EO-14402
Promoting Efficiency, Accountability, and Performance in Federal Contracting
- Signed
- Apr 30, 2026
- Published
- May 5, 2026
Federal Register: 2026-08900
Source: Federal Register.
Federal Contracts Default to Fixed-Price Over Cost-Reimbursement
Impact5/10
What it does
This order directs all executive branch agencies to use fixed-price contracts — where the government pays a set amount for a defined outcome — as the default method for federal procurement, replacing the widespread use of cost-reimbursement contracts, where the government pays whatever a contractor spends plus a profit margin. Agencies that want to use a non-fixed-price contract must provide written justification to their agency head, and contracts above certain dollar thresholds require agency head approval. Within 90 days, agencies must also review and attempt to renegotiate their 10 largest existing cost-reimbursement contracts toward fixed-price structures.
Who benefits
U.S. taxpayers broadly, through reduced risk of cost overruns on federal contracts. Small and mid-sized contractors with strong cost-control capabilities who can compete effectively on fixed-price bids. Agencies with well-defined procurement needs that can clearly specify deliverables. Budget planners and appropriators who gain more predictable spending projections. Contractors who already operate on fixed-price models and would face less competition from cost-reimbursement incumbents.
Who is affected
Large defense and technology contractors that currently rely heavily on cost-reimbursement contracts, particularly for complex, long-duration projects. Consulting firms that hold the roughly $120 billion in cost-reimbursement consulting contracts cited in the order. Contractors working on projects with genuinely uncertain scope, where fixed pricing may be difficult to set accurately. Federal contracting officers and program managers who face new administrative burdens of written justifications and senior approvals. Research institutions and universities that receive federal R&D contracts, though R&D is explicitly exempted. Workers at firms that may lose contracts or face reduced margins under fixed-price structures.
Supporters argue
Supporters argue that cost-reimbursement contracts create a structural incentive for contractors to let costs grow, since their revenue is tied to spending rather than results — a dynamic that has contributed to well-documented cost overruns across federal agencies. They contend that shifting to fixed-price contracts, the standard model in most private-sector procurement, would force contractors to price work accurately, control costs, and deliver on defined outcomes, ultimately saving taxpayers billions. Supporters also argue that the order's tiered approval thresholds and exemptions for R&D and emergency contracting show a measured, targeted approach rather than a blanket mandate.
Opponents argue
Opponents argue that many federal contracts — particularly in defense, IT modernization, and complex services — involve work whose scope and requirements genuinely cannot be defined in advance, making fixed-price structures inappropriate and potentially more costly if contractors must build large risk premiums into their bids to cover uncertainty. They contend that forcing fixed-price contracts onto inherently unpredictable work could deter qualified contractors from bidding, reduce competition, and produce lower-quality outcomes when contractors cut corners to protect margins. Opponents also argue that the 90-day renegotiation window for existing contracts is too short to allow for careful restructuring, and that delegating approval authority to "non-career employees" could reduce independent oversight.
Constitutional basis
Executive orders rest on constitutional authority or statutory delegation. This summary describes the legal grounding cited or implied by the order.
The order rests on the President's Article II authority to supervise and direct the executive branch, including how agencies manage federal procurement operations. It also draws on statutory authority under the Federal Property and Administrative Services Act (40 U.S.C. § 101 et seq.) and the Office of Federal Procurement Policy Act (41 U.S.C. § 1101 et seq.), which delegate broad procurement policy authority to the executive. Because the order directs internal executive branch operations rather than regulating private conduct, it sits within the core of recognized presidential administrative authority and is reversible by a future president.