New Executive Order Mandates Fixed-Price Federal Contracts: What Contractors Need to Know

Additional contributor: Lauren Tesler

Context

On April 30, 2026, the White House issued a highly consequential Executive Order (“EO”) titled “Promoting Efficiency, Accountability, and Performance in Federal Contracting.” This EO fundamentally alters the federal procurement framework by establishing fixed-price and performance-based contracts as the default mechanism for government acquisition, moving sharply away from historical cost-reimbursement and time-and-materials models.

While there has been a longstanding preference for the firm fixed priced (FFP) contract type, a major change here is the required addition of performance-based characteristics. This policy shift stems from ongoing administration concerns about government overspending and a drive to enforce strict budget discipline. The stated goals are to improve cost predictability, shift performance risk to industry, and ensure tighter contractor accountability. For businesses supporting the government, this EO serves as a stark reminder that the era of flexible, open-ended cost structures is ending.

What Does This Mean for Your Business?

The EO’s mandate reshapes the landscape for federal contractors, immediately impacting both current operations and future pipeline strategies.

• For Current Contract Holders (The Top 10 Review): The EO directs all federal agencies to review their 10 largest non-fixed-price contracts by dollar value within 90 days (by July 29, 2026). Agencies are instructed to modify, restructure, or renegotiate these massive awards to incorporate fixed prices and performance-based metrics to the maximum extent practicable.
• For New Procurements: Fixed-price contracts are now the required default. Any deviation requires a contracting officer to provide a written justification. Furthermore, non-fixed-price contracts exceeding specific dollar thresholds ($100 million for the Department of Defense, $35 million for NASA, $25 million for DHS, and $10 million for other agencies) now require direct, senior-level agency head approval.
• Exceptions to the Rule: The EO does carve out limited exemptions, primarily for research and development (“R&D”), pre-production development for major systems, and emergency or disaster response operations.
• The Bottom Line: This directive reallocates significant financial and performance risk from the government directly to the contractor. Profitability will be heavily dependent on accurate upfront pricing, rigorous schedule management, and the strict avoidance of unpriced scope growth.

Recommendations

While the Office of Management and Budget (OMB) and the Federal Acquisition Regulation (FAR) Council will be issuing formal guidance and rule changes in the coming months, proactive preparation is essential to maintain your competitive advantage. We strongly recommend that contractors take the following steps:

• Prepare for Renegotiation Now: If you hold high-value cost-reimbursement or time-and-materials contracts, anticipate a request to restructure. Gather meticulous data on your costs, performance metrics, and supply chain impacts to defend your pricing and margins during renegotiation. Documentation is key to preventing unnecessary exposure to financial losses during these discussions.
• Demand Clarity in Solicitations: Because fixed-price structures place the burden of cost overruns squarely on the contractor, strict compliance with clearly defined requirements is paramount. Treat ambiguous statements of work as significant proposal risks. Resolve open questions early through formal Q&A processes rather than making assumptions.
• Strengthen Internal Controls: Implement rigorous change management processes. Ensure your program managers and operational teams understand that they must not implement government-requested “changes” or extra work without a formal, written contractual agreement. “Scope creep” on a fixed-price contract has direct and crippling financial consequences.
• Stay Informed: Diligently monitor agency implementation memos and forthcoming FAR updates. We will provide a strategic roadmap as these regulations solidify.

We understand that navigating this transition to mandatory fixed-price contracting and mitigating risks will be challenging. Our team is standing by to advise your business on restructuring existing agreements, analyzing pipeline opportunities, and strengthening your contract management processes to ensure long-term profitability in this new environment.

Please do not hesitate to reach out to our team if you have any questions or require assistance.

Clark Hill Government Contracts and Regulatory Team

If you have questions about specific jurisdictions or need further assistance, contact one of these Clark Hill Government Contracts and Regulations Team attorneys managing the tracker:

• Bret S. Wacker (bwacker@clarkhill.com; 202.772.0906)
• Ronald D. Sullivan (rsullivan@clarkhill.com; 202.809.2235)
• Colleen Jarrott (cjarrott@clarkhill.com; 202.640.6668)
• Chris White (jcwhite@clarkhill.com; 517.318.3011)
• Gabrielle Long (glong@clarkhill.com; 312.701.6852)
• Contributors: Lauren Tesler, Law Clerk.

Find these and other Government Contracts and Regulations Attorneys.

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