Something significant occurred very recently and it is not only noteworthy, it represents a major shift that should be monitored carefully by both government officials and private sector contractors. President Trump’s new Executive Order related to future federal contracting represents one of the most consequential procurement policy changes in years.
The Executive Order directs federal agencies to make fixed-price contracts the default method for federal purchasing. The directive is no longer a theoretical discussion; it is now official federal policy direction.
Under the new order, agencies are instructed to prioritize fixed-price and performance-based contracts as the preferred procurement standard. Cost reimbursement contracts will still be permitted, but only in limited circumstances and only with written justification and senior level approval.
Federal agencies will now be required to review existing large contracts and consider renegotiating them to incorporate fixed-price elements. Any request to use cost-type contracts must be documented, and agencies will be required to report any decision to or request to use of non-fixed-price contracts to the Office of Management and Budget.
The administration has framed this shift as a response to unpredictable costs, excessive overhead, and weak incentives for contractors to control spending. In practical terms, the policy is designed to move financial risk away from government and onto private sector contractors.
The Executive Order makes this change now grounded in existing law. Federal procurement is governed by the Federal Acquisition Regulation, and the president has broad authority to guide how agencies apply procurement rules. However, there are limits. An Executive Order cannot rewrite procurement law passed by Congress. It also cannot eliminate contract types that are legally permitted, override regulatory frameworks without formal rulemaking, or force changes that violate existing contractual obligations.
Because of these restrictions, the order relies on phrases such as “to the maximum extent practicable” and it allows exceptions for areas such as research, emergencies, and certain highly complex projects. The Executive Order requires justification for deviations rather than banning the alternatives outright.
Even with those limitations, the impact will likely be substantial. Agencies tend to follow White House direction closely, especially when reporting requirements and senior approvals are involved. Those requirements create strong institutional pressure to comply.
Over time, this policy could influence a significant share of federal spending. The administration has pointed to roughly $120 billion in cost-type contracts that could be affected now. Implementation, however, will depend on agency interpretation, regulatory updates, and possible legal challenges. There will undoubtedly be resistance, particularly in sectors that rely heavily on flexible contracting structures.
At its core, this policy reflects a broader philosophical shift. Fixed-price contracts require contractors to deliver a defined product or service for a set amount and absorb losses if costs rise during delivery. If there are savings that result from efficient performance, that funding will belong to the government. By contrast, cost-plus contracts reimburse expenses and add a fee, placing most of the financial risk on the government.
The stated objectives are straightforward: the changes will control or eliminate cost overruns, increase efficiency, improve budget predictability, and align government purchasing more closely with commercial practices.
In the right circumstances, fixed-price contracts do have merit. They are most effective when the scope is clearly defined, the work is well understood, and uncertainty is low. But they are not a universal solution. Complex defense systems, large infrastructure projects, advanced research, and first-of-a-kind initiatives often involve unknowns that make fixed pricing difficult and, in some cases, counterproductive for both parties.
Contractors facing this uncertainty will understandably begin to price risk into their bids and that will potentially increase upfront costs. Some firms may decline to bid altogether. Others may cut corners to stay within budget and by doing that raise concerns about quality and performance. In some cases, fewer bidders could reduce competition. Past experience, particularly in defense procurement, shows that forcing fixed-price structures into highly complex efforts can lead to delays, long renegotiations, and even project cancellations.
The real issue going forward is not whether fixed-price contracting is inherently good or bad. The question will be how to structure decisions related to where fixed-pricing procurement makes sense and where it does not.
This new Executive Order signals a major shift in federal procurement policy, but its ultimate impact will depend on how aggressively it is implemented and how much flexibility agencies retain in practice.
One thing is very clear. The U.S. government marketplace, still the largest marketplace in the world, will feel this shift in a meaningful way at the federal level. Public officials at all jurisdictional levels of government, along with private sector contractors, will want to pay close attention to how this change evolves in the weeks and months ahead.
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