New Executive Order Encourages Expanded Use of Fixed-Price Contracts

On April 30, President Trump issued an Executive Order (EO), “Promoting Efficiency, Accountability, and Performance in Federal Contracting,” establishing a government-wide policy that fixed-price contracts, including performance-based variants, are the default and preferred method of procurement, and erecting new barriers to the use of cost-reimbursement contracts (also referred to in the EO as “non-fixed-price contracts”). According to the Trump Administration, “[c]ost-reimbursement contracts frequently allow for poorly defined product or service deliverables and increase the Government’s exposure to overspending by providing little incentive to control costs.”

While the FAR already requires (or expresses a strong preference for) fixed-price contracts in certain circumstances—such as sealed bidding and acquisitions of commercial products or services—it ultimately preserves significant discretion for contracting officers to select contract types based on risk and pricing certainty. See FAR 16.102(a); 16.201(a); 16.103. For example, the FAR provides that a firm-fixed-price contract “shall be used when the risk involved is minimal or can be predicted with an acceptable degree of certainty,” but also recognizes that “when a reasonable basis for firm pricing does not exist, other contract types should be considered.” FAR 16.103(a)–(b).

In contrast, the EO represents a meaningful shift away from this flexible framework by constraining contracting officer discretion and requiring senior-level justification and approval for most uses of cost-reimbursement and other non-fixed-price contract types. Key provisions include:

• Fixed-price contracting becomes the “default and preferred” model government-wide, intended to promote cost predictability, budget discipline, contractor accountability, and streamlined administration.
• Use of cost-reimbursement and other non-fixed-price contracts is restricted. Contracting officers must justify such use in writing, and contracts above specified thresholds require approval by the agency head or designee ($100M DoD, $35M NASA, $25M DHS, $10M most other agencies).
• The EO applies to existing contracts as well as future awards. Agencies must review their largest non-fixed-price contracts and, where practicable, “modify, restructure, or renegotiate” them to incorporate fixed pricing and performance-based incentives.

Finally, the EO directs the Office of Federal Procurement Policy, in coordination with the FAR Council, to propose amendments to the FAR and develop guidance and training to support implementation of this policy.

Practical Implications for Contractors: This EO signals increased scrutiny of cost-reimbursement work and may drive broader adoption of fixed-price and performance-based contracting across federal agencies. Contractors should expect more emphasis in solicitations on well-defined deliverables and specific performance metrics. Companies with significant cost-reimbursement portfolios should monitor agency efforts to restructure existing contracts and evaluate potential impacts on pricing strategies and margins.