Defense Department Targets $65 Billion in Consulting Contracts for Cuts

WASHINGTON, D.C. — The U.S. Department of Defense has initiated a review of consulting contracts to identify those deemed unnecessary, urging agencies to act swiftly. On February 27, acting Administrator Stephen Ehikian of the General Services Administration (GSA) reiterated the push for agencies to terminate nonessential consulting agreements by March 7.

Ehikian emphasized the urgency in a letter, revealing that the ten highest-paid consulting firms are projected to receive over $65 billion in fees for 2025 and beyond. “This needs to, and must, change,” he stated. Agencies are required to submit lists of contracts they intend to keep and to include justification from senior officials for any contracts deemed mission-critical.

This action follows an earlier memo from February 6, which called for a review of GSA’s identified nonessential contracts. Ehikian noted that the response from agencies has been inadequate. He highlighted the significance of auditing contracts again due to their substantial financial impact.

In response, the Defense Department initiated its review process on February 18, focusing first on GSA-awarded deals. The Veterans Affairs Department had previously canceled 875 contracts believed to save $2 billion but later reverted some cancellations after realizing the cuts would adversely affect veterans’ health services.

“Components shall take action to terminate, descope or forego exercising options for requirements determined to be nonessential,” Steven Morani, acting undersecretary of defense for acquisition and sustainment, outlined in his directive. Contracts maintained must be justified by leadership within the agency to outline their continued necessity.

Phase two of the initiative will further examine non-GSA consulting contracts, with relevant data due by April 19. The GSA confirmed its commitment to adhering to executive orders designed to enhance efficiency within federal operations.

Federal contracting experts are weighing in on the GSA’s definition of nonessential contracts, which primarily points to activities that generate reports or research without direct service delivery. “A significant portion of the government’s core mission involves oversight and analysis; this work should not be viewed as wasteful,” remarked a former GSA official who spoke anonymously.

Stephanie Kostro, executive vice president for policy at the Professional Services Council, stressed the need for clarity regarding how agencies will define consulting services. She highlighted the importance of a consistent approach in identifying which contracts would be classified as nonessential, removing uncertainty for contractors.

The GWU’s Government Accountability Office indicated that federal spending on services has reached $478 billion in recent years, with the Defense Department accounting for a substantial portion. “Agencies are expected to annually assess their service contracts, determining necessity and relevance,” remarked Trevor Skelly, a former federal contracting officer.

Concerns persist regarding the scope of the GSA’s review, particularly the focus on only GSA contracts rather than a comprehensive market evaluation. “This appears to be a short-term strategy,” stated the former GSA official, suggesting the need for a more thorough, holistic analysis of all federal contracts.