Fixed Price, First Choice: New EO Pushes Agencies Further Away from Non-Fixed-Price Contracts

The White House on April 30, 2026, issued an executive order (EO) titled "Promoting Efficiency, Accountability, and Performance in Federal Contracting." The EO states a policy preference for fixed-price contracting and performance-based incentives, with the stated objectives of improving cost predictability, budget discipline, contractor accountability and procurement administration. The EO also describes non-fixed-price contracting – such as cost-reimbursement, time-and-material or labor-hour contracts – as appropriate in some circumstances, including research and pre-production developmental phases of major systems acquisition, but frames such contracting as an exception requiring approval from the agency head or someone delegated by them.

For contractors, the practical issue is risk of performing on a fixed-price basis, particularly where contract requirements may be complex or uncertain. Fixed-price contracting can work well when requirements, deliverables, schedules and acceptance criteria are mature and well defined. But where requirements are evolving, underdeveloped or dependent on future government direction, fixed-price treatment does not eliminate uncertainty.

The fixed-price preference is not new for commercial acquisitions: Federal procurement law already directs agencies, to the maximum extent practicable, to use firm-fixed-price or fixed-price-with-economic-price-adjustment contracts for commercial products and commercial services and prohibits cost-type contracts in that context. 41 U.S.C. § 3307; FAR 1602-2.

The impact is likely to be more acutely felt in contracts involving complex services, development-adjacent work, uncertain level-of-effort requirements, construction-related contracts and hybrid procurements where agencies have historically used cost-reimbursement, time-and-materials or labor-hour structures because the total requirements were difficult for contractors to price with confidence given the limited foreknowledge of all potential work required. Further, the fixed-price designation, as currently described, does not eliminate the requirements for contractors to submit – and the government to approve – cost proposals in compliance with Truth in Negotiations Act (TINA) and Cost Accounting Standards (CAS), when applicable. This Holland & Knight alert summarizes what has changed and what contractors should be watching now.

Key Provisions of the EO

Operationally, the EO does more than announce a preference for fixed-price contracting. It builds a process around that preference: Agencies are directed toward fixed-price structures, and exceptions must be justified, and in some cases approved, at senior agency levels. Existing, large, non-fixed-price contracts must be reviewed, and additional Office of Management and Budget (OMB) guidance and Federal Acquisition Regulation (FAR) changes are expected to follow. Again, note that the EO's use of the term "non-fixed-price" also sweeps variable priced contracts – such as time and materials and labor hour – into the EO's purview. For contractors, the important point is that these procedural requirements are likely to influence acquisition strategy, negotiation posture and potential modifications to existing contracts before the FAR is formally amended.

• Fixed-Price Default. The EO directs executive branch departments and agencies, to the maximum extent consistent with law and subject to stated exceptions, to use fixed-price contracts in procurement. For purposes of the EO, fixed-price contracts are defined by reference to FAR Part 16 or as contracts that tie profit to performance-based metrics when appropriate. The full extent of "fixed-price" contracts preferred by the EO is not certain but potentially includes incentive contracts described by FAR Subpart 16.4, among others. The practical significance is that fixed-price contracting becomes the expected agency posture, not merely one permissible contract type among several.
• Written Justification for Non-Fixed-Price Contracts. Any non-fixed-price contract must be justified in writing by the contracting officer to the agency head. Covered non-fixed-price arrangements include cost-reimbursement contracts, time-and-materials contracts, labor-hour contracts and other non-fixed-price contract types under FAR Part 16. This is the EO's main enforcement mechanism: procedural friction that makes non-fixed-price contracting more visible and more burdensome.
• Senior-Level Approval Thresholds. The EO requires written agency head approval when the value of a non-fixed-price contract, or the non-fixed-price portion of a hybrid contract, exceeds specified thresholds. Those thresholds are $100 million for a U.S. Department of War contract, $35 million for a NASA contract, $25 million for a U.S. Department of Homeland Security contract and $10 million for contracts involving other agencies. Agency heads may delegate that approval authority to appropriate non-career employees within the agency. These requirements are likely to affect agency behavior even before FAR amendments are finalized because they subject higher-value non-fixed-price structures to senior-level accountability.
  • Exceptions to Senior-Level Approval Thresholds. The agency head approval requirement does not apply to contracts supporting response to an emergency, major disaster or contingency operation as defined in FAR Part 2. It also does not apply to contracts involving research and development or pre-production development for major systems acquisition governed by FAR Parts 34 and 35.
• Review of Existing Large Non-Fixed-Price Contracts. Within 90 days of the EO (i.e., by 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 to facilitate fixed prices and performance-based incentives for contract deliverables such as contracts under FAR 16.402. The review requirement excludes contracts involving research and development or preproduction development for major systems acquisition governed by FAR Parts 34 and 35, as well as contracts supporting response to an emergency, major disaster or contingency operation as defined in FAR Part 2. This is likely to trigger near-term scrutiny of existing large non-fixed-price portfolios and create pressure to convert, restructure or partially fix-price work where agencies believe deliverables can be defined with sufficient specificity.
• OMB Reporting. Agency heads must report semi-annually to the OMB director regarding the number, value and written justifications for non-fixed-price contracts approved under the EO, with the first report due no later than 90 days after the EO (i.e., by July 29, 2026).
• Implementation Timeline and FAR Amendments. Within 45 days of the EO (i.e., by June 14, 2026), the OMB director must issue guidance to agencies for consistent implementation. Within 120 days of the order, the Federal Procurement Policy administrator must propose FAR amendments in coordination with the FAR Council and develop training for program and contracting personnel on fixed-price contract formation, use, negotiation and management. The practical significance is procedural as much as substantive: Even before FAR amendments are finalized, agencies will have to document, approve and report exceptions, which may shift behavior toward fixed-price or hybrid structures.
• Use of FAR Deviations Before Rulemaking Is Complete. When necessary to comply with the EO before the contemplated FAR amendments are completed, agencies must use applicable FAR deviations to the maximum extent practicable.

