Defense Secretary Pete Hegseth has announced sweeping budget cuts across the Department of Defense totaling $5.1 billion, potentially creating significant disruption for major consulting firms that rely heavily on government contracts. The cuts, part of the Department of Government Efficiency (DOGE) initiative aimed at reducing “non-essential spending,” are shifting many services from external contractors to civilian DoD employees as a cost-saving measure.
Three Firms Feeling the Sting
Three consulting giants — Deloitte, Accenture (ACN), and Booz Allen Hamilton (BAH) — look to bear the brunt of these cuts.
Deloitte has lost 129 contracts worth $371.8 million, primarily in IT services and consulting for the Defense Health Agency (DHA). These losses represent a significant portion of Deloitte’s government consulting business, which accounts for approximately 10% of its total revenue.
Accenture’s losses include 30 contracts, the most notable being a $1.4 billion enterprise cloud IT services agreement with the Air Force. After the announcement, the CEO acknowledged the negative impact on sales and revenue projections.
Booz Allen Hamilton appears to be the hardest hit, given its heavy reliance on government work. The firm lost $345 million in contracts with the DHA and other services. With approximately 40% of its revenue coming from DoD contracts.
Forced to Adapt
These consulting powerhouses will likely take immediate steps to weather the storm. For instance, workforce reductions have already begun, with Deloitte announcing “modest personnel actions” in its Government and Public Services division. Accenture has tightened policies around employee “bench time,” reducing the period workers can remain unstaffed between projects.
Further, price concessions are being offered across the board, with the companies proposing significant cost reductions in their federal contracts. Booz Allen alone has identified over $1 billion in potential savings through price concessions and operational efficiencies.
Finally, strategic pivoting is underway as all three firms have identified the need to reallocate resources toward private sector clients. Deloitte is looking to leverage its growing software division, which works with major corporations like Amazon and Walmart. Accenture is already diversifying internationally to reduce its reliance on U.S. government contracts. Booz Allen is targeting shifting focus to higher-value, mission-critical work, such as cybersecurity and AI integration.
Industry-Wide Implications
These budget cuts signal a broader shift in the federal consulting landscape. Elon Musk’s DOGE efforts have been targeted at cutting $1 trillion from the government’s budget (though he has since backed off that number), while the General Services Administration is increasing scrutiny of consulting firms’ pricing models, potentially leading to lower profit margins on future government contracts.
As these industry leaders navigate this transition, it will likely set a precedent for how the consulting industry approaches federal contracts moving forward, with a greater emphasis on cost efficiency and demonstrable value. For investors, that may translate to lower earnings and a potential reset of stock valuations.