The federal procurement landscape may be entering one of its most significant structural shifts in decades. On April 30, 2026, President Donald Trump issued the Promoting Efficiency, Accountability, and Performance in Federal Contracting Executive Order (yet unnumbered), directing federal agencies to make fixed-price contracting the government’s “default and preferred” procurement method. The policy change has been announced as supportive of the Administration’s stated goal of reducing cost overruns, increasing accountability, and more directly tying contractor profitability to performance outcomes.
While the Executive Order will likely generate significant debate throughout the procurement community, one thing is already clear: contractors that rely heavily on cost-reimbursement, time-and-materials, and labor-hour contracting vehicles should begin preparing now for a potentially transformed acquisition environment.
What the Executive Order Requires
The Order directed agencies to use fixed-price contracts “to the maximum extent consistent with the law” and to incorporate performance-based metrics whenever appropriate, “whether an agency is entering into contracts on its own behalf or on behalf of another agency.” The Order also imposes several substantial operational requirements on agencies:
- Agencies must review their ten (10) most expensive non-fixed price contracts and within ninety (90) days of the Order (July 29, 2026), consider modifying, restructuring, or renegotiating them toward fixed-price and performance-based structures;
- Contracting Officers seeking to use non-fixed-price contracts in future procurements must provide written justifications to agency leadership and large non-fixed price procurements will require agency-head approval above specified thresholds: $100 million for the Department of War ( the Department of Defense), $35 million for NASA, $25 million for the Department of Homeland Security, and $10 million for all other agencies;
- Agency heads may delegate “approval authority to appropriate non-career employees within the agency”; and
- Agency heads must provide semi-annual reports to the Office of Management and Budget identifying all approved non-fixed-price contracts and the written justifications supporting those decisions.
The Executive Order further directs: - By mid-June 2026, the Office of Management and Budget to issue implementation guidance.
- By August 28, 2026, the Office of Federal Procurement Policy and the Federal Acquisition Regulatory Council to propose amendments to the FAR that would institutionalize fixed-price contracting as the government-wide preferred method of procurement and develop training programs regarding fixed-price contracting.
Finally, the Executive Order encourages Agencies to take action sooner than August 28, authorizing Agencies to “use FAR deviations where necessary pending formal FAR amendments”.
Why This Matters
Historically, federal agencies have relied on cost-reimbursement contracting where: requirements are evolving, technical uncertainty exists, mission urgency limits precise scoping, or research and development work makes pricing difficult. Under cost-reimbursement models, contractors are generally reimbursed for allowable costs incurred during performance. The Administration argues that this structure can reduce incentives for cost control and increase the government’s exposure to overruns.
By contrast, fixed-price contracts shift substantially more performance and cost risk to contractors. If costs exceed expectations, the contractor typically absorbs the loss. If the contractor performs efficiently, profit margins may increase.
Potential Impact on Contractors
- Increased Pricing Risk. Contractors may face substantially greater pressure to tighten cost estimating, improve internal controls, manage labor utilization aggressively, and limit scope creep.
- Greater Emphasis on Performance Metrics. The Executive Order repeatedly references performance-based incentives. Contractors should expect agencies to place increased emphasis on measurable deliverables, milestone-based performance, service-level benchmarks, and outcome-driven evaluations.
- Pressure on Small Businesses. Small businesses may experience both opportunities and challenges. On one hand, agencies seeking cost certainty may favor mature contractors with sophisticated accounting and pricing systems. On the other hand, efficient small businesses with lean overhead structures may become increasingly attractive in fixed-price competitions. However, smaller firms should carefully evaluate cash flow exposure, indirect cost recovery limitations, inflation risk, labor escalation assumptions, and subcontractor pricing volatility.
- FAR and Compliance Changes Ahead. Because the Executive Order directs formal FAR revisions, contractors should anticipate updated acquisition guidance, revised solicitation structures, enhanced documentation requirements, and increased scrutiny of non-fixed-price procurements.
Important Caveat: Cost-Reimbursement Contracting Is Not Eliminated. The Executive Order acknowledges that cost-reimbursement contracting remains appropriate in certain limited circumstances, such as research and development, pre-production developmental efforts, major systems acquisitions involving substantial technical uncertainty, and emergency, disaster, or contingency-response contracts.
Looking Ahead
Federal contractors should not assume this Executive Order is merely symbolic. The directive contains operational mandates, reporting requirements, agency-review obligations, and anticipated FAR changes, suggesting the Administration intends meaningful implementation.
Companies should consider taking proactive steps now, including – :
- Reviewing current contract portfolios,
- Identifying exposure to cost-reimbursement vehicles,
- Strengthening estimating systems,
- Reassessing pricing methodologies,
- Evaluating subcontractor risk allocation, and
- Preparing for greater performance-based acquisition requirements.
For contractors operating in highly competitive sectors, the ability to accurately scope, price, and execute fixed-price work may soon become an even more important discriminator in the federal marketplace.
