Promoting Efficiency, Accountability, and Performance in Federal Contracting

Key Points

• Fixed-price contracts become the default way the federal government buys goods and services. Instead of reimbursing contractors for whatever costs they rack up, the government will agree on a set price upfront for a clearly defined outcome. This is meant to stop cost overruns and reward companies that deliver on time and on budget.
• Agencies that want to use non-fixed-price contracts must now justify that choice in writing. For larger contracts, the agency head personally must approve the deal, with thresholds varying by agency: $100 million for Defense, $35 million for NASA, $25 million for Homeland Security, and $10 million for all other agencies.
• Each agency must review its 10 largest non-fixed-price contracts by dollar value within 90 days and try to renegotiate them toward fixed-price terms. This could affect billions of dollars in existing agreements across the federal government.
• The order cites roughly $120 billion spent on cost-reimbursement consulting contracts in a single year as evidence of the problem. By shifting to fixed-price deals, the administration aims to put the risk of cost overruns on contractors rather than taxpayers.
• Emergency response, disaster relief, and certain research and development contracts are exempt from the new rules, since those projects often have unpredictable costs that make fixed pricing impractical.