Examining the Potential Implications of Executive Order Establishing Fixed‑Price Contracting as the Default Approach

On April 30, 2026, the White House issued an Executive Order (EO) “Promoting Efficiency, Accountability, and Performance in Federal Contracting–The White House” directing the federal government to adopt fixed‑price, performance‑based pricing as the default approach for federal procurement.

Going forward, fixed‑price contracts are no longer simply one option among many contract types; they are now the presumed standard “wherever practicable.” The fixed-price approach will require government contracting officials to engage early and often with defense contractors, during the initial acquisition planning phase, to ensure a clear understanding of contract scope requirements and performance metrics.

Cost‑reimbursement, time‑and‑materials, and labor‑hour contracts may still be used-but as an exception. During the acquisition strategy development phase, Procurement Contracting Officers (PCO) must now provide written justifications explaining why a fixed‑price approach would be impracticable, and any determinations will be subject to additional oversight and reporting. In practical terms, this introduces friction into the award process for non‑fixed‑price contracts, increases approval timelines, and elevates program‑level visibility well beyond the contracting office.

Impact on Defense Contracting

The impact is particularly pronounced within the Department of Defense. Under the EO, any non‑fixed‑price contract exceeding $100 million, or the non‑fixed‑price portion of a hybrid contract above that threshold, requires written approval by the Agency head or a delegated official. This provision directly targets large, complex defense programs that have historically relied on cost‑plus structures to manage technical uncertainty. The practical effect will be heightened scrutiny of program assumptions, increased caution in approving cost‑type vehicles, and a higher likelihood that programs are restructured to introduce fixed‑price elements earlier than might otherwise have occurred.

Importantly, the EO does not eliminate contract flexibility where uncertainty is truly unavoidable. Research and development, pre‑production major systems development, and emergency or contingency operations remain explicitly recognized as appropriate use cases for cost‑type contracting. Even in these areas, however, the direction is unmistakable: Agencies should incorporate fixed‑price or performance‑based elements as soon as requirements can be sufficiently defined.

Implementation Timeline and Reporting Requirement

The EO also includes near‑term implementation actions designed to accelerate behavioral change. Within ninety (90) days, the Department of Defense is required to review its 10 largest non‑fixed‑price contracts and assess opportunities to renegotiate or restructure them toward fixed pricing and performance‑based incentives. Going forward, agencies must also submit semi‑annual reports to Office of Management and Budget (OMB) detailing all approved non‑fixed‑price contracts, further reinforcing enterprise‑level accountability.

For defense contractors, the implications are significant and unavoidable. Because fixed‑price contracts shift the risk, of underestimating the costs contract performance, to contractors, fixed‑price dominance demands sharper upfront pricing discipline, a strong estimating system, and need for greater clarity around scope and execution risk—prior to contract award. At the same time, the shift to a fixed-price default approach may also create opportunity. Contractors with strong cost controls, proven execution models, and the ability to align incentives to outcomes can achieve predictable margins and, in some cases, meaningful upside.

Strategically, the EO accelerates the Department of Defense’s transition toward outcomes‑based acquisition and Federal Acquisition Regulation (FAR) Part 12 commercial contracting‑style discipline. As a result, government contractors should expect fewer cost‑reimbursement opportunities outside early development, more fixed‑price competitions, and deeper scrutiny of acquisition plans well before formal solicitations are released. An early understanding of impact and adaptation will be critical for maintaining competitiveness in this new acquisition environment.

The Butzel Aerospace & Defense team is available to answer any questions you may have regarding the EO and any potential impact to your existing contracts, pending proposals, or risk mitigation strategies.  

Please contact the authors of this Client Alert or your Butzel attorney for more information.

Anthony Scalise
248.258.2612
scalise@butzel.com

Derek Mullins
313.983.6944
mullins@butzel.com

Beth S. Gotthelf
248.258.1303
gotthelf@butzel.com