DOGE Impact on Defense Contractors: What the Cost Efficiency Push Means for Your Business in 2026
The Department of Government Efficiency -- DOGE -- has reshaped the federal contracting landscape more rapidly and more broadly than any single initiative in recent memory. In its first year of operation, DOGE has driven thousands of contract terminations, introduced new approval layers for consulting and IT services, and embedded cost-efficiency review processes across every major defense agency. For defense contractors, the question is no longer whether DOGE will affect your business. It already has. The question is how you position your organization to navigate the disruption and capture the opportunities that consolidation inevitably creates.
This is not a political analysis. It is a practical guide for defense contractors and GovCon professionals who need to understand what has changed, what is still changing, and what concrete steps will protect existing contracts while opening doors to new ones. Whether you run a small business with a handful of DoD task orders or a mid-tier firm with a diversified federal portfolio, the DOGE cost efficiency push touches your operations, your pricing, your compliance posture, and your growth trajectory.
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Understanding the DOGE Framework: Executive Orders and Authority
Before diving into tactical responses, it is worth understanding the legal architecture that gives DOGE its authority over federal contracting. Two executive orders form the foundation, and several agency-level memoranda implement their directives.
Executive Order 14222: The Cost Efficiency Initiative
Issued on February 26, 2025, Executive Order 14222 directs every federal agency head to undertake three actions:
- Build a centralized payment tracking system that records every payment issued under covered contracts and grants, along with a written justification from the approving employee. These justifications must be publicly posted where practical.
- Review all existing contracts and grants and, where appropriate, terminate or renegotiate them to reduce spending or reallocate resources toward administration priorities.
- Conduct a comprehensive review of contracting policies, procedures, and personnel within 30 days. During this review period, agencies cannot issue new contracting officer warrants unless the agency head determines it necessary.
The scope is broad: "covered contracts and grants" includes all discretionary spending through federal contracts, grants, loans, and related instruments. The order explicitly excludes expenditures related to the military, intelligence community, law enforcement, and public safety -- a carve-out that gives defense contractors a degree of insulation that civilian-sector contractors do not have.
That insulation is partial. The DoD has voluntarily adopted many of the same review processes. The Secretary of Defense issued a May 2025 memorandum directing implementation of EO 14222 across the department, applying cost-efficiency review requirements even to contracts that technically fall under the military exclusion.
Executive Order 14265: Defense Acquisition Modernization
Executive Order 14265 targets the defense acquisition system specifically, with four priorities:
- Acquisition process reform: Streamlining procurement to accelerate adoption of advanced technologies and prioritize commercial solutions.
- Acquisition workforce reform: Reducing the size of the acquisition workforce to match streamlined processes and retraining remaining personnel.
- Deregulation: Reviewing and eliminating unnecessary DoD procurement regulations and duplicative requirements.
- Program review: A comprehensive review of all Major Defense Acquisition Programs (MDAPs), completed by July 2025, followed by reviews of all other major systems.
For contractors, EO 14265 is a double-edged sword. Streamlined acquisition processes and deregulation could reduce barriers to entry and accelerate contract awards. But workforce reductions in the acquisition community mean fewer contracting officers, longer review cycles, and less institutional knowledge on the government side -- which puts more burden on contractors to submit clean, well-documented proposals.
Understanding both of these executive orders is essential context for everything that follows. If you are building your broader compliance and operational framework, our secure operations guide covers the full picture.
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The Contract Review Waves: What Has Happened So Far
DOGE's impact on federal contracting has arrived in distinct waves, each expanding in scope and specificity.
Wave 1: Broad Contract Terminations (February - May 2025)
The initial wave was the most visible and the most disruptive. Between February and May 2025, DOGE reported over 13,400 contract termination actions and more than 15,800 grant terminations. The claimed savings figures -- approximately $61 billion in contract savings and $49 billion in grant savings -- have been widely disputed. Independent analysis found that nearly 40% of cancelled contracts were expected to produce no actual savings, as many were already completed, had minimal remaining obligations, or were terminated for convenience with settlement costs that offset the savings.
Within the Department of Defense specifically, this wave resulted in 5,232 termination actions totaling more than $482 million in de-obligated funds. Secretary Hegseth announced the cancellation of more than $580 million in contracts and grants that did not align with administration priorities, including:
- An HR software project that was eight years behind schedule and $280 million over budget
- Approximately $350 million in grants, including funding for naval decarbonization research
- $30 million in IT consulting contracts with Gartner and McKinsey
Wave 2: IT and Advisory Services Approval Process (June - August 2025)
The second wave shifted from terminations to gatekeeping. A June 2025 DoD memorandum established a new approval process requiring DOGE review for:
- IT consulting and management services (ITC&MS) contracts over $10 million
- Advisory and assistance services (A&AS) contracts over $1 million
Every submission must include deliverable descriptions, total potential cost, estimated initial obligation, a cost-benefit analysis, evidence that alternatives were evaluated, and justification that the work cannot be performed in-house. The DoD also announced intermittent compliance reviews, with noncompliant awards subject to termination.
This wave hit professional services firms hardest. Companies like Booz Allen Hamilton reported expecting low-double-digit contraction in civilian-sourced revenue in FY2026. The requirement to prove that work "cannot be done in-house" placed a new burden of justification on services that agencies had previously procured without that level of scrutiny.
Wave 3: Small Business and 8(a) Reviews (January 2026)
The most recent wave landed in January 2026, when the Secretary of Defense issued a memorandum expanding reviews of all DoD small business set-aside contracts over $20 million. Framed as a crackdown on "illegal pass-through schemes," the review required:
- An initial assessment by January 31, 2026
- A detailed compliance audit by February 28, 2026
This wave specifically targets contracts awarded under the 8(a) program, HUBZone preferences, and other small business set-aside categories. The compressed timeline -- roughly six weeks from announcement to detailed audit -- created enormous pressure on small businesses and their prime contractor partners.
