The General Services Administration is running out of patience with the top government consulting firms.
In a strongly worded letter sent to all 10 firms, GSA warned them to provide better data and more specifics for cost savings and contract terminations — or risk the consequences.
“GSA and our partner agencies have thoroughly reviewed your consulting spending scorecard submitted at the end of March. We were unanimously unimpressed with the submissions that we received and cost savings that were identified,” wrote Josh Gruenbaum, the commissioner of the Federal Acquisition Service at GSA, in the letter obtained by Federal News Network. “The efforts to propose meaningful cost savings were wholly insufficient to the point of being insulting.”
GSA is giving the top 10 firms until Friday to resubmit suggestions to terminate contracts, particularly those at agencies that aren’t GSA. It is also offering ideas for possible approaches to restructure contracts to be share-in-savings, outcome based and to include a proposal for “windfall credits.”
GSA identified the firms in February and told them to review all their contracts across government and suggest which ones are non-essential and should be terminated.
The firms include:
- Accenture Federal Services
- Booz Allen Hamilton
- CGI Federal
- Deloitte Consulting
- General Dynamics IT
- Guidehouse
- HII Mission Technologies
- IBM
- Leidos
- SAIC
Emails to several firms seeking comment were either not returned or they declined to comment.
“There were a number of reasons why their responses were disappointing. It wasn’t just GSA, but partner agencies who also reviewed the scorecards, felt this way,” said a GSA employee familiar with the effort, who requested anonymity because they didn’t get permission to speak to the press. “There were instances where they didn’t include any contracts not held by GSA. Other instances were where firms would’ve sent a contract up to be terminated and the period of performance would end in two months. Others offered cost savings that were more general ideas to be more efficient, but not actually talking about current contracts that they held could be terminated or using artificial intelligence to make services less expensive but they didn’t really offer any cost savings. We have made it clear that the administration believes agencies are spending too much money on vague, never ending contracts tagged as consulting, and consistent with every other action to reduce federal spending and end, what the administration terms as, wasteful spending. The firms didn’t talk to that.”
The employee added some vendors submissions were definitely better than others, but none would’ve received an “A” grade.
Surprised by GSA’s tone
Industry experts who reviewed the letter, but would only speak on anonymity because of concerns about the impact on their companies, were surprised and taken aback by both the tone of the letter and what GSA is asking for.
“It’s clear the letter was written by people without a deep understanding of how the government contracts for goods and services,” said a procurement attorney, who is familiar with letters and didn’t have permission to talk to press. “I was surprised by tone of the letter because it assumes guilt on the contractors. It fails to acknowledge that agencies awarded the contracts, which at the time of the award they determined the prices were fair and reasonable as were the negotiated terms and conditions. It seems like GSA is telling the companies to pay a penalty before determining if they even are guilty of something. They are assuming the companies did something wrong even though they did exactly what the government told them to do.”
Experts say two areas specifically stand out in the letter.
First, GSA is asking the companies to suggest contracts that are “non-essential.” The second is the idea of giving agency customers “credits” or a “rebate.”
“There is more cost to take out, whether in whole or in part, and we expect a more transparent, credible and good faith representation of these opportunities. Please do not include any contracts that might be expiring within the next six months or are no longer active,” Gruenbaum wrote. “Our partner agencies will be taking immediate action to end the cases of wasteful spending identified. Accordingly, please anticipate termination for convenience notices on the identified items.”
The GSA employee emphasized that it’s the partner agencies who will make the final decision of whether to terminate or change these contracts, not GSA.
The GSA employee said that in line with this review, agencies are going through their consulting contract inventory and terminating non-essential contracts.
The employee added that agencies were asked to review and categorize their contracts as “essential,” “non-essential” or “needing further discussion.” Firms were asked to identify all contracts tagged as consulting that they held with federal agencies.
Agencies should be the deciders
The procurement lawyer said GSA’s approach is backwards in the sense they are asking industry to decide what services an agency can live without instead of the agency deciding.
