On April 30, 2026, President Trump issued an executive order (EO), Promoting Efficiency, Accountability, and Performance in Federal Contracting, that makes firm-fixed-price contracts the default federal government agencies must use when buying products and services from private sector companies. The EO represents the latest effort by the Trump administration to reform federal acquisitions and reduce costs to taxpayers. This alert discusses impacts companies may experience when doing or seeking to do business with the federal government.

Background

The EO asserts, “For too long, Federal procurement has tolerated unpredictable costs, bloated overhead, and weak performance incentives.” The EO attributes these issues to the use of cost reimbursement contracts. According to the EO, cost reimbursement contracts can increase the government’s exposure to overspending by providing little incentive to control costs. Firm-fixed-price contracts, on the other hand, have clearly defined deliverables and are not adjustable based on incurred costs, allowing for better cost control.

Citing more than $120 billion in cost reimbursement consulting contracts during 2024 as illustrative of the government’s high contract costs, the EO states:

To ensure that Government contracts incentivize performance rather than cost inflation, it is the policy of my Administration that fixed-price contracts with performance-based considerations should serve as the default and preferred method of procurement in order to advance cost predictability and budget discipline, appropriate contractor incentives and accountability, and streamlined procurement and contract administration.

What Comes Next?

Going forward, a contracting officer must justify to the agency head, in writing, a decision to use a non-fixed price contract. Agency heads, or their delegatee, must approve the justification if the contract is valued above a certain value, depending on the agency:

• $100 million, in the case of a Department of War;
• $35 million, in the case of a National Aeronautics and Space Administration;
• $25 million, in the case of a Department of Homeland Security; or
• $10 million, in the case of any other agency.

To implement this directive, the Office of Management and Budget is to issue guidance by June 15, 2026, and propose amendments to the Federal Acquisition Regulation (FAR) and develop training for government personnel by August 28, 2026. In the meantime, federal agencies are reviewing their ten largest non-fixed price contracts for the purpose of modifying them to be firm-fixed-price.

What Can Contractors Expect?

Contractors that sell commercial products and services to the federal government under FAR Part 12 may not see much change as a result of the EO. The FAR already requires the use of firm-fixed-price contracts for commercial products and services acquisitions, and authorizes time and materials/labor hour contracts under limited circumstances. Moreover, the FAR prohibits federal agencies from using cost reimbursement contracts when buying commercial products and services.

Similarly, companies with contracts in support of pre-production development efforts for major systems also likely will not be impacted, nor will companies under research and development contracts. The EO excepts them from the firm-fixed-price default requirement.

However, companies accustomed to non-fixed price contracts should plan for future contracts to be firm-fixed-price unless they can persuade the purchasing entity otherwise. This may be especially true for time and materials and labor hour contracts for the delivery of specialized services such as software engineering and data management. Such contractors will need to determine how to price performance risk in their proposals to avoid economic loss on the deal while still being able to offer a competitive and reasonable price. Thus, they should review their pricing models and estimating techniques for any changes for use in firm-fixed-price contracts. Furthermore, they may need to consider developing proposal assumptions to mitigate risk for when requirements are not well-defined.

Last, all contractors may experience some change in pre-solicitation exchanges with the government. The ultimate decision as to contract type has always resided with the contracting officer. But it has been common for the contracting officer to engage industry for feedback as to the appropriate contract type considering the requirement, risks, incentives, performance standards, and other matters that impact successful performance. While such input may still be solicited, the new notification and approval requirements in the EO may make such solicitations less frequent if not meaningful. Indeed, although the EO notes that firm-fixed-price is the better contract type when the contract establishes clearly defined outcomes and deliverables on predictable timelines, opinions on when these are clearly defined in a particular acquisition may differ. With this new EO, a contracting officer’s perspective on the certainty of a contract’s outcomes may be influenced by the preference for a firm-fixed-price contract. Contractors as a result may find it more challenging than previously to convince the contracting officer how the outcomes are not clear and why a non-fixed contract type is more appropriate.

Final Thoughts

The EO will most likely result in more firm-fixed-price contracts, shifting the risk of cost-overruns to the contractor. This risk is worsened where a contract has unclear requirements, and adds both award and performance challenges for contractors.

For help navigating these challenges, or for questions about this alert, contact Wilson Sonsini’s Government Contracts attorneys.