July 1 FAR update: EO 14402 makes fixed-price default, adds justification

On July 1, 2026, federal procurement officials updated the “Revolutionary FAR Overhaul” (RFO) to implement Executive Order 14402. The policy shift is designed to push fixed-price contracts as the default, while adding written justification—and, above set dollar thresholds, agency-head approval—when agencies use certain non-fixed-price or hybrid contract approaches.

For contractors, the practical impact is less about a headline change in contract theory and more about what procurement teams may need to document (and who must sign off) inside proposal and contract files as agencies roll the updated RFO text into solicitations.

What EO 14402 does in plain English

EO 14402 is explicit: to the maximum extent consistent with law, agencies should use fixed-price contracts as the default and preferred procurement approach.

When agencies want to use a non-fixed-price contract type—such as cost-reimbursement, time-and-materials, labor-hour, or other non-fixed-price types—the EO requires:

Written justification by the contracting officer to the agency head.
Agency-head written approval when the value of the non-fixed-price contract (or, for hybrid contracts, the non-fixed-price portion) exceeds specified thresholds.

The EO’s dollar thresholds for agency-head approval are:

$100 million for a “Department of War” contract
$35 million for a National Aeronautics and Space Administration (NASA) contract
$25 million for a Department of Homeland Security (DHS) contract
$10 million for contracts involving agencies other than “Department of War,” DHS, or NASA

The EO also carves out exceptions where the approval/justification requirements don’t apply, including contracts that support emergency, major disaster, or contingency operations, and contracts involving research and development or pre-production development for major systems acquisition.

What the July 1 update changed

The July 1, 2026 RFO update points to implementation through two specific rewritten FAR “parts”:

RFO Part 16 (Types of Contracts)
RFO Part 52 (Solicitation Provisions and Contract Clauses)

This matters because “Part 16” is where the EO-linked justification mechanics show up for covered contract/order scenarios, while “Part 52” is where solicitation clauses/provisions connect those mechanics to what contractors actually see in bid packages.

What “covered contract/order” means under Part 16

RFO Part 16 defines a “covered contract or order” as a contract/order that is:

Other than fixed-price,
Firm-fixed-price, level-of-effort term, or
A hybrid contract that includes one or more of the above elements.

Unless an exception applies, Part 16 says a justification is required when covered contracts/orders are valued at or above the EO-linked thresholds (the same $100M / $35M / $25M / $10M structure).

Part 16 also spells out how coverage works in common structures, including:

Hybrid contracts: covered status depends on whether the non-fixed-price portion meets the thresholds.
Single-award indefinite-delivery contracts (IDCs): covered status depends on the estimated total value of known and forecasted covered orders (using the contract ceiling price where applicable).
Blanket purchase agreements (BPAs): the head of the agency decides whether the justification requirement applies at BPA award or when orders are placed.
Duration: an approved justification is valid for the duration of the contract or order.

And crucially for accountability: Part 16 ties approval to a specific decision chain. The head of the agency must approve the written justification prior to using a covered contract/order, and the EO-linked approval authority can be delegated only to limited senior roles (including the chief acquisition officer of the agency or another non-career Senior Executive Service official).

What contractors should expect in solicitations and procurement records

Even though EO 14402 is a federal policy change, it can show up as concrete paperwork in the contracting file—especially when a solicitation contemplates using a covered non-fixed-price or hybrid approach.

Two areas may matter most for proposal teams:

Solicitation structure: Part 16 allows the contracting officer to insert a “Type of Contract” provision into the solicitation. If the solicitation provides an opportunity for an offeror to propose an alternative contract type, Part 16 indicates an “Alternate I” version should be used.
Pre-use documentation: for covered scenarios above thresholds (unless exceptions apply), teams should expect procurement files to require the EO-linked written justification packet and the required approval step before the government proceeds with the covered approach.

What to watch next

Faster “model deviation” rollout inside agencies: the FAR Overhaul FAQs say agencies are expected to adopt and start using the model deviation text within 30 days of when the FAR Council issues the text. That can create variation in the exact solicitation language—and rollout speed—across agencies.
EO deadlines for agency review and reporting: EO 14402 requires each agency head to review its 10 largest non-fixed-price contracts within 90 days of the order date, and to report semi-annually to OMB (with the first report due no later than 90 days after the EO’s date).
Real solicitations before broader rulemaking catches up: EO 14402 also directs agencies to use applicable FAR deviations “when necessary” to comply before the contemplated FAR amendments are completed—so contractors may see the operational paperwork requirements sooner than they might expect.

Bottom line for bidders: don’t assume every “non-fixed-price” scenario triggers the same EO-linked burden. Instead, read the solicitation closely for what the contracting activity treats as a “covered contract/order,” which thresholds apply, and whether any EO exceptions are claimed for that procurement.

Sources

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