Executive Order Sets Preference for Fixed-Price Contracts and Approval Limits for Cost-Reimburseme

President issued Executive Order 14402 on April 30, directing federal agencies to make fixed-price contracts the default method for procurement. Fixed-price contracts require the government to pay a set amount for a defined outcome, regardless of the contractor’s actual costs. The order aims to reduce reliance on cost-reimbursement contracts, where the government pays the contractor’s allowable costs plus a profit margin, which the order claims encourages cost inflation and weak performance incentives.

Why it matters: This order changes the administrative process for federal procurement. By requiring senior approval and written justification for cost-reimbursement contracts above set thresholds, it adds a layer of bureaucratic review to certain purchasing decisions. Agencies face new reporting obligations and must assess existing contracts for conversion. The practical effect depends on how agencies interpret the exceptions and whether they can legally shift existing cost-reimbursement deals to fixed-price terms without disrupting ongoing work.

Who it affects

• Federal agencies and procurement officers, who must adjust contracting practices, seek approvals, and report to OMB.

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This action is Executive Order 14402, issued by the Executive Office of the President and published in the Federal Register on May 5, 2026. Check the original document for the full legal text, definitions, and implementation timelines.

Agency: Executive Office of the President
Source: Federal Register — read the official document