Another week, another change in the world of federal procurement. Contractors shouldn’t let their eyes glaze over on this one though, even if it contains a lot of legal jargon. Last week, the White House released an Executive Order (EO) making fixed-price contracts the default method for federal procurement. The Executive Order, “Promoting Efficiency, Accountability, and Performance in Federal Contracting,” moves away from cost-reimbursement, time-and-materials, labor-hour and other non-fixed price contracts under Part 16 of the Federal Acquisition Regulation (FAR) unless there is a special need for them.
This isn’t the first time an order like this has been released, but it’s a significant change in government contracting nonetheless. What does this mean for government contractors, especially those in the General Services Administration (GSA) Multiple Award Schedule (MAS) Program? Read on to learn more.
The Executive Order directs agencies to prioritize firm-fixed-price (FFP) contracts wherever they can reasonably be used. The idea behind this is relatively straightforward; fixed pricing creates more predictable costs for the federal government.
The EO states that contracts such as cost-reimbursement are popularly used in the government ($120 billion in a 2024 study), but “frequently allow for poorly defined product or service deliverables and increase the government’s exposure to overspending by providing little incentive to control costs.”
This EO doesn’t take away other types of contracts, but if a Contracting Officer wants to use cost-reimbursement, time-and-materials, labor-hour contracts etc., they must justify it in writing to the agency head. If the non fixed-price contract exceeds a certain threshold, then the agency head must approve the justification in writing. We’ll dive more into the caveats below.
Before we get too far in the details, you might be wondering what fixed-price contracts are. Broadly speaking, firm fixed-price contracts are agreements that set a specific, non-adjustable price for goods or services, regardless of the contractor's actual costs.
The important thing to point out here is that fixed price contracts in FAR Part 16 shift risk to the contractor, encouraging cost control, while providing buyers with price certainty and no cost overruns. In other words, if a contract goes beyond the contractor’s estimate made at the start of the project, it’s the contractor’s responsibility to cover these costs.
The Executive Order reinforces that firm-fixed prices should be favored, but it doesn’t necessarily mean other contract types are off the table. Contracting Officers will just need to back their choice of contract more thoroughly.
Many vendors might be wondering if this impacts large contract vehicles like the MAS Program. The short answer is no, the structure of MAS program including the GSA Schedule acquisition process and contract pricelists etc., will NOT be affected. Rather, MAS contractors will inevitably start seeing more fixed-price contracts under the MAS Program.
As mentioned above, all contractors will need to be more cautious when it comes to firm-fixed price contracts. Since the cost risk is shifted from agency to contractor in FFP contracts, companies should make sure they fully understand the scope of a project and are aware of any clauses that will allow for price adjustments such as Economic Price Adjustments (EPAs).
This new EO on favoring firm-fixed price contracts directs agencies to not only think about future solicitations, but also previously existing non-fixed price contracts. Agencies have 90 days to review and “to the maximum extent practicable and consistent with law, seek to modify, restructure, or renegotiate its 10 largest non-fixed-price contracts by dollar value (including non-fixed-price contracts entered into on behalf of another agency).”
Additionally as we discussed earlier in the blog, agencies must be more discerning when it comes to non fixed-price contracts. If the non fixed-price contract is below a certain threshold, Contracting Officers must justify it in writing to the agency head. If the non fixed-price contract is above a certain threshold, then the agency head must also approve it in writing. The thresholds are:
If the value of a non-fixed-price contract, or in the case of a hybrid contract, the value of the non-fixed-price portion of the contract, exceeds the following value, then the agency head must approve the contract in writing:
This isn’t the first time the federal government has made a push to favor firm-fixed-price contracts. Back in 2017 under the Obama Administration, Section 829 of the National Defense Authorization Act (NDAA) included guidance encouraging agencies to increase their use of fixed-price contracts and reduce reliance on cost-type structures. The intent was nearly identical to what we’re seeing now: improve efficiency, reduce risk, and mimic commercial buying practices.
Eventually this requirement was softened because Congress ruled that fixed-price may not be suitable for all acquisitions. The 2026 EO brings it back, but it still gives Contracting Officers and agency heads the power to access a loophole if needed. It’s still to be determined just how big of an impact this will have on future solicitations, but we should be prepared for fixed-price to become more of the norm.
From the FAR Revolutionary Overhaul (RFO) to Transactional Data Reporting (TDR) becoming mandatory, and future AI clauses for government contracts, there’s a lot to keep up with. If you want to stay updated on future changes like this, subscribe to our monthly newsletter and weekly blog email.
If you need help managing your GSA MAS contract during these changes, or are interested in getting your own contract, we are here to help!