The push for outcome based contracting by the Trump administration received another boost.
President Donald Trump’s latest acquisition-focused executive order, released yesterday, is mandating the use of firm fixed price contracts, with limited exceptions, or a justification by agency leaders as to why other contract types, like labor hours or cost reimbursement, are necessary.
“President Trump recognizes that federal contracting must be reformed to incentivize performance, rather than driving up costs, to protect taxpayer dollars,” the Office of Management and Budget wrote in a fact sheet released with the EO. “Federal procurement has for too long tolerated unpredictable costs, bloated overhead and weak performance incentives that frequently allow overspending. Many government contracts operate on a cost-reimbursement model that guarantees reimbursement for incurred costs plus a profit margin, which provides little incentive to control overspending.”
The EO is defining fixed price contracts based on Part 16 of the Federal Acquisition Regulations: “A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.”
Acquisition experts say the order builds on several other initiatives the administration has pursued over the last 15 months to move toward outcome-based contracting. From the General Services Administration’s review of consulting contracts to the rewrite of the Federal Acquisition Regulations to the executive order focused on buying commercial services to seeking to limit vendor profits and cap executive pay, the administration has been shifting the expectations for federal contracts and contractors.
“What I think the EO is intending to do is drive, from a requirements perspective, the question of what are the outcomes? It doesn’t want agencies to focus on staffing and hours,” said Greg Giddens, a former principal executive director for the Office of Acquisition, Logistics and Construction for the Department of Veterans Affairs, and now a partner with Potomac Ridge Consulting. “It’s a noble idea, but it’s difficult. Agencies have to work hard to lay out what their objectives are in a solicitation. We’ve seen some shift happening going from statements of work to statements of objectives or performance work statements. The focus should really be on what the agency is trying to get done.”
The administration has said too often agencies are only doing performance-based contracting in name, but the actual requirements are prescriptive.
“The United States government must adopt the best business practices to protect taxpayer dollars, hold contractors accountable and achieve demonstrable returns on investment,” the fact sheet stated. “Private-sector contracts frequently focus on driving performance by dictating a fixed cost for a well-defined outcome and by tying contractor payment to performance-based metrics, rewarding work that exceeds expectations and penalizing subpar performance – far too often, federal contracts do not.”
The EO details several changes for agencies, including the continued requirement to justify non-fixed price contracts and get sign off by contracting officers and other agency leaders. The White House is setting a series of thresholds for agencies to get justifications approved by the agency head:
- Defense Department: $100 million or above
- NASA: $35 million or above
- Department of Homeland Security: $25 million or above
- All other agencies: $10 million or above
Additionally, within 90 days, agencies must review and seek to modify, restructure or renegotiate their 10 largest non-fixed-price contracts by dollar value, including non-fixed-price contracts entered into on behalf of another agency, to move to fixed price and performance-based incentives.
“Each agency head shall report semi-annually to the director of the Office of Management and Budget (OMB) the number of, value of and written justifications for, any non-fixed-price contracts approved,” the EO stated. “Agency heads shall submit the first report no later than 90 days after the date of this order. As part of the first report, agency heads shall identify opportunities, beyond the contracts identified [in the top 10 review] for adjusting current non-fixed-price contracts toward fixed-price contracts.”
A long-held preference
OMB will issue new guidance to implement the EO by early June and the Office of Federal Procurement Policy will amend the FAR, as necessary, and work with the Federal Acquisition Institute and the Defense Acquisition University to develop training.
Giddens and other acquisition experts say the EO isn’t necessarily setting up any new requirements for agencies, but emphasizing processes and expectations in bigger ways.
Chris Hamm, a former GSA acquisition executive who used to run the FedSIM organization, said everyone who has ever done acquisition knows that fixed price is good and all other contract types are bad.
“Every acquisition that is not fixed price has determination and findings or a justification and approval that says, here is why we are using labor hours or time and materials (T&M) or cost reimbursement type of contracts. At some agencies, it’s pretty brief and at others, they are much more lengthy. The head of contracting or the acquisition shop had to sign off on those justifications,” said Hamm, who now is CEO of FIN Acquisitions. “This has been the case for the last 25-plus years. But until this EO, that decision was largely inside of the acquisition activity and usually didn’t have to go up to senior procurement executive or the head of the agency.”
The Government Accountability Office found in its analysis of the fiscal 2024 federal acquisition trends that agencies are spending more money through fixed price type contracts than any other type.
While the push for fixed price type contracts is laudable, experts say the EO is adding another level of bureaucracy and oversight at a time when so much of what the administration has been trying to do is reduce complexity and make the acquisition system more agile.
Hamm said the new approval requirements could add weeks or months to an acquisition timeline and increase the friction of the overall process.
“There likely will be an intermediary between the head of an agency and the contracting officer, so now if you bring them a justification for not using fixed price, they will probe for more details and ask why,” he said. “If you change to fixed price, you have to change all of the documents for the solicitation, which would add a few days or a few weeks. And if you still disagree, you can’t just have a meeting and say, ‘I really think it should be fixed price.’ You’ll have to provide evidence from industry to prove your argument, and that may be new outside information that arrives through a request for information or phone calls with industry that are documented and sent back to leadership.”
The challenges of a one-size fits all approach
Tracy Marcinowski, the former assistant commissioner for acquisitions for the Public Buildings Service at GSA, said many agencies already have approval processes for using other contract types than fixed price. She said it will be incumbent on agencies not to add time to their procurements by establishing an approval process that can be concluded rapidly, but it’s difficult to add a new approval process or level without adding time.
“This EO will help push critical thinking skills for agencies to look at what they are doing and how they are being good stewards of taxpayer dollars. Acquisition offices need to be business advisors to program offices and help to determine what are the best options for contracts,” said Marcinowski, who now is the managing partner at Strategic Acquisitions Solutions. “Sometimes cost type contracts will be the best option. Other times firm fixed price is the way to go. But you should start with the idea that it will be firmed fixed price and as facts reveal themselves, you should determine whether a cost type makes sense. The EO did carve out emergencies too, as agencies use a lot of T&M and labor hour contracts in emergency situations.”
Marcinowski and Hamm both agreed that agencies use T&M or labor hours or cost reimbursement type contracts for good reasons.
Marcinowski said a lot of the time, the contract type decision is driven by the agency’s requirements.
“Agencies have to understand the performance outcomes and define what success is. In my experience, that is not always as black and white as we would like it to be,” she said. “As any good contracting officer will tell you, the answer about what contract type to use is ‘it depends,’ and that’s for a reason. The one-size-fits-all approach doesn’t always work across the board.”
Hamm added that a lot of this EO seems to be driven by a general misunderstanding of how contracting actually works.
“On cost reimbursement contracts like cost plus fixed fee, there is a maximum profit of 10% and that is in statute. Companies do not get rich on cost reimbursement contracts,” he said. “Where companies make double digit profits is with services that are fixed price, T&M and labor hours. I think the entire goal of this EO politically is to disenfranchise the established government contractors and franchise new disruptive ones that don’t have cost accounting systems and other similar requirements. It changes who makes the money, in this case the company instead of the employees.”
Giddens, however, said the EO is doing something that has been needed for decades: adding a layer of accountability and oversight at a higher level.
“This EO isn’t some new tool or new FAR language or legislation. This is all about the administration saying this is a priority and putting in mechanisms in place to drive change,” he said. “It will be interesting to see how industry responds to this EO. Now they will have to think about the government’s market research phase and explain how they will produce outcomes. How they will help the government deliver better results. I think this will drive different behavior in industry.”
Copyright
© 2026 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.
