Washington’s government consulting giants are facing an existential threat as the Trump administration — bolstered by Elon Musk’s Department of Government Efficiency (DOGE) — moves to slash “nonessential” federal contracts.
The federal government spends hundreds of billions annually on consulting firms that provide everything from IT infrastructure to policy analysis and management support — an industry deeply embedded in Washington’s operations. The Trump administration’s recent overtures to review and potentially terminate billions in contracts threatens to upend that system, forcing agencies to justify their outsourcing decisions and placing firms that rely on federal dollars in serious peril.
While contractors warn the prospective cuts could disrupt essential government functions, supporters of DOGE see them as a long-overdue correction to wasteful spending.
“The question is, what’s in it for the taxpayers, not what’s in it for anyone who works for or provides services for the government,” Thomas Schatz, president of Citizens Against Government Waste (CAGW), a nonprofit watchdog group, told the Daily Caller News Foundation. “Taxpayers pay. Taxpayers fund the government, and what DOGE is trying to do is make sure that money is spent effectively.”
DOGE has now saved taxpayers over $1 billion in crazy DEI contracts https://t.co/P81LgRKeOV
— Elon Musk (@elonmusk) January 31, 2025
Panic set in across Washington’s consulting class after the General Services Administration (GSA) issued a directive last week instructing agencies to identify and justify their most expensive consulting contracts — or prepare to cancel them. The memo, obtained by The Wall Street Journal, puts ten of the highest-paid consulting firms under immediate scrutiny, including Booz Allen Hamilton, Deloitte, Guidehouse, IBM and others, which are collectively projected to receive over $65 billion in federal fees in the coming years, the memo estimates.
The move has sent executives scrambling. In recent days, top consulting firm leaders — including those from Ernst & Young and Guidehouse — have sought urgent meetings with Josh Gruenbaum, the Federal Acquisition Service commissioner, to argue for their continued role in government operations, the outlet separately reported Sunday. A Booz Allen executive is also reportedly in contact with Gruenbaum — underscoring the industry’s rising anxiety as Musk and Trump move to cork its spigot of federal dollars.
“The government has grown dramatically,” Schatz noted, pointing to record federal expenditures in recent years. Indeed, total federal spending surged by roughly $2 trillion between 2019 and 2023, climbing to levels about $2 trillion higher than before the COVID-19 pandemic, according to the Cato Institute.
Contracted services have been a major growth area in that spending. Federal agencies spent $478 billion in services (from management consulting to IT support) in fiscal 2023, compared to $281 billion on tangible products, the GAO reported — a steady rise in service contracting over the past two decades. The Pentagon accounts for nearly half of those service contracts, about $230 billion that year.
Booz Allen alone generates 98% of its roughly $11 billion in annual revenue from U.S. government contracts, according to SEC filings, and since Trump’s victory in November, the firm’s stock price has plunged over 30%. Similar concerns are rippling through other contractors — Leidos receives 87% of its revenue from government contracts, while others firms, like Accenture, are insulated from existential danger by their diversified client bases.
#BoozAllen CEO Horacio Rozanski joined @CNBCClosingBell to discuss why speed remains the most critical element in America’s national security — and how Booz Allen is building, partnering, and investing in advanced technology to achieve outcomes faster. https://t.co/wvd6cXAOVJ
— Booz Allen Hamilton (@BoozAllen) February 5, 2025
Despite the apparent consultant stress, Schatz argued that cutting these contracts may not be as simple as it seems.
“We don’t know, and taxpayers don’t know, and there is no single place to make that determination,” he said, pointing to the lack of a centralized system tracking which consulting agreements are essential or redundant. Until DOGE builds such a system, he said, agencies will be relying on fragmented records to justify or terminate contracts.
Legal barriers could also complicate the administration’s effort to cancel contracts outright.
“Whether a contract can be cancelled depends on the terms of the contract,” Schatz said. “Under the 1974 Budget Act, the president can’t cancel money that Congress appropriated. Only Congress can cancel that money.”
Despite the looming consulting crisis, Booz Allen’s leadership insists it can weather the storm. CEO Horacio Rozanski said the firm has endured many presidential transitions and says that its work aligns with the Trump administration’s priorities, though he acknowledged the potential for “disruption.”
“We recognize that in the short term there could be some disruption to the market, but in the long term we are really well aligned,” Rozanski said in an interview with The Wall Street Journal. He argued that if Washington wants to operate with fewer federal employees, it will need to “operate with technology that works. And our stuff works.”
Similarly, IBM — another firm singled out by GSA — defended its federal services as crucial to making the government more efficient. A company spokeswoman told Federal News Network that IBM has helped agencies “streamline operations, increase efficiency and deliver better return on taxpayer dollars.”
The Trump administration, however, appears unconvinced that all such contracts are worthwhile. Last week’s GSA directly reportedly instructed agencies to demonstrate why each consulting contract was not only valuable, but “mission critical” — otherwise they face termination. What exactly counts as “mission critical” remains an open question that has left contractors on edge.
“There’s a lot of questions,” Stan Soloway, former president of the Professional Services Council, told The Wall Street Journal. He said firms are scrambling to meet with White House officials to argue for the value of their services. “A lot of these companies are doing serious technology work. Now they don’t even know what the next six months or year might hold. Nothing disturbs a market more than uncertainty.”
The historical parallels are not lost on spending watchdogs. Schatz pointed to President Ronald Reagan’s 1984 Grace Commission, the last comprehensive private-sector review of federal operations. Reagan implemented many of its recommendations, achieving over $100 billion in savings, and the commission ultimately led to lasting reforms like the creation of agency chief financial officers, he explained. Citizens Against Government Waste — the group Schatz leads — was founded in the aftermath of the Grace Commission to push for the implementation of similar measures.
After four decades without a similarly thorough federal spending review, Schatz sees Musk’s DOGE as the Grace Commission’s successor. “It is long past time for this to occur again,” he said. From his perspective, Trump and Musk are forcing agencies to justify each outsourced project, hoping they can trim the fat of a bloated government.
“From the broader perspective … this is a long overdue effort,” Schatz said.
Booz Allen Hamilton, Ernst & Young, Guidehouse, IBM and GSA officials did not respond to the DCNF’s requests for comment.
Featured Image Credit: Gage Skidmore from Peoria, AZ, United States of America