Existing FAR Context for Commercial Contracting

The EO should be read against an existing procurement framework that already favors fixed-price structures in certain contexts. For commercial products and commercial services, the FAR provision identified by the user, FAR 12.207(a), provides that agencies generally shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment, subject to the exception in FAR 12.207(b). The statutory commercial-item framework likewise directs agencies, to the maximum extent practicable, to acquire commercial products, commercial services or non-developmental items to meet agency needs and state specifications in terms that enable and encourage commercial solutions. 41 U.S.C. § 3307.

The same statute provides that, for acquisitions of commercial products or commercial services, acquisition regulations must require 1) firm-fixed-price contracts or fixed-price contracts with economic price adjustment terms to be used to the maximum extent practicable, 2) prohibit cost-type contracts and 3) allow time-and-materials or labor-hour contracts for certain commercial services only under specified conditions. 41 U.S.C. § 3307. Those conditions include a contracting officer determination and findings that no other contract type is suitable, a ceiling price that the contractor exceeds at its own risk and documented justification for any later ceiling-price change. 41 U.S.C. § 3307.

Accordingly, the order appears less a departure from the commercial contracting baseline than an effort to extend and reinforce a fixed-price preference across a broader set of federal procurements.

Potential Implications for Government Contractors

For contractors, the most immediate effect is likely to be a shift in pricing and performance risk. Agencies subject to the order may place greater emphasis on defining outcomes, deliverables, schedules, acceptance criteria and performance in the course of pre-solicitation planning because the EO links fixed-price contracting to defined outcomes, predictable timelines and performance-based incentives. That discipline can be useful where requirements are mature and stable. It is problematic, however, where the government seeks a fixed price for work that remains immature, evolving or underdefined.

Fixed-price contracting is not inherently more efficient if the agency has insufficiently defined its requirement, inadequately assessed performance risk or the risks/requirements may not be known to either party in advance. In those circumstances, the government may obtain apparent budget certainty, but contractors are likely to respond rationally: higher proposed prices, larger contingencies, narrower assumptions and exclusions, requests for economic price adjustment or escalation protections, more detailed acceptance criteria and, in some cases, no-bid decisions. That result is not necessarily inefficient from the government's or the contractor's perspective; it is the predictable consequence of asking industry to build uncertainty into its price.

Thoughtful proposal strategies therefore are essential for procurements that previously might have used cost-reimbursement, time-and-materials or labor-hour structures. Contractors should expect closer attention to proposal assumptions, exclusions, dependencies, government-furnished information, condition and availability of government-furnished property, government interface risks, staffing assumptions, schedule constraints and acceptance standards. Where the work cannot responsibly be priced on a fixed-price basis, contractors may need to explain why the requirement should remain non-fixed-price, be divided into fixed-price and non-fixed-price components, or be structured through hybrid Contract Line Item Numbers that reserve fixed pricing for discrete, definable work packages or products and services with predictable costs. Contractors should not be shy during question-and-answer periods to pose pertinent questions that will help the government better understand the issues and risks and define its needs.

