Tracking government spending, Part 2: Contractual services and supplies
Spending on contracting and supplies is the second-biggest major spending group for the federal government, according to usaspending.gov. More than $1.1 trillion was spent on deals negotiated by the government to hire contractors for work. The category has increased by 19% from five years ago.
"We expect massive cuts of all federal contractors and others who are overbilling the federal government," said DOGE co-leader Vivek Ramaswamy on Fox Business’ Sunday Morning Futures.
Contracting commercial companies for government goods and services dates back to the late 1700s. Over the years, laws have streamlined the process and helped make contracts more competitive.
"We're on the side of change. We got started by helping the Navy and then the Army get ready for World War Two to move faster, to do things better," Booz Allen Hamilton CEO Horacio Rozanski said. "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. My sense is we're ready for change. The country voted for it, and we need to see it happen."
Booz Allen Hamilton is among the largest government contractors. In 2024, the company had more than $8 billion worth in agreements from agencies like the Defense Department, the General Services Administration and the National Science Foundation.
"One of the things we've been talking about for years is this notion of outcome-based contracting. Instead of trying to figure out what does everything cost and how to do it. Let's define an outcome, something that 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 that the agency was charged as much as 831% for spare parts. Another more recent audit found a 7,943% markup on a soap dispenser sold to the Air Force.
Military contractors are only required to provide an explanation for prices if the contract is worth more than $2 million. If an item is labeled as "commercial," companies do not have to justify prices.
In 2023, Booz Allen Hamilton agreed to pay $377.45 million to settle allegations that the company improperly billed commercial and international costs to its government contracts.
"I think part of the challenge is the system. This system is built to manage risk and to get things done with the lowest risk possible. It is not built for speed," Rozanski said. "We need DOGE to succeed in shifting towards efficiency, towards effectiveness. It's what our clients want, it'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 need to compete."
The Department of Defense obligated around $550 billion to 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're for reducing some of the bureaucracy, but they're also for understanding that there is a difference. To paint the entire 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 to not do it at all, to get things done."
Some small businesses say that DOGE likely won’t have an impact on their work.
"From a sort of an efficiency standpoint, we all of us have to operate at the optimum level of efficiency," Arkisys co-founder Dave Barnhart said. "I'm not quite sure that'll have an effect, because we're essentially already operating as quickly as we possibly can within the U.S. government."
REPORTER'S NOTEBOOK: A DOGE IN THE FIGHT
Arkisys has a contract with the Space Development Agency, which is part of the Space Force. The Port would give service providers, making repairs in space, a permanent station to deliver cargo or supplies. The federal government has specific contracts set aside for small businesses that helps level the playing field.
"This particular arena of space and most especially the domain that we are talking about, which is servicing, that is doing something to a spacecraft in space after its launch, hasn't been done before. It's a wide-open research area. All kinds of innovation can happen," Barnhart said.
Other small business owners say they believe DOGE could help make the contracting process move faster.
"One day you come up with the idea quickly. You got to get the funding and you got to develop it," Aspetto co-founder Abbas Haider said. "You put in your white paper, that's phase one funding. Then it's phase two funding, then it's phase three funding. By the time you're on phase two, it's months. Someone else has probably already copied your idea or already done something similar. So, why would I go to the government for those funding?"
Instead of applying for specific contracts the government needs, Aspetto sells its high-tech body army products to various agencies within the U.S. government.
"In our case, we're just going to go ahead and take the risk and fund it ourselves, because it would just move things a lot faster," Haider said.
Aspetto makes bullet-resistant clothing, women’s body armor and K9-bullet-proof vests. The company has contracts with the Defense Department, the State Department and NASA. The FBI is also outfitting U.S. Border Patrol agents with Aspetto products.
"I do 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 space travel. In 2024, the agency allocated more than 76% of its budget to contracts.
"With the right incentives, the private industry can also bring existing technologies that have already been proven in the private sector to the government to make that happen faster," Rozanski said. "I really believe that there's a significant opportunity to save money, to do it faster."