A new FAR section that forces the most senior officials at each agency to personally approve cost-reimbursement and other non-fixed-price awards took effect on July 15, 2026. FAR 16.104, titled "Executive Order 14402 justification for covered contracts and orders," requires agency-head approval of a written justification before an agency releases a solicitation for a covered contract at or above thresholds that begin at $10 million for most of the federal government. The rule reaches backward as well, sweeping in contracts already on the books with long runways remaining.

Background

Executive Order 14402, dated April 30, 2026 and published at 91 FR 24325 on May 5, established a governmentwide preference for fixed-price contracting and directed agencies to document why they depart from it. The FAR Council turned that directive into regulatory text through a June 25, 2026 guidance memo, "Agency Implementation of Executive Order 14402," carrying signatures through June 30 from Dr. Kevin R. Rhodes, Administrator of Federal Procurement Policy; John M. Tenaglia for the Department of Defense; Jeffrey A. Koses for the General Services Administration; and Bradley J. Niese for NASA.

The memo told agencies to update their Revolutionary FAR Overhaul class deviations for parts 16 and 52 by July 15, 2026. Agencies that adopt the FAR Council's model deviation text verbatim need not coordinate with the Council; any departure from the model text requires FAR Council approval absent statutory direction. Agency-specific Part 16 deviations are already posted for DoD, NASA, DHS, DOJ, DOL, DOS, DOT, HHS, HUD, EPA, GSA, NRC, NSF and OPM, among others. Acquisition.gov lists Part 16 with an issuance date of September 30, 2025 and an update of July 1, 2026.

Key Details

The rule turns on the term "covered contract or order," which captures three things: a contract or order that is other than fixed-price; a firm-fixed-price level-of-effort term contract; or a hybrid containing either element. That definition sweeps in cost-plus-fixed-fee, cost-plus-incentive-fee, time-and-materials and labor-hour work, and it deliberately reaches FFP level-of-effort arrangements that carry a fixed-price label but function on hours delivered rather than outcomes.

Justification thresholds vary by agency. A justification is required for covered contracts and orders valued at or above $100 million for DoD, $35 million for NASA, $25 million for the Department of Homeland Security, and $10 million for all other federal agencies. Approval sits with the head of the agency, and the delegation language is tight: the agency head may delegate justification approval only to the agency's chief acquisition officer or to another non-career official in the Senior Executive Service within the agency. Career staff cannot hold the pen. That single sentence is what gives the rule teeth, because it prevents agencies from routing sign-off down to the contracting activity that wrote the requirement.

Applicability runs in three directions. The requirement covers solicitations issued on or after July 15, 2026; solicitations issued before that date whose resulting contracts or orders have not yet been awarded; and existing contracts or orders where the remaining period of performance, including all options, is at least 18 months as of July 15, 2026. Timing follows the category. For new solicitations, the justification must be approved before the solicitation is released. For the two backward-looking categories, the memo says justifications should be issued no later than July 15, 2027, giving agencies a one-year window to paper their in-flight and legacy work. An approved justification is valid for the duration of the contract or order.

Four exceptions cut the scope. Multiple-award contracts are excepted, though task orders, delivery orders and blanket purchase agreements placed under them still require justification. Contracts supporting emergencies, major disasters or contingency operations are excepted, as are research and development contracts under FAR Part 35 and pre-production development for major system acquisitions under Part 34.

The valuation rules close the obvious gaps. A hybrid contract is covered when the non-fixed-price portion standing alone meets the threshold. A single-award indefinite-delivery contract is covered when the estimated total value of known and forecasted covered orders meets the threshold, and agencies use the ceiling price where the contract permits only covered orders. For blanket purchase agreements, the agency head decides whether the requirement attaches at BPA award or at each order. For assisted acquisitions, the requesting and funding agency's threshold governs, while the servicing agency, in consultation with the requesting agency, develops, approves and reports the justification unless an interagency agreement assigns those duties differently.

What It Means for Contractors

The near-term effect is friction on the non-fixed-price side of the pipeline. A justification that must clear an agency head or a non-career SES before a solicitation drops adds a step that no contracting officer can absorb quietly, and Wiley Rein's July 7 client alert flags exactly that risk: possible delays in awards structured as anything other than fixed-price. Companies with proposals pending against pre-July 15 solicitations that have not yet been awarded are in the second applicability bucket, which means an award they consider imminent may now wait on a signature several levels above the contracting officer.

The 18-month lookback is the provision worth reading twice. Any cost-type or T&M contract with at least 18 months of performance left as of July 15, including options, needs a justification by July 15, 2027. Wiley's read is that this creates renegotiation pressure on those vehicles and raises the prospect that agencies simply decline to exercise options carrying other-than-fixed-price terms rather than build a justification package for them. Contractors should inventory their portfolio now against that date and identify which vehicles are exposed.

Structurally, the rule pushes work toward firm-fixed-price. Wiley expects more fixed-price awards as a direct consequence, which shifts cost and schedule risk onto industry on requirements where uncertainty previously justified a cost-reimbursement structure. The R&D and pre-production development exceptions leave room for genuinely undefined work, and the multiple-award exception preserves the base vehicle, but the order-level requirement means the relief is narrower than it first appears: the money still flows through orders, and the orders still need justification.

One practical note for teams supporting assisted acquisitions through GSA or another servicing agency: the threshold that applies is the requesting agency's, not the servicing agency's. A $12 million cost-type order funded by a civilian agency and placed by a servicing agency is covered even though the same order funded by DoD would not be.

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