What Contractors Need to Know

On April 30, 2026, the White House issued an Executive Order titled, “Promoting Efficiency, Accountability, and Performance in Federal Contracting,” signaling a significant policy shift in federal procurement toward fixed-price and performance-based contracting.

Although the federal government has historically favored fixed-price contracting where requirements are sufficiently defined, this Executive Order (“EO”) materially raises the pressure on agencies and contracting officers to justify the continued use of cost-reimbursement, time-and-materials (“T&M”), labor-hour, and similar contract structures. The EO also directs agencies to review and potentially renegotiate existing non-fixed-price contracts.  Hmmmm. . . more on that below.

For contractors, the practical impact could be substantial — particularly for those operating in technology, defense, R&D, cybersecurity, systems integration, professional services, and complex infrastructure programs where uncertainty, evolving requirements, and government-directed change are common features rather than exceptions. This shift could significantly affect pricing, risk allocation, change-order management, disputes exposure, and future contract negotiations .

One only need to look at the General Services Administration’s proposed contract clause, “Basic Safeguarding of Artificial Intelligence Systems with new AI requirements,” to see how government-mandated changes in contracting are impacting flexibility and supplier cost.

What the Executive Order Does

At a high level, the EO establishes a government-wide policy preference for fixed-price contracting with performance-based considerations and creates additional scrutiny around the continued use of cost-reimbursement and T&M structures.

Among other things, it:

• Directs agencies to “maximize” use of fixed-price and performance-based contracts;
• Requires contracting officers to justify the use of non-fixed-price contracts;
• Requires higher-level agency approvals for certain non-fixed-price awards above specified dollar thresholds;
• Directs agencies to review existing major contracts and, “to the maximum extent practicable and consistent with law,” modify, restructure, or renegotiate them toward fixed-price models; and
• Requires semi-annual reporting to OMB regarding non-fixed-price contracting activity.

The EO contains exceptions for certain emergency procurements and aspects of major systems R&D, but the overall policy direction is unmistakable: agencies are expected to reduce reliance on reimbursement-based contracting.

What Actually Changes Under the EO

It is important not to overstate the novelty of the EO. Fixed-price contracting is already common across the federal procurement system.

The FAR has long identified firm-fixed-price (“FFP”) contracts as the preferred contract type when requirements are reasonably definite and performance risks can be estimated. Commodity procurements, commercial products, construction, supply contracts, and many recurring services already operate successfully under fixed-price structures.

What the EO really changes is the political and administrative pressure surrounding contract-type selection. Contracting officers now face additional scrutiny and approval requirements when using cost-reimbursement or T&M arrangements. In practice, that creates institutional incentives to choose fixed-price vehicles even in procurements where the underlying risks and uncertainties may not support them comfortably.

That distinction matters.

Why Cost-Reimbursement Contracts Exist

The EO adopts a familiar policy argument that fixed-price contracts create stronger incentives for efficiency, cost control, and timely performance.

While this proposition may be true in mature, stable procurements with well-defined requirements, the federal marketplace includes many acquisitions that do not fit that model.

Cost-reimbursement contracting developed precisely because some government missions involve:

• uncertain technical requirements;
• evolving mission priorities;
• emerging technologies;
• incomplete specifications;
• changing cybersecurity threats;
• classified or rapidly developing operational environments; or
• substantial government-driven scope evolution during performance.

In those environments, uncertainty can make upfront pricing unrealistic and could have the unintended effect of stifling innovation. Forcing fixed-price structures may simply shift that risk to the contractor rather than eliminate it, resulting not only in greater risk to the contractor, but unintended outcomes.

From a market perspective, contractors price risk. When agencies shift technical, schedule, integration, inflation, or scope uncertainty to industry through aggressive fixed-price models, contractors typically respond in one of three ways:

1. Higher upfront pricing to account for contingencies;
2. Reduced competition, particularly from smaller or innovative firms unable to absorb catastrophic downside risk; or
3. More disputes and claims activity as contractors attempt to recover costs associated with evolving requirements or government-caused impacts.

In this regard, the government may achieve budget predictability on paper while simultaneously increasing procurement costs or reducing industrial-base participation in practice. Fixed-price contracting can also limit flexibility in the provision and scope of services. As a result, innovation, creativity and services efficiency may suffer where contractors are incentivized to focus on narrowly on defined performance requirements.

Expect Increased Pressure to Convert Existing Contracts

One of the more consequential—and potentially contentious—aspects of the EO is its direction that agencies review and potentially renegotiate existing non-fixed-price contracts. That said, agencies generally cannot unilaterally rewrite existing contracts absent contractual authority. Any meaningful conversion from cost-reimbursement to fixed-price contracting typically requires bilateral agreement and consideration.

Contractors can expect agencies will likely begin:

• scrutinizing ongoing cost-type contracts;
• pushing for fixed-price task orders on existing IDIQ vehicles;
• attempting to convert CLIN structures;
• tightening labor categories and ceilings;
• imposing more aggressive performance metrics;
• narrowing “allowable cost” flexibility; and
• increasing surveillance of indirect rates and staffing.

In response, contractors may wish to pause before accepting unfavorable restructuring proposals and carefully evaluate:

• whether requirements are sufficiently stable for fixed-price performance;
• whether the government is attempting to shift existing scope or technical risk;
• whether pricing assumptions remain valid;
• whether schedule assumptions have materially changed; and
• whether equitable adjustments are appropriate.

At the same time, contractors may face practical business pressures to maintain long-term agency relationships and preserve future procurement opportunities. As a result, decisions regarding proposed restructuring efforts will likely require contractors to balance legal entitlement, commercial strategy, relationship considerations, and actual financial and performance risk.

