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Donald Trump’s administration is threatening to terminate hundreds of billions of dollars’ worth of consulting contracts, after finding US firms’ proposals for savings to be “insulting”.
In a letter being sent to 10 large consulting groups this week, a copy of which was seen by the Financial Times, the US government accuses the firms of “faulty reasoning, financial obfuscations and gamesmanship” in their discussions with the administration, and threatens to “recompete” long-standing deals.
Firms including Accenture, Deloitte, IBM and Booz Allen Hamilton were asked last month to identify savings in a “consultant spend review” launched by the General Services Administration, which helps co-ordinate government procurement.
While early submissions were deemed encouraging, “what started becoming very apparent was that this was a game of . . . financial sleight of hand,” said Josh Gruenbaum, the Trump-appointed commissioner of the Federal Acquisition Service, the GSA division overseeing the effort. “There was also a fair amount of finger pointing,” he told the FT on Wednesday.
One firm initially identified only $10mn in savings, a GSA official said, and several proposed no “immediate termination opportunities” — prompting this week’s follow-up letter.
“In good faith, and with high expectations, we offered firms the opportunity to join us in reducing wasteful spending and do their part in addressing the twin issues of the federal debt and deficit,” the letter, signed by Gruenbaum, reads. “The efforts to propose meaningful cost savings were wholly insufficient, to the point of being insulting.”
Several firms had offered to cut back US government contracts, limit price rises and shift to performance-based fees. One group claimed the long-term savings could add up to $12bn in its case.
But line items for “services” or “call centre support”, billed at tens of millions of dollars each, were left wholly untouched by some firms in the review, the official said.
All 10 groups now face a 5pm April 18 deadline to identify more savings, restructure contracts to “outcome-based” or “shared-savings” models, and offer the federal government a “credit” for what the GSA deems to have been past excessive revenue. In particular, some firms reported a double-digit compound annual growth rate over the past four years, the official noted, an increase the person called “eye-popping”.
The GSA will also expect no contract to “have a term longer than three years”, according to the letter.
“Consulting firms that do not think creatively, lean into developing taxpayer-friendly pricing and provide dramatic cost reductions can expect to have their projects terminated and recompeted to competitors,” according to the letter.
The agency could rely on “termination for convenience” clauses to do so, the GSA official said, and in some cases point to the lack of delivery of services paid for.
But Gruenbaum also stressed there would be opportunities for firms that comply with the renewed requests. “There’s going to be one or two of these companies that get it right, and say, ‘we’re going do this correctly, and we’re going to make a trade on margin and on prohibitive pricing and be a trusted partner for government’, and they will be rewarded for that,” he said.
Treasury secretary Scott Bessent singled out Booz Allen Hamilton in a podcast last month as one of the companies involved in “grift”, and predicted reducing government contractors would be one of the administration’s biggest savings.
Booz Allen on Wednesday said it “welcomes the challenge to drive better value” for US taxpayers. “We are engaged in good faith in a much-needed process to assist the government in increasing efficiencies. We look forward to demonstrating our capabilities to the administration,” it added.
The latest salvo in the Trump administration’s quarrel with the consultancies comes as Elon Musk’s so-called Department of Government Efficiency (Doge) — which is separate, but aligned with GSA — calls attention to what it sees as egregious spending on support services.
In the past few days, Doge has claimed to have cancelled millions of dollars’ worth in contracts, including some for “global advisory and support services” for the Republic of Palau in the Micronesia region, for “aviation advisers in Kenya” and for “marketing consulting services outreach and engagement support services”.
