The White House recently issued an Executive Order titled “Promoting Efficiency, Accountability, and Performance in Federal Contracting,” introducing a shift in federal procurement policy. The order directs federal agencies to prioritize fixed‑price, performance‑based contracting and imposes new oversight and reporting requirements intended to reduce costs and improve contractor accountability.
Shift to Fixed‑Price Contracting as the Default
The Executive Order establishes that, to the maximum extent practicable, federal agencies must use fixed‑price contracts as the preferred method of procurement.
The policy reflects concerns that traditional cost‑reimbursement contracts—in which contractors are reimbursed for allowable expenses—can lead to:
- Higher and less predictable costs;
- Weak incentives to control spending; and
- Less clearly defined deliverables.
By contrast, fixed‑price contracts are intended to:
- Promote cost discipline and predictability;
- Tie contractor profits to performance outcomes; and
- Encourage efficient, timely delivery of goods and services.
New Restrictions on Non‑Fixed‑Price Contracts
The order imposes stricter controls on the use of non‑fixed‑price contract types, including cost‑reimbursement, time‑and‑materials, and labor‑hour contracts.
Under the new framework:
- Use of such contracts must be justified in writing to the agency head; and
- Contracts above specified thresholds (e.g., $10 million or more for most agencies) require senior‑level approval.
Limited exceptions apply, including for:
- Emergency or disaster response; and
- Research and development or pre‑production activities.
Mandatory Review of Existing Contracts
The Executive Order also directs agencies to take action with respect to existing agreements. Within 90 days, agency heads must:
- Review their 10 largest non‑fixed‑price contracts; and
- Seek to renegotiate or restructure those contracts to incorporate fixed‑price or performance‑based elements where feasible.
This requirement may result in changes to ongoing contract terms and negotiation dynamics for current federal contractors.
Increased Oversight and Reporting Requirements
Agencies must provide semiannual reports to the Office of Management and Budget (OMB) detailing:
- The number and value of non‑fixed‑price contracts;
- Justifications for continuing to use such contracts; and
- Opportunities to transition to fixed‑price arrangements.
These reporting obligations are intended to increase transparency and reinforce accountability in contracting decisions.
Implementation Measures and Regulatory Changes
The order directs further implementation actions, including:
- OMB guidance within 45 days; and
- Proposed updates to the Federal Acquisition Regulation (FAR) within 120 days to align procurement rules with the new policy.
In addition, agencies must develop training programs to ensure contracting personnel are equipped to design and manage fixed‑price contracts effectively.
Employers Impacted
The Executive Order directly affects:
- Federal contractors and subcontractors;
- Companies seeking to enter into or renew U.S. government contracts; and
- Organizations involved in consulting, services, or large procurement projects funded by federal agencies.
These employers may experience increased pressure to:
- Accept fixed‑price or performance‑based pricing structures;
- Provide clearer deliverables and cost assumptions; and
- Participate in contract renegotiations for existing agreements.
Employer Takeaway
The Executive Order signals a significant shift in federal procurement toward performance‑driven contracting and cost containment.
Employers doing business with the federal government should:
- Review contract portfolios to assess exposure to non‑fixed‑price arrangements;
- Prepare for potential renegotiations of existing contracts; and
- Evaluate internal pricing, risk allocation, and performance tracking strategies to align with a fixed‑price model.
As agencies implement the order and update procurement rules, federal contractors should expect increased scrutiny and evolving expectations around pricing, performance, and contract structure.