Written in collaboration with Public Spend Forum
Written by:
Adrian Leibovitch, Principal - Public Sector, Efficio
Fabian Moreira-Philipps, Principal - Public Sector, Efficio
Matthew Lekstutis, Director - Supply Chain, Efficio
Raj Sharma, Founder & CEO, Public Spend Forum
Jack Kinney, Senior Analyst, Public Spend Forum
The U.S. federal government is pursuing efficiency efforts at breakneck speed, with the critical goal of enhancing government operations, reducing waste, and ensuring taxpayer dollars are used efficiently. These goals align with long-standing private sector best practices, where businesses continuously optimize spending, renegotiate contracts, enhance supplier management, and eliminate inefficiencies across the entire value chain to remain competitive.
While agencies are making rapid progress to reduce costs, there are further opportunities to improve commerciality and drive greater value for the public.
By incorporating proven private equity (PE) strategies, federal agencies can build on their progress and ensure that efficiency gains are data-driven, sustainable, and aligned with mission success.
Knowing that speed of implementation matters, this paper outlines a strategic, structured, and agile approach to government efficiency that draws from the successful financial and operational methodologies used in PE-backed organizations.
Specifically, we focus on five strategies that we believe are most relevant given the federal context and processes in place at the current time (April 1, 2025):
1. Smarter contracting: Disaggregation and renegotiation for better value 2. Avoiding the “gold rush” in September: Encouraging smarter spending 3. Maximizing efficiency through centralized purchasing 4. Renegotiating services contract labor rates 5. Smarter budgeting: Implementing zero-based budgeting (ZBB) for strategic spendingOne of the biggest opportunities for the federal government is to disaggregate large services contracts, which may seem counterintuitive to the typical volume aggregation strategy.
Government contracts often bundle multiple services together under large, long-term agreements, which can lead to inflated costs (“profit-on-profit”), excessive administrative overhead, and reduced flexibility. Many contracts include pass-through services and products, where prime contractors subcontract significant portions of the work – sometimes adding markups of 30-50% or more – without adding value. Disaggregating contracts that combine various services and require niche capabilities allows agencies to unlock significant cost savings while improving service delivery.
PE best practices include assessing the entire spend base to identify contracts and spend that can be eliminated or renegotiated. While volume aggregation is a valid strategy, best practices in category management support renegotiation of larger contracts where value is not optimized.
To start, create a list of high-priority contracts for renegotiation based on spend volume, contract length, and breadth of scopes (large program management contracts are often strong candidates). The General Services Administration is already pursuing a similar strategy in working with larger consulting firms to reduce spending.
Then, assess each contract to identify opportunities, including:
Identify opportunities to negotiate better pass-through rates and secure full transparency. Visibility itself allows for greater control, while setting rate limits can drive efficiencies. Robust cost baselining also supports greater control and transparency, aligning both customers and suppliers on cost drivers in the contract that can be tracked across the lifecycle.
Unbundle contracts so agencies contract directly with niche and specialist providers rather than through costly intermediaries. Prioritize contracts with large pass-through fees without any commensurate value-add. Find opportunities to engage niche contractors, especially technology vendors, through more flexible and easy-to-implement instruments.
Given the status quo approach to bundle contracts most often to reduce burden of setting up multiple contracts, agencies should establish guidelines on when bundling small businesses through large primes makes sense versus when direct contracts with small businesses are preferable. For example, when a niche capability is critical and a prime adds no value, a direct contract may be more effective, especially when streamlined contracting processes such as CSOs are being used.
One of the most persistent inefficiencies in government budgeting is the September “gold rush” – the rush to exhaust allocated funds before the fiscal year ends. Agencies often fear that unspent money will result in reduced budgets the following year, leading to last-minute, low-value spending sprees. A study by the National Bureau of Economic Research found that federal agencies spend nearly five times more in the last week of the fiscal year compared to the weekly average – often on rushed, suboptimal contracts.
Some lessons from PE that can be immediately applied include:
Allow agencies to roll over a portion of unused budgets rather than forcing a spend-it-or-lose-it mentality. While this is limited by the budgeting rules, it is being addressed through the PPE Commission’s ongoing budget reform.
Reward agencies and individuals that achieve efficiency and cost savings and return money back to the treasury without compromising effectiveness.
Encourage strategic purchasing throughout the year through better planning and contract pipeline management. This can be a simple but very effective method for procurement functions to enhance their ability to avoid rushed, inflated contracts.
Federal agencies are commonly decentralized in their purchasing, often buying “indirect spend” products and services separately. This leads to duplicate contracts, inconsistent pricing, missed opportunities to reduce procurement transactions, and an inability to leverage the government’s volume to negotiate better pricing. Even when volume is aggregated, contracts are set up as IDIQ (Indefinite Delivery, Indefinite Quantity) without any volume guarantee, reducing supplier incentive to provide competitive pricing discounts.
PE firms leverage centralized procurement to improve efficiency and reduce costs, especially for “indirect spend” and non-mission-critical goods and services, by:
Shared services organizations, with clear accountability metrics, aggregate demand across business units, providing opportunities to standardize specs and negotiate discounts for large volumes.
