President Donald Trump has signed a new executive order aimed at improving efficiency, accountability and performance in federal contracting by utilizing fixed-price and performance-based contracts as the default and preferred method of procurement.
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What Changes Does the EO Introduce?
According to a White House fact sheet issued Thursday, under the EO, agency leaders will also be required to justify the use of non-fixed-price contracts and, in some cases, seek approval before proceeding.
Agencies will also have to review their largest existing non-fixed-price contracts and, where feasible, modify or renegotiate them to incorporate fixed-price and performance-based elements.
In addition, the Office of Management and Budget and the Office of Federal Procurement Policy are required to issue guidance and regulatory updates to ensure consistent implementation of the EO across the federal government.
Why Is the Administration Shifting Contracting Strategy?
The administration said the move addresses long-standing concerns about cost overruns and weak performance incentives in federal procurement. Cost-reimbursement contracts, which accounted for roughly $120 billion in obligations for consulting services in fiscal year 2024, can reduce incentives for contractors to control spending.
The EO aligns with a previous mandate from the president to ensure that defense contractors increase production capacity and accelerate the delivery of critical warfighter capabilities by restricting stock buybacks, corporate distributions and executive compensation of underperforming vendors.
In February, Trump also directed the Department of Government Efficiency and agency leaders to develop a centralized system for recording payments issued to covered contracts and grants.
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