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Costs for contracts and supplies are the second largest group of costs for federal government, according to usapending.gov. More than $1.1 trillion was spent on government contracts to hire contractors to do the work. The category has increased by 19% compared to five years ago.
“We expect massive layoffs for all federal contractors and others who overbill the federal government,” DOGE co-leader Vivek Ramaswamy said on Fox Business’ Sunday Morning Futures program.
Contracting with 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 are on the side of change. We started with help navy and then the Army prepares for World War II to move faster, do things better,” said Booz Allen Hamilton CEO Horatio Rozansky. “We’re now the largest AI and cyber player in the federal government, and we’re very proud this whole story. But this is a whole story of change. I feel we are ready for a change. The country voted for it and we need it to happen.”
Elon Musk and Vivek Ramaswamy lead the Department of Government Efficiency. (Photo by Anna Moneymaker/Getty Images)
Booz Allen Hamilton is one of the largest government contractors. In 2024, the company signed agreements with such agencies worth more than $8 billion Ministry of Defense, General Services Administration and National Science Foundation.
“One of the things we’ve talked about for years is the concept of performance-based contracting. Instead of trying to figure out how much everything costs and how to do it. Let’s define the outcome, what the government really needs, and let private industry competes for it,” Rozansky said.
Federal agencies are responsible for negotiating the best deal for the government, but contractors have a history of price gouging. In 2014, a report by the Defense Department’s inspector general found that the agency was charging as much as 831% for parts. Another recent audit found a markup of 7,943% on the soap dispenser sold of the Air Force.
Military contractors are required to provide price clarifications only if the contract exceeds $2 million. If an item is marked as “commercial”, companies do not need to justify their prices.
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In 2023, Booz Allen Hamilton agreed to pay $377.45 million to settle allegations that the company improperly billed commercial and international expenses on its government contracts.
“I think part of the problem is the system. This system is designed to manage risk and perform tasks with the least possible risk. It’s not designed for speed,” Rozansky said. “We need DOGE to succeed in moving towards efficiency, towards efficiency. It’s what our customers want, it’s what we want. Will there be winners and losers? Of course. I hope I want Booz Allen to win this one. But at the end of the day, we need to compete.”
In 2024, the Department of Defense allocated about $550 billion to government contracts, more than half of all government spending on contractors. Some analysts believe the department could save millions by streamlining negotiations.
“They’re in favor of cutting some of the red tape, but they’re also in favor of understanding that there’s a difference. federal government, the giant DMV is unfair,” Rozanski said. “There are all these areas where more can be done to do it faster, to do it better, or not to do it at all, to do it all.”
Some small businesses say DOGE probably won’t affect their operations.
“From a sort of efficiency standpoint, we all have to operate at an optimal level of efficiency,” said Arkisys co-founder Dave Barnhart. “I’m not entirely sure it’s going to have an effect because we’re essentially already running as fast as we can in the U.S. government.”
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Arkisys has a contract with the Space Agency, part of the space force. (archysis)
Arkisys has a contract with Space Agency, which is part of the space forces. The port will give service providers doing repairs in space a permanent station to deliver cargo or materials. The federal government has special contracts designed for small businesses that help level the playing field.
“This particular arena in space, and specifically the area that we’re talking about, which is servicing, doing something with a spacecraft in space after it’s launched, hasn’t existed before. This is a wide open area of research. all kinds of innovation can happen,” Barnhart said.
Other small business owners say they believe DOGE can help speed up the contracting process.
“One day, an idea comes to you quickly. You have to get funding and develop it,” said Aspetto co-founder Abbas Haider. “You put in your technical book, that’s phase one funding. Then comes the financing of the second phase, then the third phase. It will be months before you are in the second stage. Maybe someone has already copied your idea or done something already. So why would I go to the government for this kind of funding?”
Instead of bidding on the specific contracts the government needs, Aspetto sells its own high-tech military products various agencies of the US government.
“In our case, we’re just going to go ahead and take the risk and fund it ourselves because it just speeds things up a lot faster,” Hyder said.
Aspetto manufactures bulletproof clothing, women’s body armor and K9 body armor. The company has contracts with the Ministry of Defense, the State Department and NASA. The FBI also equips US Border Patrol agents with Aspetto products.
“I believe they are going to focus on innovation. If you are going to compete with countries like China, you have to focus on innovation,” Haider said.
NASA gives 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.
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“Given the right incentives, private industry can also transfer existing technologies that have already been tested in the private sector, the government to do it faster,” Rozansky said. “I really believe there’s a significant opportunity to save money, to do it faster.”