Scope Definition Will Become Even More Important

Under more aggressive fixed-price models, ambiguity itself becomes a source of economic risk, making scope clarity more critical.

Historically, some agencies tolerated ambiguity in statements of work because reimbursement structures provided flexibility during execution. Under fixed-price contracting, ambiguities become economically significant immediately.

Contractors should expect:

• more disputes over implied requirements;
• increased debates regarding “within scope” versus “out of scope” work;
• heavier reliance on performance metrics;
• closer scrutiny of assumptions embedded in proposals; and
• greater focus on technical baseline documentation.

Proposal qualifications, assumptions matrices, and exclusions will become increasingly important risk-management tools.

Increased REAs and Claims Activity Is Likely

One likely downstream consequence of this policy shift may be a corresponding increase in disputes activity, including use of:

• Requests for Equitable Adjustment (“REAs”);
• constructive change claims;
• delay and disruption claims;
• defective specifications claims;
• cardinal change arguments; and
• breach-of-duty theories tied to government interference or failure to cooperate.

The more aggressively agencies push uncertain requirements into fixed-price structures, the more likely contractors will seek contractual remedies when government actions materially alter performance assumptions.

This dynamic is not new. Historically, periods of aggressive risk transfer in federal procurement often correlate with increased disputes activity.

Contractors should therefore consider strengthening:

• contract administration functions;
• change-order tracking;
• contemporaneous documentation practices;
• schedule-impact analysis;
• notice compliance procedures; and
• internal coordination between operations, program management, and legal teams.

Companies that fail to document evolving government direction in real time may find themselves absorbing substantial uncompensated costs later.

Potential Impact on Small Businesses and Innovation

The EO may also have uneven impacts across the contractor community.

Large incumbent contractors may possess sufficient capital reserves, pricing sophistication, and portfolio diversification to absorb greater fixed-price risk. Smaller contractors, emerging technology firms, and nontraditional defense contractors often do not.

That could create several market effects:

• reduced participation in innovative procurements;
• more conservative technical proposals;
• higher barriers to entry;
• increased subcontractor risk shifting; and
• greater consolidation among prime contractors.

Ironically, aggressive fixed-price mandates can sometimes discourage precisely the type of innovation and rapid iteration the government says it wants to promote.

Agencies Still Face Practical Limits

Despite the rhetoric surrounding the EO, agencies still must comply with existing procurement law and the FAR.

Contract type selection remains governed by principles tied to:

• • adequacy of requirements definition;
  • cost realism;
  • risk allocation;
  • availability of pricing data;
  • technical uncertainty; and
  • market conditions.

In many acquisitions —particularly advanced R&D, software modernization, AI systems, classified work, and rapidly evolving technical environments—pure fixed-price contracting may remain impractical.

As a result, contractors may continue to see hybrid structures emerge such as fixed-price incentive contracts, cost-plus-incentive-fee arrangements, milestone-based pricing, phased contract structures, and fixed-price task orders layered onto broader IDIQ vehicles.

The procurement system is unlikely to become entirely fixed-price overnight. But agencies will clearly face increased pressure to justify any departure from that model.  This pressure will be real as contracting officers will now have to consider the potential impacts for failure to push for fixed-price engagements, rather than focusing on the best solution (including economics) for their agency.

Practical Considerations for Contractors

Contractors may wish to begin preparing immediately for a more aggressive fixed-price contracting environment.

Key steps include:

1. Review Your Current Portfolio

Identify:

• existing cost-type contracts vulnerable to restructuring pressure;
• contracts with evolving or undefined scope;
• programs dependent on government-furnished information or property; and
• contracts with significant technical uncertainty.

2. Strengthen Proposal Assumptions

Future proposals should clearly document:

• technical assumptions;
• pricing assumptions;
• government dependencies;
• exclusions;
• schedule contingencies; and
• data-quality assumptions.

3. Improve Change Documentation

Train program managers and operational personnel to identify:

• constructive changes;
• informal direction;
• scope creep;
• delayed approvals;
• evolving requirements; and
• government-caused inefficiencies.

4. Reassess Risk Pricing

Companies may need to revisit:

• contingency models;
• subcontract flow-down terms;
• insurance structures;
• escalation assumptions; and
• supply-chain risk allocations.

5. Prepare for More Negotiation

Contractors should anticipate more intensive negotiations over:

• performance metrics;
• acceptance standards;
• milestone definitions;
• incentives;
• termination exposure; and
• data rights.

Key Takeaways for Government Contractors

The Executive Order represents a meaningful policy shift toward greater use of fixed-price and performance-based contracting across the federal procurement landscape.

But while the policy objective emphasizes efficiency and accountability, the practical reality is more nuanced. Fixed-price contracting works best where requirements are stable, measurable, and predictable. Many federal missions are not.

Contractors may face increased pressure to absorb risk, heightened scrutiny of contract structures, and potentially more disputes over scope and performance assumptions. At the same time, sophisticated contractors that strengthen pricing discipline, documentation practices, and change-management processes may be well positioned to navigate—and even capitalize on—the evolving procurement environment.

OMB has been directed to issue further agency guidance within 45 days of the EO (around June 14^th), so, the coming months will likely determine whether agencies implement this EO as a targeted procurement preference or as a broader structural shift in federal acquisition strategy.

Jason Karp is a Member of our New York-area team with more than 30 years of experience in the telecom, technology, media, XaaS, and public safety industries. Jason works with businesses of all sizes, handling a wide range of complex commercial and corporate transactions, as well as business operations and market strategy, corporate governance, compliance program development and implementation, and regulatory and policy advocacy and strategy. When customers insist on using their contract templates, misalignment can create real risk. A practical guide to navigating the issue while keeping deals moving.