Government pacing toward increased IT contract spending despite DOGE cuts

Despite a change in presidential administrations and a host of new initiatives under President Donald Trump, including the cost-cutting Department of Government Efficiency, the federal government appears to be on track to spend a record amount on IT contracts in fiscal 2025.

With only three weeks remaining until the close of the federal government’s fiscal year, federal agencies are pacing toward spending nearly $50 billion on IT contracts in Q4 alone — a record amount for any quarter — according to John Slye, senior advisory research analyst at Deltek.

Slye authored a July blog post suggesting that, based on a “conservative outlook” of the top 20 agencies spending 90% of what they did in fiscal 2024 for the remainder of fiscal 2025, “they will have nearly $49B to spend in Q4 alone.”

If agencies reach or exceed that estimate, Slye told Nextgov/FCW the federal government would continue the recent trend of year-over-year growth in contracted IT spending.

“I would guess we’ll probably push $130 billion for the entire year, even with all the adjustments and tweaks,” he said. In fiscal 2024, all agencies spent $126 billion on IT contracts — up from $120 billion in fiscal 2023.

Should those numbers hold, the government would eclipse last year’s total IT spend despite dramatic actions taken by DOGE, which boasts $206 billion in estimated savings from cut contracts on its Wall of Receipts and its crusade against consultancies, though the actual savings have been disputed.

“We are just not seeing a dramatic downshift in spending,” Slye said.

A few drivers could push more IT contract spending to the fourth quarter, including the passage of multiple continuing resolutions in the lead-up to the final, full-year CR in March, at the end of the government’s second quarter. Agencies generally wait on big spending items or punt them altogether until they have an approved budget.

In addition, Congress passed the Big, Beautiful Bill Act in early July — at the beginning of the fourth quarter — injecting billions more in appropriations largely to the Homeland Security Department and other law enforcement agencies. While it’s unclear how much of that money will go to IT contracts, some argue contracting officers and acquisition officials may have challenges trying to spend it.

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“With the Big, Beautiful Bill Act, they’re going to have an absorptive capacity issue,” said Stephanie Kostro, president of the Professional Services Council, a trade association that represents more than 400 companies that serve federal agencies. “They’re getting saturated with funding at [Customs and Border Protection] and [Immigration and Customs Enforcement], so we’re encouraging our contractors to work with their customers to highlight what is in the realm of the possible.”

Kostro’s assessment of available federal spending data through the third quarter of fiscal 2025 for civilian agencies and second quarter fiscal 2025 for the Defense Department — which has a 90-day reporting lag in the Federal Data Procurement System — isn’t as rosy as Slye’s, especially regarding civilian agencies. After the second quarter of fiscal 2025, both defense and civilian spending were up 4% from fiscal 2024, largely due to IT services, as contracts for IT products cratered by 11%.

“But when you start to unpack it and look at what happened in the civilian agencies versus defense agencies, the picture is very different,” she said. “For obligations for civilian agencies, what we have seen year over year is an 11% decrease in contract spending from FY 2024 to FY 2025. If you look at the first three quarters, there is a decrement of 7% in services and 37% in products.”

Kostro also pointed to high vacancy rates for contracting officers across major federal agencies as another factor that could slow spending.

Some agencies, she said, are approaching vacancy rates of 40% for acquisition officials. Contracting officers were not immune from actions taken by DOGE, which included large-scale federal workforce reductions totaling more than 148,000 personnel. In normal years, the fourth quarter is a hellaciously busy time for contracting officers. This year, fewer contracting officers in government will be trying to dole out as much obligated money as ever.

“If you look at an agency, the worst-case scenario now is they have a 40% vacancy rate,” Kostro said, noting remaining contracting officers are doing 40% more work at year’s end. “The work has to get done, right? And just because the seat next to you is empty doesn’t mean the work is.”

The skinny on fiscal 2026

The Trump administration’s 2026 budget outline indicates a 13% increase in defense spending and a 23% reduction in civilian non-discretionary spending.

According to GovTribe, DOD seeks $13.4 billion for autonomy and AI systems; $200 million for general AI and automation technology and more than $16 billion in cybersecurity. DOD also seeks $150 million for modernization of its legacy systems. 

But Congress is still racing against the clock to pass a full fiscal 2026 budget by Sept. 30, and most draft budget bills have yet to make it out of committee. According to Politico, the White House asked Congress to punt on the upcoming government shutdown deadline until Jan. 31. That move is likely to hold back most significant IT spending in the interim.

The third option — missing the deadline and shutting down the government until lawmakers can come to an agreement — would have even greater impacts on agencies’ IT spending.