An April executive order is pushing the U.S. government toward fixed-price contracts, shifting more financial risk from taxpayers to contractors. One major deadline has already passed. The next — August 28 — could have bigger consequences for companies bidding for federal work.
For decades, the U.S. government has used different types of contracts depending on how predictable a project is.
If the government knows exactly what it wants and how much it should cost, it can agree on a fixed price. The contractor agrees to deliver the work for that amount and generally carries the risk if its costs rise.
But what happens when the government is buying something that is difficult to price in advance — such as advanced research, a complex weapons programme, or a project where the final scope is still uncertain?
That is where cost-reimbursement contracts have traditionally come in. The government agrees to reimburse the contractor for allowable costs, usually with an agreed fee or incentive attached. In simple terms, the contractor does not have to guess every future cost before the work begins.
The Trump administration now wants to change that balance.
Fixed price is becoming the starting point
An executive order signed on April 30, 2026, titled Promoting Efficiency, Accountability, and Performance in Federal Contracting, directs federal agencies to make fixed-price contracts the default option when awarding contracts.
That does not mean cost-reimbursement contracts have been banned.
Instead, agencies will now have to explain in writing why they need to use a cost-reimbursement, time-and-materials, or labor-hour arrangement. For contracts above certain thresholds, additional approval from the agency head may also be required.
The administration’s argument is straightforward: when the government agrees to reimburse a contractor’s costs, there can be less pressure on the contractor to control those costs.
The administration pointed to approximately $120 billion in cost-reimbursement obligations during fiscal year 2024 as evidence of how significant these arrangements have become.
Under the new approach, the government wants contractors to take on more of the financial risk.
If a project can reasonably be priced upfront, the expectation is increasingly that the contractor should take responsibility for delivering it within that price.
Agencies have already had to act
The executive order did not simply announce a long-term policy change. It established deadlines for agencies to begin changing how they contract.
The first major step required the Office of Management and Budget (OMB) to issue implementation guidance within 45 days.
The second deadline arrived on July 29.
By then, every federal agency was required to identify its 10 largest contracts that were not fixed-price contracts and try to renegotiate them onto fixed-price or performance-based terms, where practical and legally permissible.
In other words, agencies were asked to look at some of their biggest existing contracts and ask:
Can we move this contract from a structure where the government carries more cost risk to one where the contractor carries more of it?
That exercise has now taken place agency by agency. There is not yet a single public picture showing how many of those contracts were actually converted.
August 28 is the next major signal
The next deadline is August 28, 2026.
By that date, the Administrator for Federal Procurement Policy is required to formally propose changes to the Federal Acquisition Regulation (FAR).
The FAR is essentially the rulebook that governs how the U.S. federal government buys goods and services.
If the proposed changes eventually become part of the FAR, the preference for fixed-price contracting would no longer be just an administration policy direction. It could become embedded more deeply in the government’s standard procurement rules.
The August 28 proposal is therefore important because it should show how the administration intends to turn the executive order into a lasting procurement framework.
The same deadline also calls for a training programme for federal contracting officers on how to structure and manage fixed-price contracts.
Contractors may feel the change before the rules are final
There is an important distinction here.
The FAR does not change overnight simply because the executive order was signed. Formal FAR amendments generally have to go through the federal rulemaking process, including notice and public comment.
That process could take considerably longer than the August 28 deadline, with legal advisers following the policy expecting some aspects of the rule changes to extend well into 2027.
But contractors do not necessarily have to wait until then to feel the impact.
The executive order directs agencies to use existing FAR deviation authority where appropriate. This gives agencies a mechanism to depart from existing procurement rules in specific circumstances while the broader regulatory changes are being developed.
That means companies could begin encountering stronger fixed-price requirements in actual federal solicitations before the FAR itself is formally rewritten.
Why contractors should care
The biggest issue is not simply whether a contract is called “fixed-price” or “cost-reimbursement.”
It is who carries the risk when things go wrong.
Imagine a contractor is asked to build a highly complex system.
Under a cost-reimbursement arrangement, if legitimate project costs rise unexpectedly, the government may reimburse those additional costs, subject to the terms of the contract.
Under a fixed-price arrangement, the contractor has agreed to deliver for a predetermined amount.
If the contractor underestimated the cost of materials, labour, engineering work or delays, its profit can disappear — and in a bad situation, the contractor can lose money.
That risk is manageable when the work is well understood.
It becomes much harder when the project involves significant technical uncertainty.
That is why the policy has particular importance for companies involved in research and development, defence, advanced technology and other complex government programmes.
The executive order does recognise that some work genuinely cannot be priced with confidence and provides exemptions, including certain R&D, major weapons-system and emergency contracts.
But everything outside those exemptions could face greater pressure to move toward fixed-price structures.
The commercial opportunity is changing
For companies that regularly compete for U.S. federal contracts, this is therefore more than a change in paperwork.
It could change how companies calculate bids, manage margins and decide whether to compete for a contract at all.
A contractor that previously accepted a project because the government carried some of the cost risk may now have to decide whether it can absorb that risk itself.
That could favour companies with:
- stronger cost forecasting;
- better project-management systems;
- greater access to working capital;
- tighter supply-chain controls;
- more experience pricing complex projects; and
- enough financial strength to absorb unexpected cost increases.
It could also create opportunities for companies that can help contractors improve cost estimation, project controls, risk management, compliance and fixed-price bid preparation.
The signal to watch
For the procurement market, August 28 is the next date to watch.
The July 29 deadline focused on what agencies could do with their largest existing non-fixed-price contracts.
The August 28 deadline goes further: it begins the process of changing the rules that will govern future federal contracting.
The important question is no longer whether Washington wants more fixed-price contracting.
It does.
The bigger question is how aggressively the government will implement it, which contracts will be affected, and how much risk contractors will ultimately be expected to carry.
For companies already holding large federal contracts, now is the time to review where cost-type arrangements leave them exposed to renegotiation.
For companies preparing to bid for new federal work, the question is even more immediate:
Can the project still make commercial sense if the contractor — rather than the government — has to absorb most of the cost risk?
The FAR proposal due on August 28 should provide the clearest indication yet.