The concern within the small business community is significant. According to termination data, 61% of contract termination actions by count targeted small business contracts, with $354.4 million de-obligated from small business awards. Whether the 8(a) review will result in further terminations or primarily serve as an audit mechanism remains to be seen, but contractors should prepare for both outcomes.
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Defense vs. Civilian: The Two-Track Impact
One of the most important distinctions for GovCon professionals to understand is that DOGE's impact has been sharply divided between defense and civilian sectors.
Civilian Sector: Deep Cuts
Civilian agencies have borne the brunt of DOGE's contract terminations and spending reductions. The FY2026 budget proposes a 23% reduction in civilian non-discretionary spending. Agencies like HHS, EPA, USAID, and the Department of Education have seen sweeping contract cancellations, grant terminations, and workforce reductions. Contractors with significant civilian agency exposure -- particularly in IT services, consulting, and program management -- have experienced revenue declines.
Defense Sector: Targeted Efficiency, Net Growth
Defense spending tells a different story. The FY2026 budget proposes a 13% increase in overall defense spending, even as it embeds $11.1 billion in DOGE-driven "efficiencies." The defense budget documents show these efficiencies breaking down by service:
| Service Branch | DOGE Efficiency Cuts | Workforce Reduction |
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| Navy (incl. Marine Corps) | ~$3.7 billion | ~3.4% |
| Army | ~$3.2 billion | ~11% |
| Air Force (incl. Space Force) | ~$2.3 billion | ~4% |
| Defense-Wide | ~$1.9 billion | ~3.6% |
| Total | ~$11.1 billion | Varies by component |
The key insight: defense spending is growing, but it is being reallocated. Contracts and programs that cannot demonstrate direct alignment with warfighting capability, national security priorities, or administration policy goals are being cut. The savings are being redirected toward priorities like AI, cybersecurity, missile defense, autonomous systems, and border security.
This creates a bifurcated environment. If your contracts are aligned with priority areas, the DOGE era may actually expand your opportunity set. If your work falls into categories now classified as overhead, administrative support, or non-mission-essential services, your contracts face elevated risk regardless of past performance.
For contractors managing compliance-sensitive operations across both defense and civilian portfolios, our CMMC compliance guide remains the essential reference for maintaining certification readiness while navigating these shifts.
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Which Sectors Are Most Affected
Not all defense contracting sectors face the same level of DOGE-related disruption. Based on the termination data, review memos, and budget documents, here is a sector-by-sector assessment.
High Risk: IT Consulting and Management Services
IT consulting is ground zero for DOGE scrutiny. The new approval process specifically targets this category, and the requirement to justify why work cannot be done in-house or by a direct service provider puts traditional body-shop consulting models at a structural disadvantage. Contractors in this space need to demonstrate measurable outcomes, not just staff augmentation.
High Risk: Advisory and Assistance Services
The $1 million threshold for DOGE approval on A&AS contracts captures a vast number of task orders. Strategy consulting, program management support, and organizational development services face the highest risk, particularly when deliverables are difficult to quantify.
Moderate Risk: Professional Services (Non-IT)
Engineering services, logistics support, and technical assistance contracts are less directly targeted but are subject to the broader contract review processes. Contracts with clean performance histories and clear deliverables are better positioned, but all professional services contracts should be reviewed for compliance with the new documentation standards.
Lower Risk: Hardware, Weapons Systems, and Direct Warfighting
Contracts for weapons systems, munitions, platforms, and direct warfighting capability remain the most protected category. The administration's stated priority of military readiness and its 13% defense spending increase provide a strong tailwind. However, even these contracts are subject to MDAP reviews under EO 14265, and programs with significant cost overruns or schedule delays face scrutiny.
Emerging Opportunity: AI, Cybersecurity, and Autonomous Systems
DOGE has explicitly identified AI, cybersecurity, and autonomous systems as priority areas. Cancelled contracts in other sectors are being replaced with new procurements in these areas. Contractors with capabilities in sovereign AI, zero-trust architecture, and autonomous platforms should be actively pursuing these opportunities.
There is an ironic but real opportunity in the efficiency push itself. Agencies need tools to comply with EO 14222's payment tracking and justification requirements. Contractors who can deliver cost optimization platforms, spend analytics, and compliance automation are finding receptive buyers. Understanding your own wrap rate structure is the first step to positioning yourself as a cost-efficiency partner.
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How to Protect Your Existing Contracts
With the review landscape in mind, here are concrete steps to strengthen your position on existing contracts.
1. Conduct a Portfolio Risk Assessment
Map every active contract against the DOGE review criteria. For each contract, assess:
- Alignment with stated administration priorities: Does the work support warfighting, cybersecurity, AI, border security, or other stated priorities?
- Cost-benefit documentation: Can you produce a clear, quantified cost-benefit analysis on demand?
- In-house alternative viability: Could the government reasonably argue that this work could be performed by federal employees or through a more direct procurement?
- Performance metrics: Do you have documented performance data that demonstrates measurable outcomes?
- Contract health: Are there cost overruns, schedule delays, or unresolved disputes that could attract attention?
Contracts that score poorly on multiple criteria should be your immediate focus. Proactive renegotiation or restructuring is almost always preferable to reactive defense during a review.
2. Build Bulletproof Cost-Benefit Documentation
The DOGE review process demands cost-benefit analyses that go beyond what most contractors have historically prepared. Your documentation should include: