President Trump recently signed an executive order (EO) titled "Promoting Efficiency, Accountability, and Performance in Federal Contracting." The EO directs federal agencies to prioritize fixed-price and performance-based contracts over traditional cost-reimbursement models, with the stated goal of improving accountability, accelerating project delivery, and reducing cost overruns across federal procurement.
The EO creates a supportive policy environment for federal design-build and public-private partnership (P3) delivery structures, and contractors should begin considering how to position themselves accordingly.
The EO applies only to federally procured contracts, not state or local contracts funded by federal programs (such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) or Railroad Rehabilitation and Improvement Financing (RRIF)). However, other federal policies and regulations also favor fixed-price/performance-based contracting (including P3s) in that context.
Existing law: Fixed-price preference
The EO builds on an existing statutory and regulatory framework that already favors fixed-price contracting in a number of settings. 41 U.S.C. § 3307 and its implementing Federal Acquisition Regulation (FAR) 12.207, require that acquisitions of commercial products and commercial services use firm-fixed-price contracts (or fixed-price with economic price adjustment), to the maximum extent practicable, and permit time-and-materials or labor-hour contracts only in limited circumstances. FAR’s general contract-type policies in FAR 16.102 and FAR 16.202-2 reinforce that preference across negotiated and sealed-bid procurements, where fair and reasonable prices can be established at the outset.
FAR 36.207 makes firm-fixed price (lump-sum or unit-price) the default for federal construction procurements, with cost-reimbursement construction permitted only as a narrow exception.
In practice, however, the FAR’s preference for firm-fixed-price construction contracting has been more limited than a high-level reading might suggest. Core construction work has often been awarded on a lump-sum or unit-price basis, but federal agencies have continued to rely on cost-reimbursement, time-and-materials, labor-hour, and hybrid structures for many of the professional, technical, and management services that surround major construction projects, including preconstruction and design services, construction and program management, certain environmental and geotechnical work, and technology/systems-integration. On larger and more complex projects, agencies have also frequently used mixed structures that combine fixed-price construction with non-fixed-price design, advisory, management, or technology components, leaving a substantial portion of overall project delivery spend outside a pure firm-fixed-price model.
Re-emphasis, not sea change
Viewed against that backdrop, the April 30 EO is best understood as a re-emphasis and operational extension of an existing policy preference, rather than a fundamental change. The substantive principle (that fixed-price structures should be the default where requirements can be defined with sufficient maturity) is already embedded in the law. What the EO changes is the procedural architecture around that preference: it layers in written justification and senior-level approval requirements, mandates portfolio reviews of existing non-fixed-price contracts, and imposes reporting obligations and FAR amendment deadlines (designed to convert a longstanding preference into an enforced management approval).
Key provisions of the executive order
Fixed-Price Default
The EO directs executive branch departments and agencies, to the maximum extent consistent with law, to use fixed-price contracts in procurement, with fixed-price defined by reference to FAR Part 16, including contract structures that tie profit to performance-based metrics. Fixed-price contracting is now the expected agency posture, not merely one permissible contract type.
Written Justification and Senior-Level Approval for Non-Fixed-Price Contracts
Any non-fixed-price contract (including cost-reimbursement, time-and-materials, and labor-hour structures) must be justified in writing by the contracting officer to the agency head, and above specified the dollar thresholds agency-head approval is required. Limited exceptions apply for emergency, major disaster, and contingency operations and for research and pre-production development for major systems acquisitions.
Implementation Timeline
The EO imposes an accelerated sequence of deadlines:
- Within 45 days, the Office of Management and Budget (OMB) director must issue government-wide implementation guidance.
- Within 90 days, each agency head must review and, to the maximum extent practicable, seek to modify, restructure, or renegotiate the agency’s ten largest non-fixed-price contracts to incorporate fixed-price terms or performance-based incentives. Agency heads must also submit their first semi-annual report to OMB on non-fixed-price contracts approved under the EO.
- Within 120 days, the Federal Procurement Policy administrator must propose FAR amendments in coordination with the FAR Council and develop training for program and contracting personnel on fixed-price contract formation, use, negotiation, and management.
Why this matters for design-build and P3 delivery
Although the EO does not reference design-build or P3 structures by name, its core principles (risk transfer, performance accountability, fixed-price discipline, and outcome-based measurement) are foundational to both delivery models.
Design-Build Alignment
Design-build delivery inherently consolidates design and construction risk under a single contracting entity, typically under a fixed-price or guaranteed maximum price arrangement. The EO’s preference for contracts that assign delivery risk to the private sector and compensate based on completed performance, rather than incurred costs, aligns directly with the design-build framework.
P3 Structures
P3s take the risk-transfer principle even further, bundling design, construction, financing, operations, and maintenance into long-term concession or availability payment agreements. The EO’s emphasis on performance-based contracting and contractor accountability over the life of a project aligns well with P3 structures, where private partners are compensated based on defined service levels and availability metrics rather than cost inputs. For large-scale federal infrastructure and technology modernization programs, P3 delivery could emerge as a preferred path to achieving the EO’s goals.
