Promoting Efficiency, Accountability, and Performance in Federal Contracting

What it does

• •Directs federal agencies to use fixed-price contracts as the default procurement method instead of cost-reimbursement contracts, which reimburse contractors for all allowable costs plus profit margins.
• •Requires written justification from contracting officers and agency head approval for any non-fixed-price contracts exceeding specified dollar thresholds ($100 million for Department of War, $35 million for NASA, $25 million for DHS, $10 million for other agencies).
• •Requires agency heads to review and renegotiate their 10 largest non-fixed-price contracts within 90 days to convert them to fixed-price structures where practicable.
• •Mandates semi-annual reporting to OMB on all non-fixed-price contracts approved, and directs OMB to issue implementation guidance within 45 days and propose Federal Acquisition Regulation amendments within 120 days.

Why it matters

• •The order addresses approximately $120 billion obligated to cost-reimbursement consulting contracts in Fiscal Year 2024, citing concerns that such contracts lack incentives to control costs and expose the government to overspending.
• •Fixed-price contracts tie contractor profit to performance metrics and defined deliverables on predictable timelines, intended to encourage cost control and efficiency rather than cost inflation.
• •The order establishes accountability mechanisms requiring senior-level agency approval for exceptions and regular reporting to track the shift toward performance-based contracting government-wide.

Who is affected

• •All executive branch departments and agencies engaged in federal procurement, with specific approval thresholds differentiated for Department of War, NASA, Department of Homeland Security, and other agencies.
• •Federal contractors currently operating under cost-reimbursement, time-and-material, labor-hour, or other non-fixed-price contracts, who may face contract modifications or renegotiations.
• •Program and contracting employees across agencies, who will be required to receive training on fixed-price contract formation, negotiation, and management.

What happens next

OMB will issue implementation guidance within 45 days, and the Federal Acquisition Regulatory Council will propose amendments to the Federal Acquisition Regulation within 120 days, with agencies required to begin compliance with the fixed-price default policy immediately and submit their first compliance reports within 90 days.