On April 30, 2026, President Trump signed an Executive Order titled “Promoting Efficiency, Accountability, and Performance in Federal Contracting” (the “Order”), directing executive branch agencies to default to fixed-price contracts and contracts that tie contractor profit to performance-based metrics in federal procurement. The Order also requires agencies to review and, to the maximum extent practicable, modify, restructure, or renegotiate their largest non-fixed-price contracts. For context, a companion White House Fact Sheet states that in Fiscal Year 2024, approximately $120 billion was obligated on cost-reimbursement consulting contracts, underscoring the scale of the shift the Order contemplates.

This alert summarizes the key provisions of the Order, analyzes its practical implications for federal contractors and subcontractors, and outlines recommended steps for compliance.

I. Background and Policy Rationale

The Order’s stated purpose is to reform federal procurement practices that have, in the administration’s view, “tolerated unpredictable costs, bloated overhead, and weak performance incentives”. The Order frames cost-reimbursement contracting — under which the government guarantees reimbursement for incurred costs plus a profit margin — as a model that “provides little incentive to control overspending”. The administration emphasizes that the United States Government “must adopt the best business practices to protect taxpayer dollars, hold contractors accountable, and achieve demonstrable returns on investment”.

In contrast, private-sector contracts “frequently focus on driving performance by dictating a fixed cost for a well-defined outcome and by tying contractor payment to performance-based metrics, rewarding work that exceeds expectations and penalizing subpar performance”. The Order is the latest in a series of procurement-related executive orders, following prior directives to modernize defense acquisitions, streamline the Federal Acquisition Regulation (“FAR”), and require the federal government to leverage private-sector innovation.

II. Key Provisions

Default to Fixed-Price Contracts. Section 2(a) of the Order directs that, to the maximum extent consistent with law, agencies shall utilize fixed-price contracts — as defined in Part 16 of the FAR or contracts that tie profit to performance-based metrics when appropriate.

Written Justification and Agency-Head Approval for Non-Fixed-Price Contracts. The use of any non-fixed-price contract — including cost-reimbursement contracts, time-and-materials contracts, labor-hour contracts, or any other non-fixed-price type under FAR Part 16 — must be justified in writing by the contracting officer to the agency head. The Order carves out limited exceptions from the agency-head approval requirement for contracts that: (A) support the response to an emergency, major disaster, or contingency operation as defined in FAR Part 2; or (B) involve research and development or pre-production development for major systems acquisition, as governed by FAR Parts 34–35.

Review of Existing Contracts. Within 90 days of the Order (i.e., by approximately July 29, 2026), each agency head must review and, to the maximum extent practicable and consistent with law, seek to modify, restructure, or renegotiate the agency’s 10 largest non-fixed-price contracts by dollar value — including non-fixed-price contracts entered into on behalf of another agency — to facilitate the use of fixed prices and performance-based incentives for contract deliverables. This review requirement does not apply to contracts involving research and development or pre-production development for major systems acquisition under FAR Parts 34–35, or to contracts supporting emergency, major disaster, or contingency operations under FAR Part 2.

Semi-Annual Reporting. Each agency head must report semi-annually to the Director of the Office of Management and Budget (“OMB”) the number of, value of, and written justifications for any non-fixed-price contracts approved under the Order. The first report is due no later than 90 days after the date of the Order. As part of the first report, agency heads must also identify opportunities — beyond the 10 largest contracts subject to review — for adjusting current non-fixed-price contracts toward fixed-price contracts.

III. Implementation Timeline

The Order establishes several deadlines for implementation:

• 45 days (approximately June 14, 2026). The Director of OMB must issue guidance to agencies to ensure consistent implementation of the Order.
• 90 days (approximately July 29, 2026). Each agency head must (1) complete the review of its 10 largest non-fixed-price contracts and seek to modify, restructure, or renegotiate them; and (2) submit the first semi-annual report to the Director of OMB, including identification of additional opportunities for transitioning existing contracts to fixed-price structures.
• 120 days (approximately August 28, 2026). The Administrator for Federal Procurement Policy must (1) propose, in coordination with the Federal Acquisition Regulatory Council, amendments to the FAR consistent with the Order’s policy; and (2) develop, in coordination with the Defense Acquisition University and the Federal Acquisition Institute, a training program for agency program and contracting employees on the formation, use, negotiation, and management of fixed-price contracts to minimize exceptions from the default fixed-price requirement.
• Interim Compliance. When necessary to comply with the Order before the contemplated FAR amendments are finalized, agencies are directed to utilize applicable deviations from FAR provisions to the maximum extent practicable.