The EO will also affect each party's negotiation approach. Contracting officers seeking to use a non-fixed-price structure must justify that approach in writing to the agency head, and higher-value non-fixed-price awards require written approval above specified thresholds. This can be expected to create pressure inside agencies to ask whether 1) portions of a requirement can be converted to fixed-price line items, 2) hybrid structures can reduce the non-fixed-price component or 3) performance incentives can be used instead of cost reimbursement. Contractors should not assume that this pressure means all work can be responsibly converted. The better negotiation position may be to identify which work packages are mature enough for fixed pricing and which remain too uncertain without further definition, phased pricing or a different risk allocation.

Contract administration risk is also likely to increase. Fixed-price contracts place greater weight on contract interpretation, change management, acceptance, schedule compliance and documentation of government-directed or government-caused changes. Contractors should anticipate more disputes over constructive changes, scope creep, government-caused delay, acceptance standards and performance metrics, as well as whether evolving agency requirements support equitable adjustments. The more aggressive the front-end push toward fixed-price terms, the more important post-award documentation becomes.

The EO's requirement that agencies review certain large non-fixed-price contracts for possible modification, restructuring or renegotiation may also prompt near-term discussions on existing contract portfolios. But conversion of existing work should not be assumed to be unilateral or simple. Depending on the contract, a move from cost-reimbursement, time-and-materials or labor-hour pricing to fixed-price treatment likely will require consideration of scope, funding, schedule, pricing assumptions, risk allocation and the contract's modification provisions. The EO itself directs agencies to seek such changes only to the maximum extent practicable and consistent with law.

Considerations for Contractors and Contracting Teams

Contractors should promptly review their portfolios and contract pipelines to identify cost-reimbursement, time-and-materials, labor-hour and hybrid contracts that could be swept into agency reviews, particularly if they are among an agency's largest non-fixed-price contracts by dollar value. The order requires agencies to review their 10 largest non-fixed-price contracts and, to the maximum extent practicable and consistent with law, seek to modify, restructure or renegotiate them toward fixed prices and performance-based incentives.

For pending and future procurements, contractors should prepare contract-specific considerations and metrics to explain why non-fixed-price treatment remains appropriate where requirements are uncertain, the level of effort cannot be estimated with reasonable confidence or performance depends on evolving government direction. The EO requires contracting officers to justify non-fixed-price contracts in writing to the agency head, and higher-value non-fixed-price contracts require written agency-head approval above specified thresholds. Contractors should expect agency teams to focus on whether the acquisition record supports the selected contract type, proposed risk allocation and any performance-based pricing structure.

Proposal discipline will be more crucial than ever. Contractors should strengthen assumptions, exclusions, dependencies, government-furnished information and property requirements, schedule predicates, change procedures and acceptance criteria in fixed-price proposals. Contractors also should revisit pricing models and contingency practices where solicitations seek fixed prices for work that historically would have been priced on a cost-reimbursement, time-and-materials, labor-hour or hybrid basis. When certified cost or pricing data are required, FAR Table 15-2 requires offerors to provide information explaining the estimating process, including judgmental factors, methods used and contingencies included in the proposed price. 48 C.F.R. § 15.408.

Moreover, contractors should consider requesting the inclusion of economic price adjustment clauses in new contracts and orders. Despite several years of persistent cost inflation and uncertainty, most agencies still fail to include these terms in fixed-price contracts that satisfy FAR Subpart 16.203 criteria for inclusion.

For existing contracts, contractors should document the basis for rejecting, accepting or negotiating any proposed fixed-price conversion. That record should address scope, schedule, funding, technical maturity, pricing assumptions, subcontractor inputs and risk allocation. Contractors also should preserve change-order and equitable-adjustment rights, especially where agencies seek fixed-price treatment while continuing to refine requirements during performance.

Finally, the disposition of current non-fixed-price procurements with outstanding awards is uncertain. Not going forward with an award could adversely affect an agency's ability to meet its needs. On the other hand, going forward will likely require the agency's justification to award a non-fixed price contract.

If you have questions about how the EO may affect your existing contracts, pending proposals, or pricing and risk-allocation strategies, please contact the authors or a member of Holland & Knight's Government Contracts Group.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.