved.

Industry Reaction: Prices Will Rise, Timelines May Slip

The reaction from federal contractors and acquisition professionals has been mixed. The theoretical argument for FFP is sound: it shifts financial risk to contractors, incentivizes efficient performance, and eliminates the government's exposure to unlimited cost overruns. In practice, however, forcing FFP on work that carries genuine technical uncertainty — complex systems integration, early-stage hardware development, long-duration service contracts with scope that will evolve — means contractors must price in that uncertainty. Prices go up. In some cases, contractors decline to bid.

Former GSA administrator Emily Murphy, now at George Mason University's Baroni Center for Government Contracting, noted that the approval requirement for non-FFP contracts could add "weeks or months" to acquisition timelines as agencies develop new review processes. Greg Giddens, former chief acquisition officer at the VA, observed that the policy presupposes a level of requirements definition on day one of an acquisition that is rarely achievable in complex IT and services programs.

Proponents counter that the discipline imposed by FFP requirements forces better requirements development before a contract is awarded — and that the government's historical tolerance for cost-type contracts has enabled poor requirements definition to become institutionalized.

What It Means for Contractors

  • Contractors currently on large cost-plus contracts should expect their contracting officer to request meetings about potential restructuring within the next 90 days; prepare a clear analysis of which elements of your current scope could realistically be converted to FFP and which cannot.
  • Pricing teams will need to sharpen their risk models: if agencies push conversion to FFP on work that was scoped for cost-reimbursement, the price proposal must accurately capture execution risk — underbidding to win and then running over budget will draw increased scrutiny under the new policy.
  • Small businesses that currently win cost-type developmental contracts may face fewer opportunities if agencies shift procurement toward FFP vehicles where large primes can more easily absorb execution risk.
  • Track the OMB guidance expected in early June and FAR Council rulemaking notices — the implementing regulations will define the actual compliance burden and may include additional exceptions not specified in the EO itself.
  • Defense contractors: the $100M DoD threshold means most large program-of-record cost-type contracts will require Secretary-level approval at the option exercise stage; build that approval cycle into your program schedule expectations.

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