The FAR Is Being Rewritten: What the 2026 Overhaul Means for Small Business Contractors Right Now

The Federal Acquisition Regulation, the rulebook governing every federal purchase, is undergoing its most sweeping rewrite in over 40 years. Layered on top: a new executive order making fixed-price contracts the government-wide default. Both are in effect right now. Here is what changed and what you need to do.

Category: GovCon News · 11 min read · Published 2026-06-08

Two seismic shifts hit federal contracting in the first half of 2026, and most small businesses are still catching up. The Federal Acquisition Regulation (FAR), the rulebook governing how the federal government buys everything, is being rewritten from the ground up for the first time in more than 40 years. On top of that, President Trump signed an executive order on April 30, 2026 mandating that agencies default to fixed-price contracts across the government. Both changes are already in effect. Both affect every contractor who competes for federal work.

This is not a preview of coming changes. The first wave of the FAR overhaul took effect February 1, 2026. More changes rolled out through spring. The biggest shifts land by June 30. If you are writing proposals, pricing contracts, or negotiating modifications right now, you are operating under a different rulebook than you were six months ago.

What Is the Revolutionary FAR Overhaul?

The Revolutionary FAR Overhaul (RFO) was initiated under Executive Order 14275, "Restoring Common Sense to Federal Procurement." It is led by the Office of Federal Procurement Policy (OFPP) and the FAR Council, and it represents the most comprehensive rewrite of the FAR since the regulation was first codified in 1984.

The stated goals: return the FAR to its statutory roots, rewrite it in plain language, remove most non-statutory requirements, accelerate acquisitions, and increase competition. The underlying philosophy is a shift from prescriptive, checklist-driven compliance to a principles-based framework that relies more heavily on contracting officer judgment.

In practice, that means the dense forest of "shalls" and "musts" that has governed procurement for decades is being pruned. Where the old FAR told contracting officers exactly what to do in most situations, the new FAR increasingly tells them what outcome to achieve and lets them determine the path.

What Actually Changed: The Key Provisions

Acquisition thresholds increased. These are the dollar thresholds that determine what procurement rules apply. Under FAR Case 2024-001, the micro-purchase threshold increased from

"Discussions" are now "negotiations," and the rules changed. Under the old FAR Part 15, discussions with offerors in a competitive acquisition had a specific, defined meaning and triggered specific obligations. The RFO replaces "discussions" with "negotiations" and significantly expands contracting officer discretion on when and how to engage with offerors. Critically, clarifications, previously narrow in scope, are now broader and discretionary, including the ability to address adverse past performance information. For small businesses, this means a contracting officer has more room to save a technically strong proposal that has a fixable problem, but it also means less procedural predictability.

Principles-based compliance replaces prescriptive checklists. The shift from rule-based to principle-based procurement means contractors face less rigid compliance requirements on paper, but more judgment calls in practice. The days of working through a FAR checklist to certify compliance are giving way to a framework where the government asks whether you achieved the right outcome, not whether you followed the right steps. Contractors need to strengthen internal documentation to show that their processes are reasoned and defensible, not just procedurally compliant.

Contracting officer discretion expanded significantly. The RFO reinforces the FAR Part 1 principle that if the FAR does not prohibit a course of action, it should be entertained. Contracting officers now have wider latitude to tailor solicitations and contracts to specific circumstances. For small businesses, this can be an advantage when a CO is willing to structure an acquisition favorably, but it also means more variability across agencies and offices than the old uniform rules produced.

The Fixed-Price Contracting Executive Order

On April 30, 2026, President Trump signed an executive order titled "Promoting Efficiency, Accountability, and Performance in Federal Contracting." Its core requirement: agencies must default to fixed-price contracts, or contracts that tie profit to performance-based metrics, for all new contract awards.

Under the old framework, agencies had discretion to choose contract type, including cost-reimbursement, time-and-materials, labor-hour, and firm-fixed-price, based on the nature of the work. That discretion has been constrained. Contracting officers who want to use anything other than a fixed-price contract type must now justify that choice in writing to the agency head, and for contracts above agency-specific thresholds, they must get agency head approval.

The 90-day renegotiation clock is ticking. The EO directed agencies to identify their top 10 highest-dollar-value contracts currently on cost-reimbursable or other non-fixed-price vehicles and seek to modify, restructure, or renegotiate those contracts by July 29, 2026. If you hold a cost-plus or T&M contract with a major agency, you may already have received or will soon receive outreach about restructuring your pricing.

OMB implementation guidance landed around June 14. The EO directed OMB to issue implementation guidance to all agencies within 45 days, a deadline that fell around June 14, 2026. FAR amendments are due within 120 days of the EO. The regulatory details are still being finalized, but agency implementation is already underway.

What is exempt. Emergency and disaster response contracts are exempt. Contracts involving research and development or pre-production development of major systems under FAR Parts 34 and 35 are also exempt. Beyond those categories, the expectation of fixed-price applies broadly.

What This Means for Small Business Contractors

If you currently hold cost-reimbursable or T&M contracts: Expect conversations about restructuring. The EO's 90-day clock is running. Prepare to defend why your current contract type is appropriate or to negotiate a hybrid structure that incorporates fixed-price elements where scope is definable.

