On April 30, 2026, the President signed Executive Order 14402, "Promoting Efficiency, Accountability, and Performance in Federal Contracting." The order states that fixed-price contracts with performance-based considerations should now be the default and preferred way the government buys. Five months later, that instruction is shaping how contracting officers select contract types, and it deserves attention from every company that delivers IT services to federal agencies. Here is a summary of what has changed, what remains open, and what we believe it means for our partners and peers in cloud and application modernization work.
What the Rules Say Now
On July 1, 2026, the Federal Acquisition Regulation (FAR) Council released updated FAR Part 16 text and class deviation guidance as part of the revolutionary FAR Overhaul initiative. FAR 16.102(b) calls for fixed-price as the "default and preferred contract type." A new FAR 16.104 requires a written justification, approved by the agency head, before an agency uses a "covered" contract or order. Covered types include cost-reimbursement, time-and-materials, labor-hour, firm-fixed-price level-of-effort, and hybrid arrangements. The approval thresholds are $100 million for the Department of War, $35 million for NASA, $25 million for DHS, and $10 million for all other agencies.
The timing here is important. For new solicitations issued on or after July 15, 2026, the justification must be approved before release. Solicitations issued before that date that have not been awarded, along with existing contracts and orders that had 18 months or more of performance remaining on July 15, 2026, need approved justifications by July 15, 2027. That second date will affect many incumbent contracts during option exercise timeframes and recompete planning.
On September 18, 2026, the FAR Council published a proposed rule (FAR Case 2026-006) to formalize changes to FAR Parts 16, 17, and 35, with comments due by October 19, 2026. This proposal also defined consumption-based solutions as a form of firm-fixed-price contracting, added on-ramping and off-ramping policies for multiple-award contracts, and removed the general five-year limit on contract duration.
Why This Matters for IT Services
For years, time-and-materials and labor-hour task orders gave agencies and contractors a practical way to begin work while requirements were still forming. That option still exists, but above the thresholds it now carries a documented justification and an agency head's signature. Contracting officers will reasonably reach for fixed-price first, and the risk of an undefined scope moves toward the contractor.
For cloud and business application modernization, that shift is manageable when the work is well defined and costly when it is not. A Dynamics 365 or Power Platform implementation priced as a single fixed number against loose requirements invites disputes on both sides. The same work organized into clear phases, measurable outcomes, and stated government dependencies can serve the mission and the taxpayer well.
How Team AITGS is Responding
We are treating scope definition as our primary risk control. In practice, that means
- proposing discovery and design as separately priced phases,
- tying later phases to accepted deliverables,
- stating the government-furnished access, information, and decision turnaround each phase depends on,
- and putting limits on review and rework cycles in writing.
These are not new ideas, but fixed-price-first makes them essential.
We are also looking closer at managed services opportunities. A cleared, U.S.-based 24x7 help desk or a defined cloud operations service already lends itself to a fixed monthly price tied to service levels, and the proposed rule's treatment of consumption-based solutions points in the same direction.
Three Recommendations for Our Partners and Peers
First, review your incumbent portfolio against the July 15, 2027 date and talk with your contracting officers early about how option years and follow-on work will be structured. Second, invest in estimating discipline, because fixed-price contracting rewards companies that know their delivery costs at the task level. Third, help your customers write better requirements for technology modernization efforts. Contracting officers now carry the justification burden for other contract types, and a contractor that brings a clear, phased, outcome-based approach makes their job easier.
Fixed-price-first is not a reason for alarm. It is a call for sharper scope, honest pricing, and closer partnership between agencies and industry. Done well, it favors the firms that deliver predictably.
If you’re looking for a federal contracting partner who prioritizes attention to detail in scope, connect with Arctic IT Government Solutions today.
By Steve Schmitz, President and General Manager at Arctic IT Government Solutions (AITGS)