Executive Order Changes Federal Contracting Policy

On April 30, 2026, President Donald Trump (R) issued an executive order which modified how the federal government structures government contracts. The order directed agencies to preferentially use fixed-price performance-based contracts rather than cost-reimbursement contracts. 

In a fixed-price contract, a contractor delivers goods or services to the government at a set price. In a cost-reimbursement contract, a contractor delivers goods or services at a price based on the cost of doing so, plus a profit margin. According to the order, federal agencies spent about $120 billion on cost-reimbursement contracts in the 2024 fiscal year. The federal government spent about $755 billion on all contracts in that fiscal year, according to the Government Accounting Office. 

What does the order do?

The order instructed agencies to use fixed-price contracts to “the maximum extent” possible, and to use cost-reimbursement contracts “only in limited circumstances and with appropriate senior-level accountability at the agency.” Agency contracting officers must justify the use of non-fixed price contracts in a written statement addressed to the head of the agency.

Agencies must also limit their use of hybrid contracts (containing non-fixed price elements including but not limited to cost-reimbursement). Agencies must justify the use of non-fixed price contracts that exceed a specified cost threshold (or hybrid contracts with a non-fixed price component exceeding the threshold) in writing. The order specified this threshold as $100 million for Department of Defense contracts, $35 million for NASA contracts, $25 million for Department of Homeland Security contracts, and $10 million for all other agencies.

The order instructed agency heads to review their agency’s 10-largest non-fixed price contracts within 90 days, “and, to the maximum extent practicable and consistent with law, seek to modify, restructure, or renegotiate” them “to facilitate use of fixed prices and performance-based incentives.” Agencies must report their use of non-fixed price contracts to the Office of Management and Budget (OMB) every six months, beginning within 90 days of the order being issued. 

The order instructed OMB to issue guidance documents for agencies within 45 days. It also instructed the Administrator for Federal Procurement Policy, an official within OMB, to propose conforming amendments to the Federal Acquisition Regulation in collaboration with the Federal Acquisition Regulatory Council. The Administrator for Federal Procurement Policy must also develop a training program in fixed-price contracting for agency officials, in collaboration with the Defense Acquisition University and the Federal Acquisition Institute.