The shift toward fixed-price contracting in federal acquisition has accelerated following Executive Order 14402, “Promoting Efficiency, Accountability, and Performance in Federal Contracting,” issued on April 30, 2026 (Exec. Order No. 14402, 2026). This policy directs executive branch agencies to utilize fixed-price contracts or performance-based incentives as the default procurement method, requiring written justification and senior-level approval for cost-reimbursement, time-and-materials, and labor-hour contracts (Exec. Order No. 14402, 2026; Paulin et al., 2026). The administration cited approximately $120 billion obligated on cost-reimbursement consulting contracts in Fiscal Year 2024 as evidence of overspending (Exec. Order No. 14402, 2026).
Under the order, agencies must review their ten largest non-fixed-price contracts within 90 days and seek to modify or renegotiate them toward fixed-price structures (Exec. Order No. 14402, 2026; Paulin et al., 2026). The Office of Management and Budget (OMB) was directed to issue implementation guidance within 45 days (by approximately June 14, 2026), and the Administrator for Federal Procurement Policy must propose amendments to the Federal Acquisition Regulation (FAR) within 120 days (by approximately August 28, 2026) (Exec. Order No. 14402, 2026). Approval thresholds for non-fixed-price contracts requiring agency-head sign-off are set at $100 million for Department of War contracts, $35 million for NASA, $25 million for the Department of Homeland Security, and $10 million for all other agencies (Exec. Order No. 14402, 2026). Research and development and pre-production development for major systems acquisitions are exempt from these approval requirements (Exec. Order No. 14402, 2026).
The EO aligns with the ongoing “Revolutionary FAR Overhaul” (RFO), initiated by Executive Order 14275 on April 15, 2025, which seeks to comprehensively rewrite the FAR and enforce the fixed-price preference across federal procurement (General Services Administration, n.d.; Wiley Rein LLP, 2026). Legal analysts note that the EO does not itself amend the FAR or override existing statutory authorities, and its practical impact will depend on how agencies apply the mandates pending formal rulemaking (Paulin et al., 2026).
Historical Pattern
The federal government has periodically pivoted toward fixed-price contracting to control cost overruns. President Obama issued a memorandum in March 2009 identifying a near-doubling of cost-reimbursement contract obligations—from $71 billion to $135 billion between fiscal years 2000 and 2008—and established a policy preference for fixed-price contracting (Obama, 2009). The Department of Defense launched its Better Buying Power initiative in 2010 to encourage the use of fixed-price incentive contracts, and the FAR was amended in 2012 to tighten standards for cost-reimbursement contracts (Harden et al., 2026). Despite these initiatives, the Government Accountability Office found that the share of new cost-reimbursement contracts increased in fiscal years 2009 and 2010 (Harden et al., 2026). Historical precedents for fixed-price failures in defense include the C-5A cargo aircraft, which nearly bankrupted Lockheed, and the A-12 naval bomber, which was cancelled and resulted in protracted litigation (Chierichella, 2012).
Program-Level Evidence: Fixed-Price Losses
Defense contractors have experienced significant losses on recent fixed-price development programs. Boeing has absorbed $7 billion in cost overruns on the KC-46 Pegasus tanker program, far exceeding its $4.9 billion contract value (Losey, 2024a). The company also reported billions in charges on the T-7A Red Hawk trainer, MQ-25A Stingray tanker drone, and VC-25B Air Force One programs, all fixed-price contracts awarded in 2018 (Losey, 2024a). Boeing’s chief financial officer stated in October 2023 that the company had not signed any fixed-price development contracts and did not intend to (Losey, 2024a). As of January 2026, Boeing reported an additional $565 million loss on the KC-46 program (The Aviationist, 2026).
Northrop Grumman announced a nearly $1.6 billion pre-tax charge on the B-21 Raider stealth bomber program in the fourth quarter of 2023, driven by rising manufacturing costs during the fixed-price low-rate initial production phase (Losey & Robertson, 2024; Marrow, 2024). RTX (formerly Raytheon) noted that legacy fixed-price programs were weighing down company profits in 2024 (Losey & Robertson, 2024).
Industry Posture and Pushback
In response to these financial risks, major defense firms have altered their bidding strategies. Lockheed Martin CEO Jim Taiclet stated in January 2024 that the company no longer views any program as a “must-win” and that competitors accepting excessive fixed-price risk would face cost overruns and delays (Losey & Robertson, 2024). L3Harris CEO Chris Kubasik stated in June 2023 that the company had declined to bid on two fixed-price development contracts where specifications were not finalized, and predicted that the industry as a whole would continue to no-bid such contracts until the Department of Defense used the correct contracting vehicles (Marrow, 2023). Northrop Grumman stated it had not entered a fixed-price development contract since winning the B-21 program in 2015 and had passed on high-profile programs where the risk-reward balance was unfavorable (Losey & Robertson, 2024).
Legal and policy analysts have identified several structural concerns with EO 14402. PilieroMazza attorneys noted that contracting officers may default to fixed-price contracts to avoid the administrative burden of justification, potentially increasing costs to the government if contractors price in additional risk or underprice and fail to perform (Alba & Crallé, 2026). Morgan Lewis attorneys noted that the shift may increase bid protest activity, as contractors could challenge agency contract-type decisions where solicitations fail to align risk allocation with market realities (Hastings & Klein, 2026). Brian Miller, president of BMNT, stated that fixed-price contracts can revert to time-and-materials behavior within approximately one year if the underlying problem was never defined or validated before award (Gerton, 2026).
Space Force as a Counterexample
The U.S. Space Force has actively moved to expand the use of fixed-price contracts with shorter development cycles, citing the need for discipline and speed in acquisition (Losey & Robertson, 2024; Wolfe, 2025). Space Force Maj. Gen. Stephen Purdy stated in February 2025 that the service was re-examining remaining cost-plus programs and intended to convert them to fixed-price structures where feasible, while acknowledging that some programs with military-specific requirements may not be suitable for conversion (Wolfe, 2025). Space Force acquisition chief Frank Calvelli had previously stated in an August 2023 memo that fixed-price contracting “adds a level of discipline, prevents the constant rethinking of programs and scope changes with each yearly budget build” (Losey & Robertson, 2024).
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References
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