Executive Order 14402 - Promoting Efficiency, Accountability, and Performance in Federal Contracting

Executive Order 14402, issued on April 30, 2026, mandates a fundamental shift in Federal contracting practices, prioritizing fixed-price contracts with performance-based incentives over cost-reimbursement models. The order aims to enhance efficiency, accountability, and performance in Federal procurement, protecting taxpayer dollars and ensuring demonstrable returns on investment.

Section 1. Purpose

• The Executive Order addresses long-standing issues in Federal procurement, including unpredictable costs, bloated overhead, and weak performance incentives, contrasting them with private-sector practices that tie profit to performance and defined outcomes.
• It highlights that cost-reimbursement contracts, which guarantee reimbursement for allowable costs plus profit, often lead to poorly defined deliverables and increased government exposure to overspending, citing $120 billion obligated on such consulting contracts in FY2024.
• While acknowledging limited appropriate circumstances for cost-reimbursement (e.g., research, pre-production development), the Administration's policy establishes fixed-price contracts with performance-based considerations as the default and preferred procurement method.
• This policy aims to advance cost predictability, budget discipline, appropriate contractor incentives and accountability, and streamlined procurement and contract administration.

Section 2. Default to Fixed-Price Contracting

This section outlines the core directives and compliance requirements for agencies:

• Mandatory Fixed-Price Default: Executive branch departments and agencies (agencies) are directed to utilize fixed-price contracts (as defined in FAR Part 16 or contracts tying profit to performance) to the maximum extent consistent with law.
• Justification for Non-Fixed-Price Contracts (Compliance Requirement): Any use of non-fixed-price contracts (including cost-reimbursement, time-and-material, or labor-hour) must be justified in writing by the contracting officer to the agency head.
• Agency Head Approval for High-Value Non-Fixed-Price Contracts (Compliance Requirement): For non-fixed-price contracts (or non-fixed-price portions of hybrid contracts) exceeding specific thresholds, the agency head must provide written approval:
  • Department of War: $100 million
  • National Aeronautics and Space Administration (NASA): $35 million
  • Department of Homeland Security (DHS): $25 million
  • Other agencies: $10 million
  • Agency heads may delegate this approval authority to appropriate non-career employees.
• Exemptions from Approval Thresholds: The above approval thresholds do not apply to contracts supporting emergency, major disaster, or contingency operations (as defined in FAR Part 2), or those involving research and development or pre-production development for major systems acquisition (as governed by FAR Parts 34-35).
• Review and Modification of Existing Contracts (Compliance Requirement): Within 90 days of April 30, 2026, each agency head must review and, to the maximum extent practicable, seek to modify, restructure, or renegotiate its 10 largest non-fixed-price contracts by dollar value to incorporate fixed prices and performance-based incentives. This requirement excludes contracts for R&D/pre-production development or emergency/disaster response.
• Semi-Annual Reporting (Compliance Requirement): Agency heads must report semi-annually to the Director of the Office of Management and Budget (OMB) on the number, value, and written justifications for all non-fixed-price contracts approved under this section. The first report is due no later than 90 days after April 30, 2026, and must also identify additional opportunities for converting current non-fixed-price contracts to fixed-price.
• Inter-Agency Application and FAR Deviations: These requirements apply whether an agency contracts on its own behalf or for another agency. Agencies shall utilize applicable deviations from the Federal Acquisition Regulation (FAR) as needed to comply before formal FAR amendments are completed.

Section 3. Implementation

• OMB Guidance (Compliance Requirement): Within 45 days of April 30, 2026, the Director of OMB shall issue guidance to agencies to ensure consistent implementation of this order.
• FAR Amendments and Training Program (Compliance Requirement): Within 120 days of April 30, 2026, the Administrator for Federal Procurement Policy shall:
  • Propose amendments to the Federal Acquisition Regulation (FAR), in coordination with the Federal Acquisition Regulatory Council, consistent with the order's policy.
  • Develop a training program, in coordination with Defense Acquisition University and the Federal Acquisition Institute, for program and contracting employees on the formation, use, negotiation, and management of fixed-price contracts.

Section 4. Severability

• This standard provision ensures that if any part of the order is found invalid, the remainder of the order and its application will not be affected.

Section 5. General Provisions

• This section clarifies that the order does not impair existing legal authorities of executive departments or agencies, or the functions of the OMB Director related to budgetary, administrative, or legislative proposals.
• It states that the order will be implemented consistent with applicable law and subject to the availability of appropriations, and does not create any enforceable rights or benefits against the United States.
• The costs for publication of this order will be borne by the Office of Management and Budget.