New FAR Rule Forces Agency Head Sign-Off on Non-Fixed-Price Contracts Starting July 15, 2026
On July 1, 2026, the FAR Council quietly set dollar thresholds requiring agency head approval before a contracting officer can use anything other than a fixed-price contract. The first deadline lands July 15, 2026, and a second one reaches back into contracts you already hold. Here is what changed and what to check before Wednesday.
Category: GovCon News · 7 min read · Published 2026-07-15
Key takeaways
- The FAR Council posted class deviation text for FAR Part 16 on July 1, 2026, implementing Executive Order 14402 and making fixed-price the default and preferred contract type.
- New FAR 16.104 requires the head of the agency, not the contracting officer, to approve a written justification before using a covered non-fixed-price contract above the applicable threshold.
- Thresholds are 100 million dollars for DoD, 35 million for NASA, 25 million for DHS, and 10 million for every other federal agency.
- For any solicitation issued on or after July 15, 2026, the justification must be approved before the solicitation is released.
- Existing contracts with 18 months or more of performance remaining as of July 15, 2026, including unexercised options, must have a justification approved by July 15, 2027.
- Time-and-materials contracts, labor-hour contracts, and letter contracts are all treated as covered by definition.
On July 1, 2026, the FAR Council posted updated class deviation text for FAR Part 16, Types of Contracts, along with related FAR Part 52 clauses. The update implements Executive Order 14402, Promoting Efficiency, Accountability, and Performance in Federal Contracting, which President Trump signed on April 30, 2026 to make fixed price contracts the government's default procurement method. This is not a proposal open for comment. It is a class deviation agencies are directed to adopt now, and the first deadline lands July 15, 2026, two days after this post is published.
If your company holds, or is competing for, anything other than a firm-fixed-price contract, this update matters more than the headline executive order did back in the spring. The April EO set the policy direction. The July 1 class deviation sets the actual dollar thresholds, the approval chain, and the compliance dates that determine whether your contract needs a formal justification signed by someone well above your contracting officer.
What the Class Deviation Actually Says
Revised FAR 16.102(b) now states plainly that fixed-price contracts are the default and preferred contract type, and instructs contracting officers to use fixed pricing for portions of a contract or order even when the whole thing cannot be fixed-price. The substantive new requirement sits in a new section, FAR 16.104, titled Executive Order 14402 Justification for Covered Contracts and Orders.
A covered contract or order is one that is other than fixed-price, is firm-fixed-price level-of-effort, or is a hybrid containing any element of either. Time-and-materials contracts, labor-hour contracts, and letter contracts are all treated as covered by definition. Before a contracting officer can use a covered contract type above the applicable dollar threshold, the head of the agency, not the contracting officer, has to approve a written justification. Delegation is narrow: the agency head can only hand that approval down to the agency's chief acquisition officer or another non-career Senior Executive Service official.
The Dollar Thresholds, By Agency
The thresholds vary by agency, and they are the number every proposal team should know before the next covered-type opportunity crosses their desk. The Department of Defense threshold is 100 million dollars. NASA's threshold is 35 million dollars. The Department of Homeland Security threshold is 25 million dollars. Every other federal agency shares a single threshold of 10 million dollars.
Hybrid contracts are covered if the other-than-fixed-price portion alone meets or exceeds the threshold for that agency. A single-award IDIQ contract is covered if the estimated total value of the known or forecasted covered orders under it meets or exceeds the threshold, and if the contract only allows covered orders, the ceiling price governs the calculation. For blanket purchase agreements, the agency head decides whether the justification requirement attaches at the BPA level or the order level. Multiple-award IDIQ contracts are not covered at the contract level, but task and delivery orders and BPAs issued under them are subject to the same rule.
Two categories are excepted outright: contracts supporting emergency response, major disaster relief, or contingency operations, and research and development or pre-production development work for a major system acquisition under FAR Parts 34 and 35. There is also a practical carve-out for fixed-price incentive and fixed-price award-fee contracts where the incentive or fee is tied solely to performance rather than cost. Revised FAR 16.202-1 now treats those as fixed-price outright, so they fall outside the justification requirement entirely.
Two Deadlines, Not One
The class deviation sets different clocks depending on where a contract sits in its lifecycle. For any solicitation issued on or after July 15, 2026, the justification has to be approved before the solicitation is released, full stop. For solicitations issued before July 15 where no award has been made yet, and for existing contracts or orders with 18 months or more of performance remaining, including unexercised options, as of July 15, 2026, agencies have until July 15, 2027 to get the justification approved.
That second deadline is the one worth sitting with. It means an agency can go back and require justification, or push for renegotiation, on a contract you were awarded a year or two ago if enough performance period remains. Law firms tracking the rollout have flagged the open question directly: it is not yet clear how agencies will handle justification for contracts that were already competed, awarded, and are mid-performance. What is clear is that an option written as time-and-materials or cost-reimbursement does not get a pass just because the base contract predates this rule.
What This Means If You Hold an Active Cost-Reimbursement or T&M Contract
Expect a conversation, possibly initiated by your contracting officer, about whether your current contract type still fits. If your contract, or a soon-to-be-exercised option, is large enough to trip your agency's threshold and has 18 or more months of performance left as of this week, your contracting officer now needs approval from well above their own desk to keep using that contract type going forward. Some agencies may simply let the justification process run its course. Others may come back and ask whether portions of the remaining scope can convert to fixed-price terms. And because an option has to be exercised exactly as written, agencies that do not want to seek justification for a non-fixed-price option may simply choose not to exercise it, which is a real business risk for a small business counting on that renewal.