Practical implications for federal contractors
The EO creates both opportunities and risks for the contracting community. Contractors with experience in fixed-price, design-build, and P3 delivery will be well-positioned, as agencies restructure their procurement approaches, while contractors accustomed to cost-reimbursement arrangements will need to recalibrate. Among the most important practical considerations:
Application to Existing Contracts
For existing contracts, the EO directs agencies to review and, to the maximum extent practicable and consistent with law, seek to modify, restructure, or renegotiate their ten largest non-fixed-price contracts to incorporate fixed-price terms or performance-based incentives.
While the EO frames this as a renegotiation exercise, the practical reality is that any meaningful conversion from a cost-reimbursement, time-and-materials, or labor-hour structure to a fixed-price structure is not a routine modification; it goes to the contract’s DNA. Such a change fundamentally alters the allocation of risk between the parties.
It requires re-pricing the work in light of a different risk allocation, redefining scope, deliverables, and acceptance criteria, with sufficient specificity to support fixed pricing, and revisiting funding, schedule, and performance assumptions. In many cases, it will also require contractors to re-evaluate subcontractor pricing, surety arrangements, and contingency reserves. Contractors should expect agency-initiated renegotiation requests and should be prepared to engage substantively while preserving their commercial position and any change-order or equitable-adjustment rights under the existing contract.
Procurements Awarded but Not Yet Executed
It is unclear how the EO applies to procurements where the agency has made an award, but the contract has not yet been executed. The EO contains no transition period or savings clause for active procurements. Agencies may seek to renegotiate these awarded but unexecuted contracts toward fixed-price structures, which could potentially give rise to procurement challenges. The agencies could also withdraw the awards entirely and begin new fixed-price procurements. Contractors holding awarded but unexecuted contracts should promptly engage with federal contracting officers to understand the agency’s posture, document the basis for the award, and preserve their commercial and legal position in the event the agency seeks pre-execution changes to the contract type. This is an area where early involvement of legal counsel is particularly important.
Cost prediction and modeling
For new procurements, contractors will need to place far greater emphasis on cost prediction and modeling, particularly for supply chain issues, materials, and labor, as under a fixed-price structure, those risks shift to the contractor. Sophisticated contingency analysis and the pricing of contingencies into fixed-price proposals will become essential, replacing the more flexible cost-recovery posture permitted by cost-reimbursement contracts.
More limited price adjustment provisions
Contractors should prepare for a contracting environment in which the available paths to price adjustment and other relief are narrower. Force majeure clauses generally provide only limited protection. Equitable-adjustment claims based on government actions or inactions (including constructive changes, government-caused delay, and unclear specifications) will become correspondingly more important.
Site conditions
For construction work, fixed-price treatment elevates the importance of site conditions and differing site conditions (DSC) clauses. Pre-bid site investigations, geotechnical due diligence, and the careful drafting and administration of differing site conditions provisions become central commercial issues, as unknown subsurface or other site risks under a fixed-price contract fall squarely on the contractor absent a robust DSC clause.
Economic price adjustment provisions
Where solicitations involve commodities or labor categories subject to volatility, contractors should affirmatively seek the inclusion of economic price adjustment (EPA) provisions, which are permitted under FAR. Even where permissible, EPA terms are not always included in the initial procurement forms of federal fixed-price contracts.
Surety and performance bond engagement
Contractors should engage early with their sureties regarding performance and payment bonds for the new contract environment. A shift toward larger, more complex fixed-price awards (particularly in construction and design-build contexts) may affect underwriting, bonding capacity, and the terms on which sureties are willing to support specific projects. Sureties will want to understand the contractor’s pricing assumptions, contingency analysis, and risk-management posture under fixed-price structures.
Portfolio review
Contractors should promptly review their existing contract portfolio to identify cost-reimbursement, time-and-materials, labor-hour, and hybrid contracts that could be swept into agency reviews under the EO, particularly those likely to fall within an agency’s ten largest non-fixed-price contracts. Early identification of contracts at risk of agency-initiated renegotiation will allow contractors to prepare a substantive response, document the basis for the existing contract type, and engage with the agency from a position of preparation rather than reaction.
Conclusion
The EO is a policy directive, not a statutory mandate. It does not amend the FAR or replace existing statutory procurement provisions. Implementing guidance from the Office of Federal Procurement Policy and the Federal Acquisition Regulatory Council should be expected in the coming months, with FAR amendments due by the EO’s 120-day deadline. Until formal implementation, the impact of the EO will depend on how individual agencies implement the new policy directive.
However, the administration’s message is clear: federal procurement is moving toward greater contractor accountability, tighter cost discipline, and performance-based outcomes. This favors integrated delivery models like design-build and P3. Nixon Peabody’s P3 lawyers advise sponsors, developers, lenders, and public owners on structuring and delivering P3 projects, helping clients allocate risk, align performance metrics, and navigate procurements. Contractors and public agencies that begin adapting now will be best-positioned to succeed in this evolving landscape.