“To do this work well, it requires the requirements holders to be at the table and be integral part of the conversation. The fact that contractors are not being encouraged to coordinate their responses with their customer is concerning,” the lawyer said. “For a contractor to propose cuts to a program when it doesn’t have the same understanding of the agency’s mission requirements risks undermining their client’s missions and also puts them in place to make inherently governmental determinations that they are not empowered or authorized to make.”
Another industry official said while contractors should be prepared to figure out how to provide the government with better costs, agencies must also be prepared for changes.
“It’s also important to realize that most of these projects are scoped to the labor hour — there’s just not a lot of slack. If the government wants these firms to reduce their costs, they’re going to likely have to reduce their level of effort, or perhaps take a loss on projects,” the official said. “That’s sustainable for only a short period of time and then they’ll have to make a decision about whether or not working for the federal government remains a good investment.”
The idea of credits is another part of the request that has drawn questions and criticisms.
Gruenbaum told agencies that there is a “shocking increase in consulting spending that occurred through the Biden-Harris administration [and] we will be expecting a ‘credit’ going forward for the benefit of the taxpayer. Your firms should proactively deliver credible credit proposals or discounts that appropriately reflect unduly inflated compound annual growth rate (CAGR) of the past four years.”
Gartner defines CAGR as the annualized average rate of revenue growth between two given years, assuming growth takes place at an exponentially compounded rate.
Data from market research firm Deltek, however, doesn’t support the Gruenbaum’s claim that there was an extraordinary growth in spending on consulting contracts over the last four years.
Between fiscal 2016 to 2024, based on the NAICS codes for consulting contracts, agencies increased spending from $17 billion to $24 billion, basically $3 billion increase during the first Trump administration and the same amount during the Biden administration.
The GSA employee said that in addition to total spending, agencies are looking at the firm’s CAGR itself. The person said some firms saw a 20% or higher rate of compound growth where GSA believes more respectable and typical growth is 4% to 5%.
“This administration feels that the increase in revenue over the last four years was just unacceptable. We are expecting credible credit proposals or discounts that appropriately reflect the unduly inflated CAGR of the past four years.” the person said.
Limit to lengths of future contracts
The lawyer compared the request of credits to a settlement for a lawsuit, but in this case there was no wrongdoing or even settlement.
“This request is nothing I’ve ever seen before,” the lawyer said. “The closest thing I could compare it to is a rebate, but that has to go back to specific program and it would have to be allocated to that program as required under FAR 31 201-5. If the allegation is that the company didn’t overbill the government, but that they just made too much money, I’m not sure how do you do that? It’s a creative and unique approach that no one understands what the legal basis is, what are the practical implications and how it would be even calculated. If companies were doing things that the government thought it got a good deal on so why was it bad for companies to grow? Isn’t this what we want in the economy since majority of companies do work in public and private sectors?”
Going forward, GSA told vendors to expect significant changes to consulting contracts — including that no contract should have a term longer than three years.
Gruenbaum also told these companies if they don’t think creatively and provide “taxpayer friendly pricing” and “dramatic cost reductions,” they should expect agencies to cancel their contracts and recompete them to their competitors.
This too concerned experts who said this feels like a veiled threat to “get with the program or be shut out.”
The lawyer said it feels like GSA or agencies would create a “black list” of contractors, which is a de facto suspension or debarment without due process.
“They are suggesting your contract will be awarded to someone who is not you even if you come back with the best price or best value to the taxpayer,” the lawyer said. “The threat seems to be it will go to someone else who did better on this exercise.”
The GSA employee pushed back against any idea of the government threatening companies.
“The administration is not saying these firms don’t have value. But if they want to benefit from taxpayer dollars, there is a shared responsibility to be better stewards of those dollars and they need to be a part of what the administration is trying to do to reduce the debt and the deficit,” the person said. “The old way of talking about it is not what we are trying to do anymore. Firms need to be invested in the idea that the shared goal is fixing the country’s finances. We all have to work together to bring down the debt and deficit for the country.”
The employee said GSA doesn’t have a specific goal in terms of dollars saved or number of contracts to cancel. Rather, the goal is to review every contract and decide if it’s “wasteful” or “poorly set up,” and either cancel the contract or make them more outcome based.
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