IV. Practical Implications for Federal Contractors

The Order has implications for federal contractors and subcontractors across multiple sectors:

Contract structure and pricing. Contractors that currently operate primarily under cost-reimbursement, time-and-materials, or labor-hour contracts should anticipate increased pressure from contracting officers to transition to fixed-price or performance-based contract structures. This is particularly significant for the services, consulting, and IT sectors, where cost-reimbursement contracting has been prevalent. The Fact Sheet identifies approximately $120 billion in Fiscal Year 2024 cost-reimbursement consulting contract obligations, signaling the magnitude of the expected transition.

Renegotiation of existing contracts. The 90-day review window for the 10 largest non-fixed-price contracts at each agency means that contractors holding large-value cost-reimbursement contracts may face near-term renegotiation discussions. While the Order directs agencies to seek to modify, restructure, or renegotiate these contracts, it does so “to the maximum extent practicable and consistent with law,” which preserves certain contractor protections under existing contract terms. Contractors should evaluate their rights under current contracts, including termination provisions and equitable adjustment entitlements, in anticipation of potential modification requests.

Impact on research and development. The Order’s exceptions for research and development and pre-production development for major systems acquisition under FAR Parts 34–35 provide some relief for defense and technology contractors engaged in those activities. However, the scope of these exceptions may be subject to interpretation, and contractors should be prepared to demonstrate that their contracts fall within the applicable FAR parts.

Risk allocation. A shift to fixed-price contracting transfers a greater share of cost and performance risk from the government to the contractor. Contractors should carefully assess their ability to accurately estimate costs, manage supply chain risks, and absorb potential cost overruns before agreeing to fixed-price or performance-based terms — particularly for complex or long-duration requirements where cost uncertainty is high.

Competitive landscape. The Order may alter competitive dynamics in federal procurement. Contractors with mature cost-estimation capabilities and strong project management disciplines may benefit from the shift, while contractors that have relied on cost-reimbursement structures to mitigate risk may face competitive disadvantages.

V. Recommended Action Items

In light of the Order and the accelerated timelines for implementation, federal contractors and subcontractors may want to consider the following steps:

Inventory existing contracts. Identify all current non-fixed-price contracts and assess which contracts are most likely to be targeted for renegotiation under the 90-day review requirement, particularly contracts that are among the 10 largest by dollar value at any given agency.

Evaluate cost-estimation capabilities. Assess internal cost-estimation and pricing capabilities to determine readiness for fixed-price contracting. Where gaps exist, consider investing in improved cost modeling, historical data analysis, and risk-assessment tools.

Review contract terms. For existing non-fixed-price contracts, review the terms and conditions governing modifications, including any clauses addressing changes in contract type, equitable adjustments, and termination. Understand the legal framework that governs any renegotiation discussions initiated by the contracting agency.

Assess risk-mitigation strategies. Develop or refine risk-mitigation strategies for fixed-price contracts, including strategies for managing supply chain volatility, labor cost fluctuations, and technical performance risks. Consider the use of economic price adjustment clauses, incentive structures, and other contractual mechanisms that may be available under the FAR to allocate risk appropriately.

Monitor OMB guidance and FAR amendments. The OMB guidance due within 45 days and the proposed FAR amendments due within 120 days will provide critical clarity on the scope and implementation of the Order. Contractors should closely monitor these developments and provide comments on any proposed FAR amendments during the rulemaking process.

VI. Looking Ahead

This Executive Order represents a significant policy shift in the government’s approach to federal procurement, signaling a clear preference for fixed-price contracting as the default and imposing concrete review, reporting, and approval requirements on agencies that deviate from that default. The Order builds on prior administration directives aimed at streamlining the FAR and promoting commercial practices in government procurement.

The practical impact of the Order will depend in significant part on the OMB guidance and FAR amendments that follow, as well as on how individual agencies implement the review and renegotiation requirements for existing contracts. Contractors should be aware that the Order expressly authorizes agencies to use FAR deviations to implement its requirements before formal regulatory changes are finalized, which could accelerate the timeline for contract-level changes.

Government contractors and other entities affected by this Order are encouraged to consult with legal counsel to assess the impact on their existing contracts and future procurement strategies. For questions related to this Executive Order or regarding government contracts generally, please contact any of the authors listed below.