Fixed-Price Is Now the FAR Default — and T&M Contracts Are in Scope
Agencies must update class deviations by July 15. For small IT and cyber firms living on time-and-materials work, the risk shift starts now.
On July 1, the FAR Council published guidance and rewrote FAR Part 16 to implement Executive Order 14402, establishing fixed-price contracts as the "default and preferred contract type." Agencies have until July 15 to update their class deviations.
The rewrite lands inside the broader Revolutionary FAR Overhaul, whose first proposed rules are open for comment until July 23.
How the new approval gate works
The mechanism is a new FAR 16.104. Before a contracting officer can use an other-than-fixed-price contract or order above threshold, the head of the agency must approve a written justification. That authority may be delegated only to the agency chief acquisition officer or another non-career Senior Executive Service official — not to the contracting officer. The thresholds:
$100 million for DoD
$35 million for NASA
$25 million for DHS
$10 million for all other agencies
Hybrid contracts count when the non-fixed-price portion meets the threshold.
Why this hits small IT and cyber firms harder
Two details matter more than the headline. First, time-and-materials and labor-hour contracts and orders are explicitly named as covered contracts, alongside cost-reimbursement and letter contracts. T&M is the structure much small-firm services work runs on.
Second, the rule reaches existing work. Contracts or orders with at least 18 months of performance remaining as of July 15, 2026 fall in scope, with justifications required by July 15, 2027. Exemptions exist for emergency, major disaster, and contingency work, and for R&D and pre-production development of major systems under FAR Parts 34–35.
The practical consequence is not the paperwork. It is that contracting officers facing an agency-head approval requirement will often take the path of least resistance and structure the work as fixed-price. Expect requests to justify or renegotiate existing T&M arrangements, delayed solicitations while justifications await approval, and agencies declining to exercise options on other-than-fixed-price terms. Cost and scope risk shifts toward the contractor, which puts pressure on estimating discipline and clearly defined deliverables — the areas where thin proposal teams are most exposed.
What to do before July 15
Inventory active contracts and orders; flag every T&M and labor-hour vehicle with 18 or more months remaining as of July 15, 2026
Pressure-test whether you could deliver that scope at a fixed price without eroding margin
Check your agency's class deviation once posted — implementation timing will vary by agency
Confirm specifics against the FAR Council guidance on acquisition.gov before acting on any summary
FAQ
Does the fixed-price rule apply to time-and-materials contracts?
Yes. FAR 16.104 explicitly names time-and-materials and labor-hour contracts and orders as covered contracts, alongside cost-reimbursement and letter contracts.
When does the FAR fixed-price default take effect?
Agencies must update their class deviations by July 15, 2026. Solicitations issued on or after that date are subject to the new justification requirement.
Does it affect contracts I'm already performing?
Yes, if at least 18 months of performance remain as of July 15, 2026. Justifications for those must be approved no later than July 15, 2027.
Who approves an other-than-fixed-price contract now?
The head of the agency, not the contracting officer. Approval authority may be delegated only to the agency chief acquisition officer or another non-career Senior Executive Service official.
Rule changes like this one land with six days' notice and no announcement. Federal Cyber Brief tracks the federal IT and cybersecurity rules that gate small-business work — what changed, what it costs you, and what to do about it — every Tuesday.
Sources
Federal Acquisition Regulatory Council, FAR Overhaul Updates for Parts 16 and 52 — Implementation of E.O. 14402, July 1, 2026 — https://www.acquisition.gov/content/far-overhaul-updates-parts-16-and-52-implementation-e.o.-14402-promoting-efficiency-accountability-and-performance-federal-contracting
Federal Acquisition Regulatory Council, FAR Council Guidance to Implement EO 14402 — https://www.acquisition.gov/sites/default/files/page_file_uploads/FAR-Council-Guidance-to-Implement-EO-14402.pdf
Wiley, FAR Council Updates Class Deviation Text for Part 16 to Implement Executive Order on Preference for Fixed-Price Contracts — 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
PilieroMazza, Weekly Update for Government Contractors and Commercial Businesses – July 9, 2026 — https://www.pilieromazza.com/weekly-update-for-government-contractors-and-commercial-businesses-july-9-2026/
