A new Executive Order issued April 30, 2026, establishes a government-wide policy shift toward fixed-price, performance-based contracting as the default approach for federal procurement.
The order states that federal procurement has tolerated unpredictable costs, bloated overhead, and weak performance incentives, and calls for adopting private-sector practices that emphasize defined outcomes, cost control, and accountability.
Fixed-Price as the Default
Under the policy, executive branch agencies are directed, to the maximum extent consistent with law, to use fixed-price contracts or contracts that tie profit to performance-based metrics.
The order contrasts this with cost-reimbursement contracting, where contractors are reimbursed for allowable costs and may receive profit on top of expenses. It notes that these structures can allow for less clearly defined deliverables and increase the government’s exposure to overspending.
A fiscal year 2024 review cited in the order identified approximately $120 billion obligated on cost-reimbursement consulting contracts.
New Approval Requirements for Non-Fixed-Price Contracts
The order imposes new justification and approval requirements for any non-fixed-price contract, including cost-reimbursement, time-and-materials, or labor-hour contracts.
Contracting officers must provide written justification to the agency head. Additional approval is required when the value exceeds:
- $100 million for Department of War contracts
- $35 million for National Aeronautics and Space Administration contracts
- $25 million for Department of Homeland Security contracts
- $10 million for all other agencies
Certain exceptions apply, including contracts supporting emergencies, major disasters, contingency operations, and research and development or pre-production development for major systems acquisition.
Review of Existing Contracts
Within 90 days, each agency head must review its 10 largest non-fixed-price contracts and, to the maximum extent practicable, seek to modify, restructure, or renegotiate them to incorporate fixed-price and performance-based elements.
This requirement excludes contracts related to research and development or emergency response activities.
Reporting and Oversight
Agencies are required to submit semi-annual reports to the Office of Management and Budget detailing the number, value, and justification for approved non-fixed-price contracts.
The first report is due within 90 days and must also identify additional opportunities to transition existing contracts toward fixed-price structures.
Implementation Timeline
- Within 45 days, the Office of Management and Budget will issue implementation guidance
- Within 120 days, updates to the Federal Acquisition Regulation will be proposed
- Training programs will be developed for acquisition personnel on the use and management of fixed-price contracts
What This Means for GovCon
The order directs agencies to prioritize fixed-price contracting, introduces new approval thresholds for alternative contract types, and requires near-term review of major existing contracts.
For government contractors, this points to a shift in how contracts are structured, approved, and managed, particularly for work that has historically relied on cost-reimbursement or time-based pricing models.
