President Trump Signs Executive Order Mandating Fixed-Price Contracting in Federal Procurement

Overview

On April 30, 2026, President Trump signed an Executive Order (EO) titled “Promoting Efficiency, Accountability, and Performance in Federal Contracting,” directing executive branch agencies to make fixed-price contracts the default and preferred method of federal procurement. But the EO not only establishes a priority for fixed-price contracts; it mandates renegotiation of the 10 largest existing cost-type contracts at each agency within 90 days. This advisory covers the EO’s key terms and likely impacts, highlighting what remains to be seen regarding the impacts on federal contractors.

Background

Federal procurement is accomplished through a spectrum of contract types falling along a risk-allocation continuum: whereas fixed-price contracts place performance risk primarily on the contractor by requiring delivery of defined outcomes for a set price, cost-reimbursement contracts shift financial risk to the government by guaranteeing recovery of contractors’ allowable incurred costs plus a profit fee. In recognition of these different risk structures, the Federal Acquisition Regulation (FAR) requires the contracting officer, when selecting and negotiating contract type, to “consider contract terms, risks (e.g., technical, performance, delivery), and pricing.” FAR 16.102.¹

The EO describes cost-reimbursement contracting as a source of “unpredictable costs, bloated overhead, and weak performance incentives,” and states that a review of FY24 spending identified approximately $120 billion obligated on cost-reimbursement consulting contracts alone. Against that backdrop, the EO positions fixed-price contracting — with its emphasis on clearly defined outcomes, predictable timelines, and profit tied to performance — as the preferred model for driving contractor accountability and budget discipline.

Key Provisions of the Executive Order

1. Fixed-Price Contracting as the Mandatory Default (Section 2(a))

The EO requires all federal agencies to utilize fixed-price contracts as the default contract type for future procurements. This obligation applies whether an agency is contracting on its own behalf or on behalf of another agency, including in interagency acquisition arrangements.

2. Written Justification and Approval Thresholds for Non-Fixed-Price Contracts (Section 2(b))

The EO requires that any use of a non-fixed-price contract — including cost-reimbursement, time and materials (T&M), labor-hour, or any other non-fixed price contract — must be justified in writing by the contracting officer. Where the value of a non-fixed-price contract (or the non-fixed-price portion of a hybrid contract) exceeds specified thresholds, written agency head approval is required before award:

• Department of Defense): $100 million
• The National Aeronautics and Space Administration: $35 million
• Department of Homeland Security: $25 million
• All other agencies: $10 million

Agency heads may delegate this approval authority to non-career employees within the agency. The approval requirements do not apply to: (i) contracts supporting responses to emergencies, major disasters, or contingency operations (as defined in FAR Part 2); or (ii) contracts for research and development or pre-production development for major systems acquisition (governed by FAR Parts 34-35). The EO acknowledges that cost-reimbursement contracting remains appropriate in those limited contexts, but directs that it should be the exception rather than the rule.

3. Renegotiation Mandate for Existing Non-Fixed-Price Contracts (Section 2(c))

Within 90 days of the Order (~July 29, 2026), each agency must review its ten largest non-fixed-price contracts by dollar value and, to the maximum extent practicable and consistent with law, seek to modify, restructure, or renegotiate those contracts to incorporate fixed prices and performance-based incentives. The same exemptions for R&D/major systems and emergency contracts apply. Agencies contracting on behalf of other agencies must include contracts held in that capacity when compiling their list.

4. Semi-Annual Reporting to OMB (Section 2(d))

Agency heads must report semi-annually to the Office of Management and Budget (OMB) Director the number, value, and written justifications for all non-fixed-price contracts approved by the agency. The first report is due no later than 90 days from the date of the Order (~July 29, 2026). In addition to detailing approved exceptions, the first report must identify broader opportunities for moving existing non-fixed-price contracts toward fixed-price arrangements.

5. FAR Amendments and Training (Section 3)

Within 45 days of the Order (~June 14, 2026), the OMB Director must issue implementation guidance to all agencies. Within 120 days of the Order (~August 28, 2026), the Administrator for Federal Procurement Policy must: (i) propose, in coordination with the FAR Council, amendments to the FAR to codify fixed-price contracting as the default federal procurement policy; and (ii) develop, in coordination with Defense Acquisition University and the Federal Acquisition Institute, a training program for contracting and program personnel on the formation, use, negotiation, and management of fixed-price contracts. Pending FAR amendments, agencies are directed to use applicable FAR deviations to the maximum extent practicable.

Key Implications and Takeaways for Federal Contractors

A. Immediate Risk of Attempted Contract Renegotiation

The EO instructs federal agencies to attempt to renegotiate large, cost-type contracts within 90 days. Of course, such existing contracts remain binding unless modified; the government cannot unilaterally change an existing cost-type contract to fixed-price. Contractors who receive government outreach seeking a renegotiation will have to choose whether to engage with their government customer or seek to enforce the terms of their contracts as-written, and potentially face the risk of a termination or non-renewal should the agency be unwilling to continue on a cost reimbursement basis.

