It has been a little while since DOGE made big news, but the GSA - General Services Administration - recently made DOGE-style headlines of their own.
In late June, they contacted large consulting firms under contract with the Federal government, trying to figure out what portion of the billions of dollars in planned or ongoing projects really needs to be done, whether any of it could be done internally, and pushing for a move to outcome-based contracts.
Josh Gruenbaum, Commissioner of the Federal Acquisition Service at the GSA, is overseeing the review. He specifically requested “No consultant gobbledygook” when firms respond to detail their existing contracts and explain project pricing structures.
The GSA’s General Savings Ask
According to Morning Brew, Federal agencies spent $500 Billion on consulting contracts from 2019 to 2023. That estimate includes traditional management consulting as well as passthrough spend from value-added resellers (VARs).
The GSA estimates that buying from resellers adds 5-7 percent to their cost, and is eager to establish guidelines for the profit margins any service organization can make working for taxpayers. Responses were expected by July 11th, and the possibility of cancelling contracts or putting them back out to bid has been suggested.
They are asking the firms to categorize each contract as a critical need, an opportunity to reduce the scope of a project or cancel work, or flag projects as middle ground, where more discussion is needed. According to an article in The Wall Street Journal, “At least two firms offered 7% to 10% discounts on their labor costs within existing contracts, while others provided credit proposals of $100 million toward their work.”
This is the second time the GSA has sent out this request. There was also a March deadline to do the same, but the Administration was disappointed in the first round of results, so they are trying again.
Large consulting firms bill four times what they charged the Federal government a decade ago, but it isn’t just a matter of rates going up. The idea is that objective external experts will be able to solve problems that the government can’t fix itself. That premise is now being questioned under a more efficiency-minded Trump Administration… and bolstered by the perception that the Federal government is no more effective now than it was 10 years and 30+ billion dollars ago
AI Brings Efficiency - and Downward Cost Pressure
Unfortunately for consulting firms, Federal cutbacks aren’t happening in isolation. They are also up against challenges - or at least questions - being posed by AI.
Although most big consulting firms are hoping to make money helping companies embed the capabilities of AI in their processes and tech stacks, it serves as a competitor as well. AI can complete analysis in minutes that would have taken teams consultants weeks or even months to do. AI can also create the glossy presentations that have become synonymous with consulting engagements. The added efficiency is a plus, but it puts downward pricing pressure on professional services agreements.
This dynamic reminds me of the transition to cloud based software. While newer companies went straight to the more agile Saas model, existing providers had to adjust from on premise to the cloud, a process that could be cumbersome and costly.
Palantir has emerged as an example of Ai-powered consulting. Co-founded by Peter Thiel, this firm is seeing a surge in business while traditional consulting firms see drops. The private sector is watching this trend with great interest, recognizing that it could change how consulting services work (and how much they cost) going forward.
Until then, however, the Federal government is leading the way, putting pressure on consulting firms to justify their rates in terms of measurable outcomes - with no “consultant gobbledygook” allowed.
