The White House’s recent executive order on federal contracting could significantly reshape how agencies structure procurements and allocate performance risk. Executive Order 14402, Promoting Efficiency, Accountability, and Performance in Federal Contracting, directs executive agencies to default to fixed-price contracts unless they can justify and obtain approval for another contract type.
For many contractors, particularly those providing complex, evolving, or customized services, the shift may have immediate pricing, compliance, and bid strategy implications.
Agencies Will Face Increased Scrutiny for Nonfixed-Price Contracts
The order requires agencies to justify the use of nonfixed-price contracts in writing and obtain elevated approvals for contracts exceeding specified dollar thresholds.
Agencies must also review and potentially renegotiate their largest nonfixed-price contracts to promote fixed-price structures and performance-based incentives.
The initiative aligns with broader administration efforts encouraging agencies to procure commercial products and services and reduce perceived inefficiencies in federal procurement.
Contractors May Bear Greater Cost and Performance Risk
Although the administration frames the initiative as a way to improve accountability and control costs, the practical effect may be increased risk transfer to contractors.
Fixed-price arrangements generally work best where requirements and deliverables are clearly defined. In more dynamic environments, contractors may face greater exposure to inflation, supply-chain disruption, integration complexity, and changing requirements without corresponding flexibility to recover additional costs.
Contractors that do not typically operate under fixed-price structures may need to reassess pricing assumptions, proposal strategies, and internal risk-allocation models.
Bid Protest Activity Could Increase
The order may also affect the bid protest landscape. Contractors could challenge agency contract-type decisions where solicitations fail to align risk allocation, pricing assumptions, and market realities.
Potential protest grounds may include inadequate market research, unsupported acquisition planning, unrealistic solicitation requirements, or evaluation criteria that fail to appropriately account for performance risk under fixed-price structures.
Contractors offering commercial products and services may find new opportunities as agencies continue emphasizing commercial procurement and standardized pricing models.
Contractors Should Use the Implementation Period Strategically
Government contractors should begin evaluating how increased use of fixed-price contracting could affect pricing strategies, proposal development, contract administration, and claims risk. Contractors should also monitor forthcoming Office of Management and Budget guidance and anticipated Federal Acquisition Regulation updates implementing the order.
For additional analysis and practical considerations regarding this executive order, read our LawFlash.