Recognizing these barriers, the EO requires only that agencies seek to renegotiate “to the maximum extent practicable and consistent with law.” Contractors have legal and contractual arguments against unilateral modifications (especially of this significance), and agencies generally cannot impose conversion without consent. Nonetheless, the government will have significant leverage over contractors that depend on ongoing program funding, renewals, options, or follow-on awards.

B. New Award Strategy Considerations and Shifting Risk

The new presumption in favor of fixed price procurements is in tension with past procurement practice, which recognized that cost-type contracts make sense in a variety of procurements. Previously, agencies exercised their discretion to select the contract type that would provide the greatest incentive for efficient and economical performance, given the specific circumstances of each individual procurement. That analysis turns on factors , including the degree of cost uncertainty, the complexity of the requirement, the contractor’s ability to estimate costs with reasonable confidence at award, and the administrative burden of contract oversight. Agencies selected firm-fixed-price contracts when the scope was well-defined, performance risk was well-understood, and the contractor could price the work with confidence. In turn, agencies pursued cost-reimbursement arrangements where those conditions did not hold: where the work was technically uncertain, where the government could not define the requirement with sufficient precision, or where requiring contractors to absorb performance risk they could not reasonably quantify would either deter competition or produce artificially inflated bids.

By mandating fixed-price contracting as the default, the EO places a categorical thumb on the scale for a single contract type regardless of whether the underlying requirement supports it at a time when the government’s acquisition workforce, which has seen significant cuts, may be hard-pressed to craft the definitive work statements required for fixed price efforts. For complex developmental services, emerging technology acquisitions, and requirements that are inherently difficult to scope in advance, the result of the EO's mandate may be either poorly structured fixed-price contracts with inadequately defined deliverables or discouraging qualified contractors from competing at all.

Practically, the written justification process created by the EO may function as a vehicle for documenting the contract type analysis that contracting officers should already be performing. But the institutional pressure to avoid non-fixed-price contracts risks distorting procurement decisions, pushing agencies toward fixed-price structures on requirements that are not a good fit. And critically, the EO’s apparent assumption that fixed-price contracting is inherently a cost-saving measure is not necessarily, or even often, true. Requiring contractors to bid a firm-fixed price on poorly scoped or ambiguous requirements will necessarily lead to inclusion of strategic amounts to cover contingent risks that contractors cannot rule out, with the resulting bids reflecting not the expected cost of performance, but the contractor’s best assessment of the amount required to cover its own risk.² A well-administered cost-reimbursement contract on such ambiguous or undefined requirements could therefore actually cost the government less, something the EO seems to ignore. Forcing ill-defined requirements to be bid as firm-fixed price may also serve as a barrier to competition, particularly for small businesses, which may be unable to accept the large potential downside risks of fixed price contracting vehicles.

C. Impact on Contractor Proposal Development

Any broad shift from issuing solicitations on a cost basis to fixed-price requirements will necessarily result in contractors assuming greater risk, which merits additional contractor diligence during the bid and proposal development process. Bid and proposal teams should evaluate whether the scope of work is sufficiently well-defined to support firm-fixed-price pricing, whether performance-based incentive structures are achievable, and how to price risk appropriately. Engage with the procuring agency actively to question any ambiguities in contract scope, and craft proposals to cabin risk where possible. Underpricing risk in a rush to win work on a fixed-price vehicle carries material financial consequences that can be difficult to recover.

By corollary, the government may find that the EO results in contractors , including a premium corresponding to this increased risk in their prices — ironically causing bids to go up, contrary to the EO’s apparent intention. This means that the government's intended savings from eliminating cost overruns on a cost-type contract may simply be replaced by higher base prices on the fixed-price vehicle — with the additional disadvantage that the fixed price provides no mechanism for the government to benefit if actual costs come in below the contract price.

D. A Future Surge in REAs?

Another potential result of the EO could very well be a delayed reckoning with the true scope and costs of a procurement in the form of requests for equitable adjustment (REAs) and contract disputes. Fixed-price contracts contain a Changes clause (FAR 52.243-1) that entitles a contractor to an equitable adjustment when the government orders a change within the general scope of the contract. This, however, turns on whether the government has adequately defined and cabined the scope of work at the time of award. Where the scope is well-defined, the Changes clause operates as intended: discrete, government-directed changes give rise to discrete, quantifiable adjustments. Where the scope is poorly defined, and the boundaries of the original contract are contested from the outset, disputes will inevitably arise over whether work is included in the original scope or is a “change.”

Conclusion

The EO has broad ambitions, but how much it will change procurement in practice remains to be seen. Fixed-price contracting is already the norm for well-defined requirements, and agencies remain able to justify cost-type vehicles when the work genuinely warrants them. The renegotiation mandate may be a more immediate and concrete consequence: contractors holding large cost-reimbursement, T&M, or labor-hour contracts should prepare strategies should they receive agency outreach in the near term.

Arnold & Porter's Government Contracts practice is available to assist clients in assessing their exposure and navigating renegotiation discussions. If you have questions about this Advisory, please contact a member of our Government Contracts Practice Group or your existing Arnold & Porter contact.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.