Pentagon slashes $5.1bn in contracts, drops Accenture and Deloitte in sweeping defense shake-up

In a sweeping move reflecting growing scrutiny over federal spending, the U.S. Department of Defense has terminated a series of high-value contracts totalling $5.1 billion, targeting consulting and IT services provided by major firms including Accenture, Deloitte, and Booz Allen Hamilton. The decision was ordered by U.S. Defense Secretary Pete Hegseth, who characterised the contracts as examples of “wasteful spending” and part of broader efforts to reallocate defense funds toward military readiness and essential capabilities.

The terminated agreements include contracts supporting a range of administrative, consulting, and technology roles across different branches of the U.S. military. This includes a $1.8 billion Defense Health Agency contract for external advisory services and a $1.4 billion agreement with the Air Force for third-party cloud-based IT support that, according to Hegseth, could be managed using existing in-house procurement tools.

The Department of Defense has stated that these cancellations are expected to deliver approximately $4 billion in savings. While this figure falls short of the contracts’ total face value, it reflects what officials described as a recalibration of internal versus external resource allocation — favouring the existing civilian workforce and government procurement systems over outsourcing to high-cost consulting giants.

What types of contracts are being cancelled by the U.S. Department of Defense?

According to the memo issued by Secretary Hegseth, the canceled contracts span multiple service areas considered “non-essential,” including those related to diversity, equity and inclusion (DEI), climate response programmes, and pandemic-era support services. Eleven separate consulting contracts were scrapped under this categorisation, on grounds that their functions could be either in-sourced or deprioritised amid evolving defense needs.

Also cut was a key Air Force contract involving Accenture’s resale of enterprise cloud IT services, a deal Hegseth described as unnecessary duplication, since equivalent services could be procured directly by the Department using existing procurement infrastructure. The implication is that the Department no longer sees value in paying a premium to firms for serving as intermediaries between the government and software or cloud vendors.

This is not the first time such federal cost-cutting actions have made headlines. In March 2025, Hegseth had already announced the cancellation of over $580 million worth of grants and contracts that were flagged by the Department of Government Efficiency (DOGE), a task force founded to identify redundant or unnecessary expenditures across federal agencies.

What is DOGE, and how is Elon Musk involved in these contract terminations?

The cost-cutting push is closely linked to DOGE — the Department of Government Efficiency — a special initiative that has gained prominence under the influence of Elon Musk. DOGE was created as a watchdog group with a mandate to audit federal departments and recommend cuts that would streamline operations and eliminate inefficiencies. The group has reportedly played a pivotal role in advising the Pentagon on which contracts to end.

DOGE co-founder and former co-leader Vivek Ramaswamy departed from the initiative in January 2025, but Musk remains its most visible backer. In a November 2024 op-ed co-written by Musk and Ramaswamy in The Wall Street Journal, the pair criticised the Pentagon’s sprawling $841 billion annual budget and its persistent failure to pass financial audits. The agency has now failed seven consecutive audits, raising ongoing concerns over transparency and fiscal discipline within the defense establishment.

In a public video shared on X, Hegseth credited DOGE for helping uncover layers of what he described as bureaucratic bloat within the Pentagon’s procurement system. He suggested that the funding freed up by terminating these consulting deals would be better used to provide health services for military personnel and their families, rather than paying what he referred to as “$500 an hour business process consultants.”

How are consulting giants like Accenture and Deloitte reacting to the Pentagon’s decision?

As of April 11, 2025, representatives for Accenture, Deloitte, and Booz Allen Hamilton have not publicly responded to the contract cancellations. However, the financial markets reacted swiftly. Accenture’s stock dropped approximately 7% in the days following the Pentagon’s announcement, reflecting investor concern over lost revenue and potential reputational impact. Booz Allen Hamilton saw a smaller decline of around 2.4%, while Deloitte, being privately held, has not had stock movement but was reportedly impacted by 127 federal contracts either cancelled or modified since the DOGE campaign began.

The reductions are not just a financial blow — they represent a significant shift in how the federal government is approaching public-private collaboration. For decades, these firms have built expansive business models around servicing federal agencies with expertise in digital transformation, data analytics, and operational consulting. With key contracts now abruptly cancelled, these firms may be forced to reassess their reliance on government revenues.

What does this shift mean for the future of defense spending and military strategy?

The implications of these cancellations stretch beyond cost-savings. They signal a reorientation of Pentagon priorities away from administrative and policy-advisory functions and back toward what Secretary Hegseth has framed as the “warrior ethos.” In his remarks, Hegseth said the reallocated funds would support military readiness, deter adversaries, and enhance combat effectiveness — although he did not offer specific details about where the money would be redirected.

This aligns with recent geopolitical shifts and the U.S. administration’s more hawkish stance toward potential military confrontations, including increasing tensions with China. Analysts suggest that this reallocation of funds reflects an urgency to refocus defense capabilities and support frontline services amid what some policymakers see as a looming period of strategic competition and technological warfare.

There are also political undertones. Hegseth’s actions align with the Trump administration’s broader push for administrative downsizing, bureaucratic simplification, and fiscal realignment. President Trump has consistently criticised excessive federal contracts and foreign aid spending, and Hegseth’s memo appears consistent with the administration’s philosophy of limited government and reasserted national defense.

Is there historical precedent for large-scale Pentagon contract cancellations?

The Pentagon’s relationship with consulting firms has long been marked by cycles of expansion and scrutiny. In the aftermath of the Iraq and Afghanistan wars, private sector contractors experienced a boom in federal engagements, particularly in logistics, intelligence, and advisory capacities. However, periods of budget tightening — such as the sequestration policies of the early 2010s — have periodically led to similar cutbacks, albeit less dramatically than the current round of DOGE-guided terminations.

The difference today lies in the framing. By publicly targeting consulting fees and outsourcing practices, the Department of Defense is sending a message not just about fiscal prudence, but about cultural recalibration — moving away from management consultants and back toward internal capacity-building within the defense ecosystem.

What does this mean for taxpayers and federal contracting practices going forward?

From a taxpayer perspective, the promise of $4 billion in projected savings may offer some reassurance that federal defense dollars are being refocused on core military functions. Yet the long-term efficacy of such abrupt in-sourcing remains to be seen. Critics warn that the government may face operational disruptions as it attempts to absorb complex roles previously handled by specialised external vendors.

For federal contractors, the Pentagon’s move may set a precedent that could ripple across other government agencies, especially as DOGE expands its influence. The reevaluation of public-private contracts could signal a broader shift in how government work is awarded and monitored, particularly in areas such as cloud computing, data management, and strategic consulting — fields where private firms have typically enjoyed strong demand.