In a significant move that underscores the ongoing transformation of government contracting, Deloitte LLP is preparing to lay off employees from its government consulting team. This decision is a direct consequence of the Department of Government Efficiency (DOGE), led by Elon Musk, which has been aggressively terminating contracts in an effort to streamline federal spending.
According to an analysis by Fortune, DOGE has eliminated more than 120 contracts with Deloitte, valued at over $1 billion, since the beginning of President Donald Trump’s second term. This includes at least 124 contracts that have been cut or modified, with the largest being a $51 million IT services contract for the Department of Health and Human Services. The agency claims these cuts have saved taxpayers approximately $371.8 million, although some economists warn that these figures may be inflated.
Notably, Deloitte is not alone in facing these challenges. Other major consulting firms have also seen significant cuts. Booz Allen Hamilton had 61 contracts terminated, resulting in an estimated $207.1 million in savings, while Accenture reported 30 contracts cut, totaling $240.2 million. IBM, too, faced losses with 10 contracts worth $34.3 million eliminated. Despite DOGE’s claims of a total savings of $140 billion, Bank of America has pointed out that these figures may not accurately reflect true savings due to unaccounted new contracts and inflated values of canceled ones.
As Deloitte grapples with these losses, the firm’s government and public services practice, which employs over 15,000 people and generates approximately $5.5 billion in revenue, is facing a restructuring. During a recent internal call, Deloitte Consulting CEO Jason Salzetti indicated that the firm would separate a "small percentage" of its employees this month, with the process expected to conclude by the end of April 2025. Employees reported that the mood within the firm has shifted, with growing concerns about job security and future revenue.
In a statement, Jonathan Gandal, a managing director in Deloitte's reputation division, confirmed the layoffs, stating, "We are taking modest personnel actions based on moderating growth in certain areas, our government clients' evolving needs, and low levels of voluntary attrition." However, it remains unclear how many employees will be affected by these layoffs.
The impact of DOGE's stringent measures is being felt across the consulting landscape. The General Services Administration (GSA) has requested that major consulting firms, including Deloitte, submit detailed plans identifying areas to cut costs and eliminate non-essential contracts. This initiative was part of a broader effort that saw the government spend about $759 billion on contracts in fiscal 2023.
These cuts come at a time when the federal government is tightening its budget, and many firms, including Accenture, have reported losses in federal contracts as a result of DOGE's actions. Accenture's Federal Services arm, which accounted for about 8% of its global revenue last year, lost 30 contracts due to the cuts. CEO Julie Spellman Sweet noted that the new administration aims to run the federal government more efficiently, which has led to a slowdown in new procurement actions, negatively impacting sales and revenue.
Oracle, another tech giant, has not escaped unscathed, facing $580 million in cuts to the Department of Defense. Analysts express concern that continued contract reductions could spell trouble for revenues, particularly for companies like Booz Allen Hamilton, which relies heavily on government contracts for its income.
Despite the looming layoffs and contract cuts, executives at Deloitte remain cautiously optimistic about the firm's fiscal health. They expect the current fiscal year, which ends on May 31, 2025, to exceed revenue projections, and performance bonuses are expected to be issued as per standard practice in June. However, employees are bracing for a more restrained bonus outlook for the following year.
As the landscape of government contracting continues to evolve, the uncertainty surrounding these cuts is prompting a "wait-and-see" approach among many firms. Abigail Blanco, an associate professor of economics at the University of Tampa, notes that this cautious strategy may hinder innovation and expansion, stating, "The way that we get economic growth is when people are doing things, and they're trying stuff, and they're expanding their businesses. But adopting this wait-and-see kind of approach, it's stagnant."
The ramifications of DOGE's actions extend beyond immediate layoffs. The broader ecosystem of businesses that support the federal government is also feeling the pressure, as many firms rely on government contracts to fulfill their primary objectives. With the federal government cutting back on spending, firms are being forced to reevaluate their operations and find alternative sources of funding.
As the situation unfolds, it remains to be seen how these drastic measures will reshape the consulting industry. The cuts and layoffs at Deloitte serve as a stark reminder of the challenges facing firms that have long relied on government contracts for stability and growth. As the GSA continues to push for deeper cuts and more transparency in government spending, consulting firms must adapt to a new reality where job security and financial stability are no longer guaranteed.
