President Trump signed an executive order on April 30 directing federal agencies to make fixed-price contracts the default form of procurement and to impose new written justification and approval requirements on any cost-reimbursement arrangement. The order, titled "Promoting Efficiency, Accountability, and Performance in Federal Contracting," was published in the Federal Register on May 5, 2026. It gives agency heads 90 days — by July 29, 2026 — to review and seek to modify, restructure, or renegotiate their ten largest non-fixed-price contracts by dollar value. The Office of Federal Procurement Policy must issue FAR amendments within 120 days of April 30. OMB must issue agency guidance within 45 days. The order exempts contracts for emergency response and disaster relief, and research and development or pre-production development for major systems acquisitions, from the modification requirements.

What the Order Requires

The executive order establishes a four-part compliance structure. First, it declares fixed-price contracts with performance-based considerations to be the default and preferred method of procurement, explicitly aligning administration procurement policy with the existing but historically under-enforced preference in FAR Part 16 for firm-fixed-price arrangements when requirements are sufficiently defined. Second, it directs contracting officers to execute written justifications to the agency head for any non-fixed-price contract — a documentation requirement that adds a formal approval chain above the contracting officer's current authority to select contract type based on risk analysis. Third, above certain thresholds to be defined by OFPP guidance, the agency head must personally approve non-fixed-price arrangements, elevating contract type decisions to a level of bureaucratic attention they have not historically received except for the most sensitive acquisitions. Fourth, agencies must submit semi-annual reports to the OMB Director containing the number, value, and justifications for all approved non-fixed-price contracts.

The 90-day agency review of the ten largest non-fixed-price contracts by dollar value is the most immediately consequential provision for the defense industrial base. DoD's ten largest cost-reimbursement contracts by value include major development programs — the B-21 Raider development contract, various ACAT I ship and aircraft programs still in engineering and manufacturing development, and large research and development vehicles — where cost-reimbursement was the appropriate contract type given the technical uncertainty at the time of award. Renegotiating these contracts to fixed-price structures within 90 days, even on an aspirational basis, will require program managers to make realistic assumptions about requirements stability and contractor risk-bearing capacity that may not exist in all cases.

Historical Context: Fixed-Price Preference Is Not New

The FAR has expressed a preference for firm-fixed-price contracting since the regulation's inception, and multiple prior administrations have issued guidance reinforcing that preference. The practical outcomes of earlier fixed-price mandates have been mixed. The Air Force's attempt to shift the KC-46 tanker program to fixed-price development in 2011 produced a Boeing contract that resulted in more than $7 billion in Boeing-absorbed cost overruns — losses that the company absorbed as contractually required but that strained Boeing's defense sector for a decade. DoD acquisition policy has since recognized that firm-fixed-price contracts for high-technology development programs shift risk to contractors in ways that can ultimately harm the industrial base or lead contractors to underbid and then cut technical performance to protect margins. The R&D and major systems exemption in this order is designed to avoid repeating that lesson, but the boundary between "development for a major system" and "engineering services on a major system's production contract" is not always clear and will generate definitional disputes in the implementation phase.

What It Means for Contractors

The executive order creates both risks and opportunities for federal contractors depending on their current contract portfolio and the nature of their work.

  • Contractors holding large cost-reimbursement contracts should engage their agency counterparts proactively on the 90-day review requirement. Coming to the table with a realistic fixed-price proposal for portions of the work that are well-defined is better than waiting for the government to propose conversion terms unilaterally under schedule pressure.
  • For future proposals, expect agency evaluation teams to pressure-test proposed contract types more rigorously than in the past. Contractors proposing cost-reimbursement should prepare robust written justifications — citing FAR 16.301's conditions for cost-reimbursement appropriateness — that anticipate the new written approval requirement.
  • Fixed-price contracting shifts cost overrun risk to contractors. Firms that have historically relied on cost-type vehicles to manage technical uncertainty should review their bid and proposal processes to ensure they are accurately estimating scope before accepting fixed-price terms for requirements that are not yet fully defined.
  • Performance-based incentives — the EO's preferred companion to fixed pricing — create opportunities for firms with strong performance management systems to earn additional fee on top of base contract price. Firms unfamiliar with award-fee and incentive-fee contract structures should invest in building this competency before the new FAR rule takes effect.
  • Comments on OFPP's implementing guidance, once published within 45 days, are worth filing; the guidance will define the thresholds for agency head approval and the specific documentation requirements that will govern non-fixed-price contracts going forward.

Implementation Risks and the Acquisition Workforce Challenge

The practical challenge of implementing the fixed-price contracting executive order lies not in policy design but in acquisition workforce capacity and risk aversion. Federal contracting officers are already required under FAR Part 16 to select contract types based on a risk analysis that weighs requirements definition, contractor technical capability, and market conditions. The executive order does not change the underlying legal framework so much as it adds an approval and documentation layer above the contracting officer's existing judgment. The risk is that requiring written agency-head justification for cost-reimbursement contracts creates incentives for contracting officers to force programs into fixed-price vehicles even when cost-reimbursement remains the technically appropriate choice — a dynamic documented in prior fixed-price mandates applied to complex development programs. OFPP's 45-day guidance will be the critical document to watch: if it defines the agency-head approval threshold high enough that most routine cost-reimbursement service contracts are exempt, the practical disruption will be modest. If it sets the threshold low and requires formal justification for all but the smallest cost-type actions, it will generate significant compliance overhead for both agencies and contractors without necessarily improving acquisition outcomes.

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