Spending on contracting and supplies is the second largest major spending group in the world federal government, According to usaspending.gov. More than $1.1 trillion was spent on government-negotiated deals to hire contractors for the work. This category has increased by 19% compared to five years ago.
“We expect massive pay cuts for all federal contractors and others who overbille the federal government,” Vivek Ramaswamy, co-chair of DOGE, said on Fox Business Channel's Sunday Morning Futures.
The history of contracting with commercial companies for government goods and services dates back to the late 18th century. Over the years, laws have simplified the process and helped make contracts more competitive.
“We are on the side of change. We are starting to help Navy “Then the Army prepares for World War II to move faster, to do things better,” said Horacio Rozanski, CEO of Booz Allen Hamilton. “We are now the largest player in AI and cyber in the federal government, and we are very committed to and proud of that whole history. But this is a whole history of change. My sense is that we are ready for change. The country voted for it, and we need to see it happen.”
Elon Musk and Vivek Ramaswamy head the government's efficiency department. (Photo by Anna Moneymaker/Getty Images)
Booz Allen Hamilton is among the largest government contractors. In 2024, the company secured agreements worth over $8 billion from agencies such as Ministry of Defense, General Services Administration and National Science Foundation.
“One of the things we've been talking about for years is the idea of outcomes-based contracting. Instead of trying to figure out what everything costs and how to do it, let's define the outcome, which is what the 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 Defense Department inspector general report showed the agency charged up to 831% for spare parts. Another recent audit found a 7,943% markup on the soap dispenser it was sold to Air Force.
Military contractors are only required to provide a price explanation if the contract value is more than $2 million. If an item is labeled as “commercial,” businesses do not have to justify prices.
In 2023, Booz Allen Hamilton agreed to pay $377.45 million to settle allegations that the company improperly charged commercial and international costs for its government contracts.
“I think the system is part of the challenge,” Rozanski said. “This system was designed to manage risk and get things done with as little risk as possible. It was not designed for speed.” “We need DOGE to succeed in shifting towards efficiency, towards effectiveness. That's what our customers want, and that's what we want. Are there going to be winners and losers in that? Of course. I expect Booz Allen to be the winner of that. But at the end of the day, we need To the competition.
The Department of Defense has pledged about $550 billion for government contracts in 2024, more than half of total government spending on contractors. Some analysts estimate that the administration could save millions by streamlining negotiations.
“They are in favor of reducing some of the bureaucracy, but they are also in favor of understanding that there is a difference. federal government, “The giant DMV is not being fair,” Rozanski said. “There are all these areas where more could be done to do it faster, do it better or not do it at all, to get things done.”
Some small businesses say DOGE will likely have no impact on their business.
“From an efficiency standpoint, we all have to operate at an optimal level of efficiency,” said Dave Barnhart, co-founder of Arkisys. “I'm not entirely sure that will have an impact, because we're already essentially working as quickly as we can within the United States government.”
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Arkisys has a contract with the Space Development Agency, part of the Space Force. (archesis)
Arkisys has a contract with space development agency, Which is part of the Space Force. The port will provide service providers performing repairs in space with a permanent station to deliver goods or supplies. The federal government has specific contracts designated for small businesses that help level the playing field.
“This particular area of space, particularly the area we're talking about, which is servicing, doing something to a spacecraft in space after it's been launched, has never been done before,” Barnhart said. All kinds of innovations are happening.”
Other small business owners say they believe DOGE can help make the contracting process move faster.
“One day you come up with the idea quickly,” said Abbas Haider, one of Aspeto’s founders. “You have to get funding and you have to develop it.” “You submit your white paper, and this is Phase 1 funding. Then it is Phase 2 funding, and then it is Phase 3 funding. And by the time you are in Phase 2, it takes months. Maybe someone else has already copied your idea or already done something “Similar, why should I go to the government to get this funding?”
Instead of applying for specific contracts the government needs, Aspetto sells its products High-tech body army products To various agencies within the US government.
“In our case, we will go ahead and take the risks and finance it ourselves, because that will move things along much faster,” Haider said.
Aspetto manufactures bullet-resistant clothing, women's body armor and K9 bullet-proof vests. The company has contracts with the Ministry of Defense and the Ministry of Foreign Affairs And NASA. The FBI also supplies Aspetto products to US Border Patrol agents.
“I think they will focus on innovation,” Haider said. “If you are going to compete with countries like China, you have to focus on innovation.”
NASA contributes most of its funding to contractors to develop innovative products for space travel. In 2024, the agency allocated more than 76% of its budget to contracting.
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“With the right incentives, private industry can also bring in existing technologies that have already been proven in the private sector the government “To make it happen faster. I really think there's a huge opportunity to save money, to do it faster,” Rozanski said.