If you are pursuing new contracts: Expect fixed-price solicitations to be the norm going forward, especially for services and products with definable deliverables. Time-and-materials and cost-plus will become exceptions requiring documented justification, which means COs will have less appetite for them on routine acquisitions.

Pricing discipline becomes more critical. Fixed-price contracts shift risk from the government to the contractor. When you sign a firm-fixed-price contract, you own the cost overrun. Small businesses, who often have less financial cushion than large primes, need to price with greater precision and build appropriate contingency into fixed-price bids. Underpricing to win now and absorbing losses later is a faster path to insolvency under this model than it was under cost-plus.

The principles-based FAR rewards preparation. With more contracting officer discretion in the mix, the companies that win are the ones who show up prepared, with clear pricing rationale, strong past performance documentation, and proposals written to the actual evaluation criteria. The new framework does not advantage companies that know FAR citation numbers. It advantages companies that can articulate value and demonstrate credibility.

Subcontracting plan thresholds shifted your obligations. The increase from $750,000 to $900,000 means some contracts that previously required a small business subcontracting plan no longer do. If you are a prime that subcontracts significant work, review whether your active contracts still require formal subcontracting plans under the new thresholds.

Simplified acquisition got a bigger ceiling. The SAT increase from $250,000 to $350,000 expands the range of purchases that can be made with simplified procedures, meaning less competition documentation and faster execution. This cuts both ways: more opportunities may be placed without full competition in your NAICS codes, but the process for awards under $350,000 moves faster and may reward companies that are easier to do business with.

What to Do Right Now

First, read the current FAR. The version at acquisition.gov reflects the RFO changes as they have been implemented. If your proposal templates, pricing models, or compliance checklists were last updated before February 2026, they may reference requirements that have changed or thresholds that are now wrong.

Second, audit your active contracts. Identify which ones are cost-reimbursable or time-and-materials. If any are large enough to appear on an agency's top-10 list, prepare for a renegotiation conversation. Even if your contract is not on the list, the direction of travel is clear: agencies will be scrutinizing non-fixed-price vehicles.

Third, build your fixed-price pricing model. If you have been operating primarily on T&M or cost-plus vehicles, develop a firm-fixed-price pricing structure for your core services now, before a solicitation requires it. Include contingency for scope uncertainty, factor in the GSA IFF if applicable, and document your pricing basis so you can defend it during negotiations.

Fourth, strengthen your documentation practices. The shift to a principles-based FAR means contracting officers have more room to make judgment calls, and those calls are harder to protest when the regulations are discretionary rather than prescriptive. Strong internal documentation of your compliance processes, pricing rationale, and contract execution will be increasingly important.

How ProposalApp Helps You Navigate This

The most immediate practical challenge of the 2026 changes is pricing and proposal drafting under a fixed-price framework. When you upload a solicitation into ProposalApp, the Proposal Assistant reads the contract type requirements, pricing instructions, and evaluation criteria directly from the RFP documents. For fixed-price solicitations, it surfaces the deliverable-based pricing structure required and helps you build a compliant, competitive cost volume.

ProposalApp's Proposal Assistant can also flag when a solicitation's contract type is unusual. A T&M or cost-plus vehicle in the current environment may signal an exception worth understanding before you price. And for the compliance documentation the new principles-based FAR rewards, ProposalApp's past performance library and capability profile tools help you build the record that earns contracting officer trust when the rules give them discretion to exercise judgment.

Search "FAR Part 16" or "firm-fixed-price" in ProposalApp's Find Opportunities page to surface solicitations that reference the new default contract type requirements and see how agencies are implementing the EO in their active procurements.

Sources

- [Promoting Efficiency, Accountability, and Performance in Federal Contracting | White House](https://www.whitehouse.gov/presidential-actions/2026/04/promoting-efficiency-accountability-and-performance-in-federal-contracting/)
- [Fact Sheet: President Trump Promotes Efficiency, Accountability, and Performance in Federal Contracting | White House](https://www.whitehouse.gov/fact-sheets/2026/04/fact-sheet-president-donald-j-trump-promotes-efficiency-accountability-and-performance-in-federal-contracting/)
- [New Executive Order Makes Fixed-Price Contracts the Government's Default | Mayer Brown](https://www.mayerbrown.com/en/insights/publications/2026/05/new-executive-order-makes-fixed-price-contracts-the-governments-default)
- [New Executive Order Promoting Fixed Price Contracting | Crowell & Moring](https://www.crowell.com/en/insights/client-alerts/new-executive-order-promoting-fixed-price-contracting-what-it-means-for-federal-contractors)
- [Revolutionary FAR Overhaul | Acquisition.gov](https://www.acquisition.gov/far-overhaul)
- [The FAR Is Being Rewritten: What Small Business Contractors Need to Know | USFCR](https://blogs.usfcr.com/far-overhaul-2026-need-to-know)
- [A new executive order makes fixed-price, performance-based contracts the default | Federal News Network](https://federalnewsnetwork.com/contracting/2026/05/a-new-executive-order-makes-fixed%E2%80%91price-performance%E2%80%91based-contracts-the-default-across-the-federal-government/)
- [New Executive Order Directs Agencies to Default to Fixed-Price Contracting | Gibson Dunn](https://www.gibsondunn.com/new-executive-order-directs-agencies-to-default-to-fixed-price-contracting/)