In Fiscal Year 2020, the Department of Defense (DOD) spent about $439 billion on contracts, more than 60% of its spending for the year. It accounts for about two-thirds of all government contracts.[1]

But for the last 30 years, the Government Accountability Office (GAO) has criticized the department’s handling of those contracts. The GAO has pointed out the department is improperly using contractors for essential government work. It has also admonished the DOD for insufficient oversight into whether companies receiving government contracts are based in the US or not.

What is a defense contract?

A defense contract is an agreement for a contractor to provide supplies or services to a sub-agency of the DOD.[2]

In defense policy, a contractor can be either a private company or a civilian. Military service members, DOD career employees, and civilian political appointees are not considered defense contractors.

Defense contractors often play a major role overseas, where they provide deployed troops with services such as language interpretation, perimeter security, weapon systems maintenance, and supervision of other contractors. During past US military operations in Iraq and Afghanistan, they have often made up 50% or more of the entire DOD presence, including military personnel.

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Why does the Pentagon use contractors so much?

A report from the Congressional Research Service says the DOD started using contractors more after the end of the Cold War. Many federal agencies increased the use of private companies to do government work around this time.

There isn’t consensus on whether this was a positive or negative development for the Pentagon, according to the report. On the positive side, using contractors can free up DOD personnel for military specific work, bring in experts in fields like linguistics, and provide an influx of support staff on short notice. On the negative side, unchecked reliance on contractors can result in weakened military operations, a misuse of funds, and excessive spending.

How much does the Department of Defense spend on contracts?

The Department of Defense spends more on contracting than any other federal agency. The Pentagon spent $714 billion in 2020, and about $439 billon or 61.5% of that was through private contracts.

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How does the Pentagon monitor its contracts and contractors?

For the last 30 years, the GAO included the Department of Defense on its High Risk list of federal programs that are “vulnerable to fraud, waste, abuse, and mismanagement.”

To be removed from the High Risk List, the DOD must provide a more comprehensive way to assess security threats from military contracts for overseas operations, improve how contractors are included in planning and training, and better identify what contractors can or cannot do effectively, among other recommendations.

In recent years, the GAO reported specific examples of contract mismanagement at the Pentagon.

In 2016, the GAO found that the DOD outsourced “inherently governmental functions” such as management support services and then underreported contract spending in these areas by $17.2 billion.

In 2018, the GAO scrutinized the DOD’s own understanding of the contracting process. It reported that the DOD lacked consistent knowledge of the time it takes to award a defense contract. Therefore, it had no baseline with which to define an ideal contract-awarding time frame. In response, the DOD mandated in 2019 that sub-agencies disclose milestones[3] in the contract awarding process for defense procurements that are over $250 million.

In 2019, the GAO found multiple examples of fraud in the granting of military contracts. Some examples include parent companies using shell companies to inflate the price of a contract through false competition, companies winning contracts they were ineligible to receive, and foreign companies obtaining sensitive information through US-based shell companies. In the 2019 report, the GAO recommended the Pentagon do more thorough investigations into the ownership and eligibility of potential contractors. The DOD started doing this in 2022.

For more information on defense spending, visit the defense section in the USAFacts State of the Union in Numbers report.

Department of Defense Contractor and Troop Levels in Afghanistan and Iraq: 2007-2020
A Snapshot of Government-Wide Contracting For FY 2020 (infographic)
[1]

Examples of milestones include the contractor‘s completion of a technical evaluation and the conclusion of negotiations between the government and the contractor.

[2]

The Code of Federal Regulations defines a contract as “a mutually binding legal relationship obligating the seller to furnish the supplies or services... and the buyer to pay for them.” For a defense contract, the buyer would be a sub-agency of the Department of Defense, while the seller would be the contractor.

[3]

According to a Government Accountability report from 2019.