On April 30, 2026, President Trump issued executive order (EO) 14402 titled “Promoting Efficiency, Accountability, and Performance in Federal Contracting,” stating that fixed-price contracts with performance-based considerations should serve as the “default and preferred method of procurement,” to the maximum extent consistent with law. The EO frames the new policy as a response to “unpredictable costs, bloated overhead, and weak performance incentives” associated with cost-reimbursement contracting.
The EO directs executive branch agencies to use fixed-price contracts “to the maximum extent consistent with law.” It applies the meaning of “fixed-price contracts” as described in Federal Acquisition Regulation (FAR) Part 16:
A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive and performance or delivery incentives when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives.
This approach is intended to encourage cost control and timely delivery by aligning profit with performance, in contrast to cost-reimbursement contracting, which the EO describes as more likely to tolerate poorly defined deliverables and “increase the Government’s exposure to overspending by providing limited incentives to control costs.”
When an agency seeks to use other-than-fixed-price contracts (such as cost-reimbursement, time-and-materials, and labor-hour contracts), the EO requires the contracting officer to provide a written justification to the agency head. Additionally, if the value of a non-fixed-price contract – or the non-fixed-price portion of a hybrid contract – exceeds the following thresholds, the contract must also receive written approval from the agency head:
- The Department of War: $100 million
- The National Aeronautics and Space Administration (NASA): $35 million
- The Department of Homeland Security (DHS): $25 million
- All other agencies: $10 million
Written approval from agency heads is not required for contracts that support response to an emergency, major disaster, or contingency operation (as these terms are defined in FAR Part 2), or contracts involving research and development or pre-production development for major systems acquisition under FAR Parts 34 and 35.
The EO also targets existing contract portfolios. Within 90 days of the EO, each agency head must review and, to the maximum extent practicable and consistent with law, seek to modify, restructure, or renegotiate the agency’s 10 largest non-fixed-price contracts by dollar value to “facilitate use of fixed prices and performance-based incentives for contract deliverables to the maximum extent practicable.” This EO will not apply to contracts that involve research and development or pre-production development for major systems acquisition, as governed by FAR Parts 34-35, or contracts that support response to an emergency, major disaster, or contingency operation as defined in FAR Part 2.
Additionally, agency heads must submit an initial report – including the number of, value of, and written justifications for any non-fixed-price contracts approved – to the Director of the Office of Management and Budget (OMB) within the same 90-day period, and thereafter provide semiannual reports addressing approved non-fixed-price contracts and associated justifications. As part of the first report, agency heads must identify opportunities, beyond the contracts already identified, for adjusting current non-fixed-price contracts toward fixed-price contracts.
In describing these categories, the EO states that other-than-fixed-price contracting “should be the exception, granted only in limited circumstances and with appropriate senior-level accountability at the agency.”
With respect to implementation, the EO directs the Administrator for Federal Procurement Policy (in coordination with the FAR Council) to propose amendments to the FAR within 120 days. The EO also calls for the development of training and education for the acquisition workforce on fixed-price contracting and performance-based considerations. Contractors should monitor for follow-on guidance intended to operationalize the EO’s requirements, including any templates or criteria agencies may develop for written justifications and approvals.
Impact on Government Contractors
Federal contractors may wish to note the EO’s increased agency emphasis on defining requirements, deliverables, and acceptance criteria up front as agencies seek to expand the use of fixed-price and performance-based structures. For contractors with significant other-than-fixed-price portfolios, the EO’s 90-day review directive creates the possibility that agencies may approach incumbents about restructuring or renegotiating existing vehicles – subject to what is practicable and consistent with law. In parallel, the heightened justification and approval process for other-than-fixed-price awards may affect acquisition lead times and evaluation dynamics, particularly for requirements where scope or technical uncertainty has historically supported cost-type, time-and-materials, or labor-hour approaches. Contractors may wish to consider assessing (i) estimating and pricing discipline, (ii) change-management processes, and (iii) subcontracting and teaming arrangements that allocate risk appropriately under fixed-price performance structures.
Millie Koehler contributed to this article
