Through a series of directives released last month, Defense Secretary Pete Hegseth has been pushing the department to reduce reliance on outside IT consulting and management services firms and instead increase its in-house capabilities in an effort to reduce waste and improve efficiency.
All new IT and management services contracts worth over $10 million now require approval from the deputy secretary of Defense — DoD components must submit a cost-benefit analysis, evidence that alternatives were evaluated and justification that the work cannot be done in-house or purchased from a direct service provider.
While the secretary said the department “must in-source more expertise and harness the unparalleled talent of existing experts to drive financial efficiency and operational strength,” experts warn it is unlikely these directives will deliver the desired outcomes. They will, however, add more red tape in the process.
The department has a large cadre of contractors providing services, but the question is why does the Defense Department rely so heavily on contractors in the first place?
Stan Soloway, president and CEO of Celero Strategies and federal acquisition expert, said the department’s reliance on contractors stems from decades-long challenges in hiring and retaining technical talent, and no amount of compliance-driven insourcing will fix that without addressing the root problem — changing the department’s approach to human capital.
“It really goes back more than 30 years, as the department began struggling to hire contemporary talent and trying new business models. And then over the next couple of decades, some of it by design, some of it by accident, some of it probably some bad policy decisions — the biggest one, though, being market competition for talent — the department really atrophied a lot of skills. It became very difficult for the department to hire high-end technical talent. They have really good talent, there is just nowhere near enough of it,” Soloway told Federal News Network.
“When you look at advisory and assistance services, IT services, almost by definition, those kinds of contracted services exist because the buyer doesn’t have enough capability organically,” he added.
Andrew Hunter, former assistant secretary of the Air Force for acquisition, technology and logistics, echoed the sentiment, saying the Pentagon’s continued reliance on contractors reflects the limitations of the department’s personnel system to build a large, technically skilled workforce.
“It’s the expertise that you’re paying for. And there are real limits to how much of that expertise you can have inside the government, and our personnel system is not really designed to attract and retain that expertise in large quantities,” Hunter told Federal News Network.
There have been attempts to reduce reliance on government contractors through similar strategies in the past. During the Obama administration, the Pentagon launched an aggressive insourcing initiative in an effort to recapitalize critical skills. In 2009, then-Defense Secretary Robert Gates set the goal of reducing the contractor workforce to the pre-2001 levels and replacing those roles with full-time government employees.
While the effort aimed to cut costs and rebuild in-house expertise, converting contractor roles to federal positions proved to be more expensive than expected. The department struggled to fill technical roles due to competition from the private sector and slow federal hiring process, and the military services grew increasingly frustrated with how the insourcing efforts were going. Soon, the Defense Department acknowledged the initiative wasn’t saving the government money.
“As it turned out, the results there were only modest at best. Most of the insourcing was talent that it didn’t really matter, frankly, if the government performed the work or somebody else did. And that’s because of those dynamics like the market realities and so forth,” Soloway said.
Instead of mandating insourcing as a fix, the focus should be on developing a bold talent management strategy that’s also realistic, Soloway said. That includes evaluating which capabilities are essential to have in-house, which functions are better suited for contractors and what the department can realistically do given its workforce limitations and market conditions.
“So much talent management and planning in the government over the last number of years has really been around how do we recreate what we had as opposed to how do we rethink our workforce requirements, needs and structures in a different environment. Simply saying you have to go through all these exercises and we should bias in favor of insourcing may sound like no big deal — of course you want to think about it that way. My concern is we’re not even asking the right question upfront. The right question up front is, ‘What balance should I be seeking? What can I actually do? Then you build the policies and procedures around it, so I think they’re putting the cart in front of a horse here,” Soloway said.
48 hours to review contracts
Another memo gives the Department of Government Efficiency, a group formed by billionaire Elon Musk, greater influence over Pentagon contracting — all unclassified contracts valued at more than $1 million must now go through DOGE review.
Reviews are to be conducted within two business days — if DOGE does not respond, the submission should be treated as “No comment” and the procurement is allowed to proceed as normal.
There are ways to conduct contractor-versus-civilian reviews, including a process known as A-76 competitions, which allows agencies to determine whether services should be performed in-house or contracted out. The process, however, is long and burdensome.
“That takes time to do that level of analysis, and those 76 competitions are not super quick. So when they say, ‘We’re going to give this a two day review,’ it’s like what are you even reviewing? That’s not enough time to do anything other than see that the thing has come in and decide I want to look at it more or I don’t,” Hunter said.
“Depending on how they apply that screen, if they were to do that, and routinely, everything just got approved after two days, but there were 10% of the time they say, ‘Hey, this one, we want to give a closer look.’ Maybe that would work. Actually, probably 5% would be more realistic. But otherwise, it’s just going to be massively bureaucracy inducing,” he added.
It is also unclear who the DOGE employees are — the Trump administration has not been transparent about much of the group’s operations despite extensive actions they have been carrying out across the government.
“Generally speaking, if I were to try to set up a similar structure like this in DoD, I would want to have pretty seasoned and experienced contracting folks doing the reviews,” Hunter said.
And getting approval from the deputy secretary of Defense to execute new IT consulting and management services contracts over $10 million would simply overwhelm the system.
“There are certainly many structures within DoD where contracts or programs above a certain level need a higher level of review — generally speaking, when contracts approach a billion dollars, they would come to my level. When you talk $10 million, there’s no element of the acquisition system that applies a threshold that low,” Hunter said.
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