Trump Issues Executive Order to Overhaul Federal Contracting With Fixed-Price Focus
The federal government is overhauling its contracting approach after President Donald J. Trump signed an urgent Executive Order demanding the widespread adoption of fixed-price contracts. The directive targets inefficiencies that have led to soaring taxpayer costs and weak contractor accountability, especially under the problematic cost-reimbursement model.
Federal agencies now must default to fixed-price contracts — a model that sets predictable costs and benchmarks contractor profits against performance instead of expenses. This rule immediately challenges the status quo where, in Fiscal Year 2026, approximately $120 billion was obligated solely on cost-reimbursement consulting contracts, which have minimal cost controls or performance incentives.
Why This Matters Right Now
Fixing the federal procurement system is critical to protecting taxpayers across North Carolina and the nation. Under cost-reimbursement contracts, government agencies often face runaway expenses with limited oversight, allowing contractors to bill for allowable costs plus additional profit regardless of efficiency.
The Executive Order demands that, except in rare, justified cases, federal departments and agencies adopt fixed-price contracts aligned with the Federal Acquisition Regulation. Agencies must justify non-fixed-price contracts in writing and secure written approval from agency heads for contracts exceeding multi-million-dollar thresholds.
Key Provisions Target Federal Spending Culture
The order stipulates strict conditions on non-fixed-price contracts, including approval levels for contracts valued over:
- $100 million for Department of War contracts
- $35 million for NASA contracts
- $25 million for Department of Homeland Security contracts
- $10 million for other federal agencies
Emergency and research contracts remain exempt to maintain agility where necessary.
Within 90 days, agency heads must review and seek to convert their ten largest non-fixed-price contracts toward fixed-price models, applying rigorous performance incentives and cost discipline.
Oversight and Compliance to Ensure Accountability
The order mandates semi-annual reporting to the Office of Management and Budget (OMB) detailing all non-fixed-price contracts authorized under these new rules. Agencies must provide written justifications for exceptions and identify opportunities to restructure contracts to strengthen cost predictability and contractor performance.
Within the next 45 days, the OMB Director will issue implementation guidance, while the Federal Procurement Policy Administrator is tasked to propose regulatory amendments and launch mandatory training programs for procurement officials within 120 days to sharpen skills in negotiating and managing fixed-price contracts.
A Nationwide Shake-Up With North Carolina Impact
For states like North Carolina, with a large network of federal contractors and major defense and homeland security activities, these changes could reshape how government agencies manage contracts, potentially saving millions of dollars in taxpayer funding and driving higher performance from contractors working on critical infrastructure and services.
As agencies pivot away from cost-reimbursement contracts, local businesses competing for federal work will face intensified performance requirements but gain from clearer contract benchmarks and competitive, incentive-driven pay structures.
“The United States Government must adopt the best business practices to protect taxpayer dollars, hold contractors accountable, and achieve demonstrable returns on investment,” the Executive Order states.
Next Steps for Federal Agencies and Contractors
Federal agencies are now under tight deadlines to transform their procurement portfolios and comply with the new contract policies. Watch for the upcoming OMB guidance and Federal Acquisition Regulation amendments that will formalize this government-wide transformation.
This Executive Order marks a striking pivot toward fiscal responsibility and accountability in federal spending — signaling urgent reforms that affect every taxpayer and contractor nationwide, including those in North Carolina.