What This Means If You Are Pursuing New Work
Firm-fixed-price solicitations were already becoming the norm after the April EO, and this class deviation removes any doubt for contracting officers who might have been waiting to see whether the policy would stick. If you are still building capture strategy around a time-and-materials or cost-reimbursement approach for a large opportunity above your target agency's threshold, budget for delay. The contracting officer cannot release that solicitation, or make that award, until the agency head's justification is signed, and that approval chain is new enough that most agencies do not yet have a fast, routine process for it.
What to Do Right Now
Inventory your active contracts and orders that carry cost-reimbursement, time-and-materials, labor-hour, or firm-fixed-price level-of-effort terms, and check the remaining period of performance, including unexercised options, as of July 15, 2026. Flag anything with 18 months or more remaining that is large enough to approach your agency's threshold.
If you have a proposal in house for a solicitation issued before July 15 that has not yet resulted in an award, check with your contracting officer on where the justification stands. It may explain a schedule slip that otherwise looks unexplained.
If you are capturing new work that would naturally price as anything other than fixed-price, above your target agency's threshold, build the agency head approval step into your capture timeline now. Treat it as a real schedule risk, not a formality.
If you hold an option period written on non-fixed-price terms and it is coming up for exercise, do not assume it will be exercised on schedule. Start the conversation with your contracting officer early, and be ready to discuss whether a fixed-price restructuring of some or all of the remaining scope is workable for your business.
Watch the separate July 23, 2026 comment deadline on the four formal Revolutionary FAR Overhaul rulemakings. The FAR Council has already published tables showing how nearly 1,600 public comments shaped the proposed rules so far, so a comment on how these thresholds affect small business contract types is not a symbolic exercise.
How ProposalApp Helps You Track This
The hardest part of this rule is not understanding it, it is knowing which of your contracts and pipeline opportunities it actually touches. ProposalApp's Find Opportunities page lets you search and filter by contract type, so you can quickly pull every active pursuit that is priced as anything other than firm-fixed-price and check it against your agency's threshold before you commit capture resources to it.
When a solicitation lands in ProposalApp, the Proposal Assistant reads the contract type and pricing structure directly from the RFP and flags it when the requested contract type is not firm-fixed-price, so you know upfront that an agency head approval step may sit between the solicitation and the award. For contracts you already hold, ProposalApp's pipeline tools help you track option period dates alongside contract type, so a non-fixed-price option coming up for exercise does not slip past you unnoticed.
ProposalApp's capability profile and past performance library also help here in a less obvious way. When agencies do come back and ask whether remaining scope can convert to fixed-price terms, having a well-documented cost and performance history makes it easier to price that conversion with confidence instead of guessing.
Sources
- [FAR Council Updates Class Deviation Text for Part 16 to Implement Executive Order on Preference for Fixed-Price Contracts | Wiley](https://www.wiley.law/alert-FAR-Council-Updates-Class-Deviation-Text-for-Part-16-to-Implement-Executive-Order-on-Preference-for-Fixed-Price-Contracts-Wiley-Updates-FAR-and-DFARS-Overhaul-Site)
- [Weekly Update for Government Contractors and Commercial Businesses, July 9, 2026 | PilieroMazza](https://www.pilieromazza.com/weekly-update-for-government-contractors-and-commercial-businesses-july-9-2026/)
- [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/)
- [FAR Council Guidance to Implement Executive Order 14402 | Acquisition.gov](https://acquisition.gov/sites/default/files/page_file_uploads/FAR-Council-Guidance-to-Implement-EO-14402.pdf)
- [Revolutionary FAR Overhaul | Acquisition.gov](https://www.acquisition.gov/far-overhaul)
- [You Said, We Did: Revolutionary FAR Overhaul | Acquisition.gov](https://www.acquisition.gov/far-overhaul/you-said-we-did)
Frequently asked questions
What are the new FAR Part 16 approval thresholds?
The Department of Defense threshold is 100 million dollars, NASA is 35 million dollars, the Department of Homeland Security is 25 million dollars, and every other federal agency shares a single threshold of 10 million dollars. Above those amounts an agency head must approve a written justification before a contracting officer can use a covered non-fixed-price contract type.
Which contract types are covered by the justification requirement?
A covered contract or order is one that is other than fixed-price, is firm-fixed-price level-of-effort, or is a hybrid containing any element of either. Time-and-materials contracts, labor-hour contracts, and letter contracts are all covered by definition.
Who has to approve the justification?
The head of the agency, not the contracting officer. Delegation is narrow: the agency head can only hand that approval down to the agency's chief acquisition officer or another non-career Senior Executive Service official.
Does this affect contracts I already hold?
Potentially yes. Existing contracts or orders with 18 months or more of performance remaining, including unexercised options, as of July 15, 2026 must have a justification approved by July 15, 2027. That means an agency can go back and require justification, or push for renegotiation, on a contract awarded a year or two ago if enough performance period remains.
What is excepted from the requirement?
Contracts supporting emergency response, major disaster relief, or contingency operations, and research and development or pre-production development work for a major system acquisition under FAR Parts 34 and 35. Fixed-price incentive and fixed-price award-fee contracts where the incentive or fee is tied solely to performance are treated as fixed-price outright under revised FAR 16.202-1.
How are IDIQ contracts treated?
A single-award IDIQ is covered if the estimated total value of the known or forecasted covered orders under it meets or exceeds the threshold, and where the contract only allows covered orders the ceiling price governs. Multiple-award IDIQs are not covered at the contract level, but task and delivery orders and BPAs issued under them are subject to the same rule.