President Donald Trump’s overhaul of federal contracts could change the entire procurement process, booting out legacy companies and making contracts — even those that the administration wants — more difficult for agencies to secure in the first place, experts told NOTUS.
The deluge of terminated contracts, along with policy crackdowns on diversity, equity and inclusion and economic changes from tariffs all make contracting significantly riskier.
That, in turn, will likely make future government contracts more expensive — counterintuitive given the Department of Government Efficiency’s self-proclaimed goal of saving taxpayer dollars, said Bobby Kogan, senior director for federal budget policy at the Center for American Progress.
“If people who want to contract with the government expect the United States government to renege on some or all of its contracts, even if it technically has contractual authority to do so, they’re going to put in a risk premium,” Kogan said. “It creates inefficiencies by increasing the cost of the government to do stuff.”
The Trump administration already terminated more than 5,000 contracts across multiple federal agencies in a move that Elon Musk and DOGE have touted as saving $20 billion.
Many of those cancellations have targeted programs and resources the administration deems wasteful, like diversity, equity and inclusion efforts. Others have swept entire agencies that the administration has called “antithetical to American values,” like USAID.
Government contractors provide a huge array of services from human resources support to medical supplies to aircraft. Many agencies outsource core functions, such as cleaning up hazardous waste sites and shoring up military technology, to contractors, and contractors also hold significant influence in agency rulemaking.
DOGE’s contract-cutting moves follow decades of calls for more oversight of government contracting. The Government Accountability Office said in 1991 that agencies should develop clearer guidance for which functions to perform in-house and which to outsource to contractors and has also more recently pointed out the potential for inefficiency in certain types of contracting.
The federal government has already reduced the number of federal employees who work on contract procurement, and more workforce changes are likely to follow. At least one agency, the Office of Personnel Management, has already seen a “complete reduction in force” of employees in its contract procurement division.
Trump on Thursday signed an executive order consolidating all contract procurement under the General Services Administration, paving the way for even more agency workforce reductions. The order said that having each agency procure its own contracts is “uncoordinated” and “less economical.”
Amid the flurry of changes, the administration so far has seemed keen to leave some contracts in place. Contract cancellations have mostly hit smaller agencies that already spend less on securing contracts, like Health and Human Services and Education, in conjunction with the administration’s other criticisms of those agencies. Meanwhile, large agencies that contribute the most to federal contract spending — like the Department of Defense, which spent more than $430 billion on contract obligations during fiscal year 2023 — are relatively untouched by the administration.
But even contractors who work with these unaffected agencies could be swept up in increasing prices and other risks down the road.
The Trump administration’s hefty tariffs on Canada, Mexico and China could add a layer of complications on the price front. The Federal Acquisition Regulation, a series of rules that agencies have to abide by when procuring contracts, shields contractors from price spikes driven by tariffs, offering options to offload unexpected costs on the government or receive reimbursements. But experts have warned contractors that not all contracts are applicable for these types of protections.
Those regulations themselves could also be on shaky ground. Trump has rolled back other regulations that governed contracting, such as a Biden-era executive order requiring a minimum wage for people working under federal contracts.
The makeup of the contracting world is also poised to change.
Acting GSA head Stephen Ehikian sent a memo on Feb. 26 directing senior staff members at federal agencies to eliminate “non-essential consulting contracts” with 10 large firms: Deloitte, Accenture Federal Services, General Dynamics IT, Booz Allen Hamilton, Leidos, Guidehouse, HII Mission Technologies, Science Applications International, CGI Federal and IBM.
In the memo, first reported by NextGov, Ehikian wrote that “not enough action has been taken” by federal agencies to cut down on contracts with those consultants. Ehikian directed senior officials at the agencies to provide a list of contracts they are eliminating by March 7, as well as written explanations for why non-canceled contracts with those firms are essential to keep in place.
NOTUS reached out to these 10 companies for comment. GDIT and HII Mission Technologies declined to comment. A spokesperson for Leidos said in a statement to NOTUS: “We strongly support the goal of creating a dramatically more efficient and effective federal government that costs taxpayers less money. Delivering innovations that do that is core to our mission. We’re now bringing even more new ideas to our customers to further improve the value Americans receive from the government.” The other companies did not respond.
GSA and the White House did not respond to requests for comment.
Top large contractors that largely provide defense technology and services, like Boeing and Lockheed Martin, were not named as targets in the memo. But multiple of the named firms are among the largest government contractors, setting up the possibility for a large shift in who the key players of contracting are.
If these large firms depart or hold fewer contracts going forward, small businesses could move into the contracting landscape more easily, said Chelsea Meggitt, a consultant who runs a firm that aims to help small and mid-sized businesses win federal contracts.
Though the pace at which the federal government is acquiring contracts has slowed significantly, Meggitt said, contracting is still happening.
“I see a lot of these large, high dollar value prime contracts that some of the bigger contractors hold being essentially divided up into different sets of requirements, and contracted out in the future as smaller individual requirements that small businesses will much more confidently be able to approach and pursue for bidding and winning,” she told NOTUS.
Small businesses aren’t completely shielded from changes. The New York Times reported that DOGE’s contract cancellations have trickled down to small businesses that subcontracted with large firms that held federal contracts.
The Trump administration’s crackdown on diversity, equity and inclusion efforts could also push out contractors who decide not to comply with presidential directives. Pre-Trump, contractors were required to take diversity, equity and inclusion into account after a 1965 executive order that mandated nondiscrimination in all types of government employment.
Large contractors — including some named in Ehikian’s memo — have recently rolled back diversity, equity and inclusion efforts, citing Trump administration executive orders that call for an end to DEI in the federal government. Booz Allen Hamilton said in a statement that it will comply with executive orders and canceled its sponsorship for a global pride event, and Accenture’s CEO said in an internal memo that the company is getting rid of DEI in hiring.
But other companies that held or hold federal contracts have resisted pressure to scrap diversity, equity and inclusion. JPMorgan, for instance — which holds a contract with the Treasury Department for account validation services — affirmed its commitment to outreach programs that target underrepresented groups. Apple has also procured multiple federal awards and its shareholders recently rejected a proposal to roll back DEI programs.
—
Shifra Dayak is a NOTUS reporter and an Allbritton Journalism Institute fellow.