The True Cost of Contract Cancellations: When DOGE's "Savings" Aren't Really Savings
Since its establishment in January 2025, the Department of Government Efficiency (DOGE) has made headlines with bold claims of billions in cost savings through federal contract cancellations. DOGE's "Wall of Receipts" prominently displays these purported savings, with the department recently claiming over $65 billion in total savings across various initiatives.
However, a closer examination of these claims reveals a more complex reality. Independent analyses suggest that a significant portion of these "savings" may be illusory, raising important questions for contractors, agencies, and taxpayers about the true impact of DOGE's aggressive contract termination strategy.
The 40% Problem: Already Obligated Funds
The most striking revelation from recent analyses is that approximately 40% of contracts canceled by DOGE won't actually save the government any money. Why? Because the funds for these contracts have already been fully obligated, meaning the government has a legal requirement to spend this money regardless of cancellation.
As one expert colorfully described it, canceling these contracts is like "confiscating used ammunition after it's been shot when there's nothing left in it." The government has already committed to these expenditures through legally binding contracts, and cancellation doesn't eliminate the obligation to pay.
The Math Behind the Claims
DOGE's public statements suggest billions in savings from contract cancellations, but independent analyses paint a different picture:
DOGE initially claimed $16.5 billion in savings from contract cancellations on its "Wall of Receipts"
After correcting an apparent $8 billion clerical error, this was reduced to approximately $8.5 billion
Further analysis found that only about $2-2.3 billion in maximum potential savings could be verified through federal contracting data
This dramatic gap between claimed and verified savings raises serious questions about the methodology used to calculate these numbers.
Types of Misleading "Savings"
Several factors contribute to the inflated savings claims:
1. Ceiling Value vs. Actual Spend
Many of DOGE's calculations appear to be based on the maximum ceiling value of contracts rather than actual planned expenditures. For example, a $10 million contract that would have only utilized $2 million might be counted as a full $10 million in "savings," even though the remaining $8 million was never going to be spent.
2. Blanket Purchase Agreements (BPAs)
A significant number of the terminated "contracts" are actually Blanket Purchase Agreements (BPAs), which function more like lines of credit than actual spending commitments. These represent potential rather than actual spending, and canceling them doesn't necessarily result in any immediate savings.
NBC News identified more than 60 listed "contracts" that were clearly labeled as BPAs on the DOGE site, with a combined value exceeding $1 billion. Counting these as direct savings significantly inflates the total.
3. Contract Close-out Costs
When a contract is terminated for convenience, the government must still cover certain costs, including:
Work already performed
Profit on completed work
Settlement expenses
Costs associated with terminating subcontracts
These termination costs can substantially reduce or even eliminate any potential savings, yet they don't appear to be factored into DOGE's calculations.
The Hidden Costs of Contract Cancellations
Beyond the direct financial implications, contract cancellations carry additional costs that aren't reflected in DOGE's accounting:
1. Mission Impact
Many canceled contracts supported important agency functions. For example, contracts for research studies, data analysis, and technology modernization were designed to improve government operations. Their cancellation may lead to decreased efficiency or effectiveness in agency operations.
2. Workforce and Knowledge Loss
When contracts end prematurely, institutional knowledge and specialized expertise can be lost. Federal agencies often rely on contractors for continuity and specialized skills that may not exist within the government workforce.
3. Procurement Process Waste
The federal procurement process is resource-intensive. When contracts are canceled and then similar services need to be reprocured, the government essentially pays twice for the procurement process.
4. Legal and Administrative Burden
Processing thousands of contract terminations creates significant administrative work for agencies already dealing with potential workforce reductions. Some contractors may also challenge terminations, creating additional legal expenses.
Case Studies in Questionable Savings
Contract Type: Already-Obligated Administrative Support
A Department of Housing and Urban Development contract to purchase and install office furniture at various branches was canceled despite the fact that the agency had already agreed to spend the maximum $567,809 with a furniture company. This cancellation provided no actual savings to taxpayers.
Contract Type: Transition Support
A $249,600 contract with a Washington, D.C. firm to help prepare the Department of Transportation for the transition from the Biden to Trump administration was canceled after the funds had already been spent. Again, this resulted in zero actual savings.
Contract Type: Agency Reorganization
A $13.6 million contract with Deloitte Consulting LLP to help carry out a reorganization at the CDC's National Center for Immunization and Respiratory Diseases was terminated despite the fact that the maximum amount had already been obligated. This cancellation provided no savings and potentially disrupted important organizational improvements.
What This Means for Contractors
For federal contractors, understanding the reality behind DOGE's savings claims has important implications:
Contract Status Matters: Contractors with funds that have already been obligated may have stronger legal positions regarding payment.
Documentation Is Critical: Maintaining detailed records of all work performed, deliverables submitted, and communications will be essential if disputes arise.
Prepare for Renegotiation: Even terminated contracts may be replaced with new, potentially renegotiated agreements as agencies determine which functions are truly essential.
Diversify Contract Types: Contracts directly supporting core agency missions appear less likely to be terminated, making them potentially safer bets in the current environment.
Conclusion
While improving government efficiency and eliminating wasteful spending are laudable goals, the current approach to contract cancellations appears to be yielding far less in actual savings than DOGE has claimed. By cutting contracts with already-obligated funds, targeting BPAs rather than actual expenditures, and failing to account for termination costs, the initiative may be creating a misleading impression of its impact on government spending.
For contractors, agencies, and policymakers, a more nuanced understanding of these realities is essential for navigating the changing federal procurement landscape. True efficiency in government spending requires thoughtful analysis of both costs and benefits—not just of continuing contracts, but of terminating them as well.
