New EO Pushes Agencies to Default to Firm-Fixed-Price Contracts

The April 30, 2026, Executive Order 14402, Promoting Efficiency, Accountability, and Performance in Federal Contracting, signals a stronger government-wide push toward firm-fixed-price (FFP) contracting and away from cost-reimbursement based vehicles.  Agencies are directed to use FFP contracts as the default procurement method and to limit use of non-FFP vehicles unless specifically justified and approved by the agency head.  This Executive Order (EO) is critical of cost-reimbursement contracting, stating that those arrangements can involve poorly defined deliverables and expose the government to overspending, and aims to shift more cost risk to contractors.  While past directives have indicated a “preference” for FFP contracts, this EO is written as a “mandate.”

From an industry standpoint, this policy is likely to influence contracting behavior well before formal rules are finalized, because contracting officers may see fixed-price awards as the path of least resistance from an administrative perspective.  The EO does provide exceptions which allow for non-FFP contracting, particularly for research and development (R&D), but these require strict justification.

Requirements for government agencies:

• Agencies are to use interim class deviations pending formal rulemaking.
• By July 29, 2026, agencies are required to modify, restructure, or negotiate their 10 largest existing non-fixed-price contracts, by dollar value, to incorporate FFP or performance-based metrics, while future non-FFP awards above the specified thresholds will require agency head approval.
• For future non-FFP contracts, those exceeding designated agency thresholds require written approval by the agency head.  Those thresholds are:
  • Department of Defense (DoD):  $100M
  • National Aeronautics and Space Administration (NASA): $35M
  • Department of Homeland Security (DHS): $25M
  • All others: $10M

Key takeaways for contractors:

• The practical impact is that contacting officers (COs) may increasingly default to FFP simply to avoid the added approval and reporting burden tied to non-FFP awards.
• Contractors will assume more responsibility for cost, execution, and scope management, making strong estimating practices, internal controls, and clearly defined deliverables even more important to protecting margins and staying competitive in the market.
• Contractors with large existing non-fixed-price awards should also be prepared for possible renegotiation activity in the near term, including potential downstream subcontract impacts.