“DoD has become very much over reliant on management consultants and contractors,” Pete Hegseth said.

The Pentagon is cracking down on IT consulting and management services contracts as it seeks to reduce reliance on outside firms and increase its in-house capabilities.

In a May 27 memo, Defense Secretary Pete Hegseth directed Pentagon leadership, combatant commanders and DoD agency and field activity directors not to execute new IT consulting or management services contracts or task orders with integrators or consultants unless they first justify that the work cannot be performed in-house or acquired directly from a service provider.

Hegseth said that the Air Force, in a partnership with billionaire Elon Musk’s Department of Government Efficiency, cut the service’s largest management consulting program — a line by line audit of over 50 contract vehicles saved $1 billion in spending and canceled a $3.8 billion extension of that program.

“The Defense Department has become very much over reliant on management consultants and contractors. We found that we likely have more contractors than we have civilian employees and many of them, those contractors, are making more money than our career senior executive employees,” Hegseth said on social media platform X.

Before executing a new IT consulting and management services contract or task order with an integrator or consultant, DoD components must first get approval from the deputy secretary of Defense. To get that approval, DoD components must submit a cost-benefit analysis, evidence that alternatives were evaluated and justification that the work cannot be done in-house or purchased from a direct service provider.

“Merely reclassifying integrator or consultant contracts to avoid the requirement to evade review is prohibited,” Hegseth said in the memo. “The Under Secretary of Defense for Acquisition and Sustainment will monitor compliance and any contracts or task orders identified may be subject to termination.”

The under secretary of Defense for acquisition and sustainment will also review existing IT consulting or management services contracts or task orders for “viability and alternatives under the above guidance.”

Contracts that directly support weapon system programs or have a total value under $10 million in total value are excluded from this requirement and do not require approval from the deputy secretary of defense.

The memo also limits the Defense Department’s ability to award new “advisory and assistance” contracts or task orders for “consulting, advising, assisting or any professional services performing similar functions” without deputy secretary of Defense approval. Hegseth said DoD components must leverage in-house expertise and existing DoD capabilities before pursuing external consulting, advisory or assistance contracts.

Contracts for systems engineering and technical assistance that support systems architecture, systems engineering, acquisition program management and sustainment services when in support of major defense acquisition programs are excluded from this requirement. Any contract or task order with a total value, including options, under $1 million are exempted as well.

Hegseth has also directed DoD components to prioritize the use of civilian employees over contractors for functions like analytical research, administrative support, human resources, IT, training and education, compliance and reporting.

Under this new guidance, contractors can only be used if the role is determined to be not inherently governmental; no existing employee has the skills or capacity to perform those functions; the organization cannot address the gap through hiring, training or technology; and more cost-effective options like consolidating contracts with General Services Administration contracting mechanisms are not viable.

DoD components are required to submit quarterly reports beginning June 30, detailing civilian and contractor full-time equivalent positions by job category and location and efforts to hire, train or resource the department to maximize civilian workforce productivity through technology and skills training. The report will also include a cost analysis comparing civilian versus contractor costs when employed in similar job functions.

The new memo comes after Hegseth cut several IT services contracts that he said could be handled by the department’s civilian workforce or fulfilled directly with existing procurement resources.

At the time, Hegseth said, the contracts “represented non-essential spending on third party consultants,” and that the work could be “more efficiently performed by the highly skilled members of our DoD workforce using existing resources.”

The memo also comes as the Defense Department continues its effort to shrink the size of its civilian workforce by 8%.

“The services and products supplied to the Department of Defense by the private sector represent the most advanced technologies that can support the warfighter and mission-critical priorities. Our companies also provide unrivaled subject matter expertise that, when leveraged in partnership with their government colleagues, can lead to efficient, effective and agile operations across the Defense enterprise. From small to large, federal contractors deliver best-in-class results and innovative solutions at the speed of relevance. We look forward to continuing our valued partnership with Secretary Hegseth and the U.S. Department of Defense as they implement these new policies,” Stephanie Kostro, acting president of the Professional Services Council, told Federal News Network.