Spending on contracts and supplies is the second largest spending group for the US federal government, according to usaspending.gov. More than $1.1 trillion was spent on deals made by the government to hire contractors for work. The category is up 19% from five years ago.
“We expect massive cuts from all federal contractors and others who overbill the federal government,” DOGE co-leader Vivek Ramaswamy said on Fox Business’ Sunday Morning Futures.
Contracting commercial companies for government goods and services dates back to the late 18th century. Over the years, laws have streamlined the process and helped make contracts more competitive.
“We are on the side of change. We started by helping the navy and then the military gets ready for World War II to move faster, to do things better,” said Horacio Rozanski, CEO of Booz Allen Hamilton. “Now we’re the largest player in AI and cyber in the federal government, and we’re very proud of that whole history. But that’s a whole history of change. I feel like we are ready for change. The country voted for it, and we need to see it happen.”
Elon Musk and Vivek Ramaswamy lead the government’s Ministry of Efficiency. (Photo by Anna Moneymaker/Getty Images)
Booz Allen Hamilton is one of the largest government contractors. By 2024, the company had more than $8 billion in agreements from agencies such as the Ministry of Defense, the General Services Administration and the National Science Foundation.
“One of the things we’ve been talking about for years is this idea of outcomes-based contracting. Instead of trying to figure out what everything costs and how to do it, let’s define an outcome, something that government really needs .and let private industry compete for that,” Rozanski said.
Federal agencies are responsible for negotiating the best deal for the government, but contractors have a history of overcharging. In 2014, a report from the Defense Department’s inspector general found that the agency had to pay as much as 831% for spare parts. Another more recent audit found a 7.943% surcharge on a soap dispenser sold to the air force.
Military contractors are only required to provide an explanation for the prices if the contract is worth more than $2 million. If an item is labeled “commercial,” companies do not have to justify the prices.
In 2023, Booz Allen Hamilton agreed to pay $377.45 million to settle allegations that the company improperly charged commercial and international fees for its government contracts.
“I think part of the challenge is the system. This system is built for managing risk and getting things done with the lowest possible risk. It’s not built for speed,” Rozanski said. “We need DOGE to be able to evolve towards efficiency, towards effectiveness. That’s what our customers want, that’s what we want. Will there be winners and losers in that? Of course. I expect I want Booz Allen to be a winner in that .But at the end of the day we have to compete.”
The Department of Defense obligated approximately $550 billion in government contracts in 2024, more than half of all government spending on contractors. Some analysts estimate the department could save millions by streamlining negotiations.
‘They want to reduce some of the bureaucracy, but they also want to understand that there is a difference. federal government, the giant DMV is not fair,” Rozanski said. “There are all these areas where more can be done to do it faster, to do it better or not do it at all, to get things done.”
Some small businesses say DOGE is unlikely to impact their work.
“From an efficiency perspective, we all need to operate at the optimal level of efficiency,” said Dave Barnhart, co-founder of Arkisys. “I’m not entirely sure this will have an effect because we’re essentially already operating as quickly as possible within the U.S. government.”
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Arkisys has a contract with the Space Development Agency, part of Space Force. (Arkisys)
Arkisys has a contract with the Space Development Agency, which is part of the Space Force. The port would give service providers conducting repairs in space a permanent station to deliver cargo or supplies. The federal government has set aside specific contracts for small businesses that help create a level playing field.
“This particular arena of space and especially the domain we’re talking about, which is maintenance, which is doing something with a spacecraft in space after its launch, hasn’t been done before. It’s a wide open area of research. All kinds innovation can happen,” Barnhart said.
Other small business owners say they believe DOGE can help speed up the contracting process.
“One day you quickly come up with the idea. You have to get the financing and you have to develop it,” said Abbas Haider, co-founder of Aspetto. “You submitted your white paper, which is phase one funding. Then it’s phase two funding, then it’s phase three funding. By the time you’re in phase two, it’s months. Someone else probably has your idea already copied or already done something. So why would I go to the government for that financing?”
Instead of applying for specific contracts that the government needs, Aspetto sells them high-tech body army products to various agencies within the US government.
“In our case, we’ll just go ahead and take the risk and finance it ourselves because it would make things move much faster,” Haider said.
Aspetto makes bulletproof clothing, women’s body armor and K9 body armor. The company has contracts with the Ministry of Defense and the Ministry of Foreign Affairs and NASA. The FBI also equips U.S. Border Patrol agents with Aspetto products.
“I really believe they’re going to focus on innovation. If you’re going to compete with countries like China, you have to focus on innovation,” Haider said.
NASA contributes most of its funding to contractors to develop innovative products for spaceflight. In 2024, the agency spent more than 76% of its budget on contracts.
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“With the right incentives, private industry can also bring to market existing technologies that have already proven themselves in the private sector the government to make that happen faster,” Rozanski said. “I really believe there is a significant opportunity to save money, to do it faster.”