By removing unnecessary bottlenecks and paperwork and streamlining contract structure, PE firms aim to “lean out” processes so they can be executed at speed and with efficiency. This reduces the personnel required to execute each transaction or contract.
Centrally managing supplier relationships, especially for the largest vendors, ensures clear metrics for pricing and performance and so allows performance issues to be addressed before they adversely impact an organization’s mission and customers.
The Department of Government Efficiency (DOGE) and the General Services Administration (GSA) are already undertaking critical steps, as directed through recent Executive Orders and announcements, to centralize indirect procurement, with GSA managing contracts for multiple agencies.
Based on our experience working with PE firms, combined with our knowledge of GSA and previous attempts at centralizing government, we recommend several considerations as this work proceeds, including:
Many agencies previously moved away from GSA and formed their own contracting shops due to low customer service ratings, perceived high fees, and contract vehicles that did not meet their needs. Any future centralization to GSA must incorporate shared services best practices, with clear performance metrics and a governance structure comprised of customer agencies. Additionally, the GSA’s fee and staff incentive structures should be re-evaluated.
Create a centralized database of government purchases to track spending patterns, identify savings opportunities, and prevent price inconsistencies.
Reduce excess spending and overspecification of requirements through a coordinated approach to pipeline management. This will also facilitate better planning and efficiencies in both contracting efforts and outcomes.
Leverage scale to negotiate master agreements with key suppliers, gain transparency into pricing, and enforce performance metrics. Implementing real-time tracking tools to ensure vendor compliance.
Identify which areas to leverage small businesses, especially where co-location of services is required. Develop a separate strategy for engaging emerging technology suppliers that bring new innovations to market.
Eliminate non-value-add paperwork and reporting requirements.
Use AI and smart procurement technologies to speed up contract creation, support negotiations, and gain deeper market visibility. We would expect this to cut procurement cycle times by 30-50%, freeing up capacity for more strategic, value-adding endeavors.
Services spending accounts for more than 50% of government contracts. There is significant opportunity to improve the way professional service contracts – from administrative support to strategic consulting to PhDs in material sciences – are managed and negotiated. Through better demand planning, rate card optimization, and establishing strategic buying routes, agencies can save between 8-20% in professional services.
The primary issue lies in how project-based services are negotiated versus “staff augmentation” contracts, where contracted service professionals are effectively working full time for the government. As shown below, a Senior Analyst with the same salary and benefits could have two very different hourly rates depending on the business model and underlying cost structure.
Figure 1: Economics of Professional services
A simple example of a business model
In our experience, the government contract portfolio has an extensive array of contracts, large and small, that should be reviewed and potentially renegotiated. Many contracts use highly skilled staff who are staffed full-time but are still billed at project-based rates. In many of these cases, the government may be paying 30-40% higher fees, sometimes even higher, than would be deemed appropriate, per GAO and IG audits.
Typically, PE firms review all contracts upon acquiring a firm and renegotiate major contracts, knowing some are likely to have unfavorable pricing. As the federal government undertakes similar reviews of its contract portfolio, we recommend the following actions:
While there are thousands of small contracts, identify contracts where staff are essentially working full-time for the agency. Prioritizing based on the number of positions and contract length will help identify those that present the biggest opportunities for cost optimization.
Evaluate aspects such as length of project, staffing, overhead rates, billability, and utilization rates. Based on those parameters, set out strategies for maximizing value out of those contracts by renegotiating fees, re-scoping deliverables, or enhancing supplier management to drive greater visibility and performance.
Determine whether all positions on a contract are still required. In the federal government, large program management contracts are often merged with engineering or IT programs and include a large number of positions (often over 100). Through reorganization and streamlining of these programs, there is often opportunity to not only renegotiate pricing but also the entire scope and number of FTEs.
Traditional government budgeting relies on incremental increases, where agencies receive funding based on previous years’ budgets, with small adjustments. This approach can lead to bloated spending, reduced scrutiny over expenditures, and inefficient resource allocation. Zero-based budgeting (ZBB) offers a smarter alternative, ensuring every dollar is justified based on current needs rather than historical patterns.
PE firms use ZBB to eliminate inefficiencies and drive disciplined financial management by:
Scrap automatic budget rollovers, ensuring spending aligns with strategic priorities.
Redirect resources to programs with measurable value and cut underperforming ones.
Identify redundant costs that add little to no operational benefit.
To improve government financial discipline, DOGE can:
Move from historical allocations to a model in which each program must demonstrate its impact and necessity.
Use spend analytics and AI-driven forecasting to enhance decision-making and efficiency.
Test the model in departments with flexible funding to identify early savings and assess implementation challenges.
Introduce a structured rollout plan to avoid administrative burdens and ensure smooth adoption across agencies.
The urgency for the federal government to reduce spending and improve contracting has never been greater. By drawing on proven strategies from the PE playbook, agencies have a unique opportunity to unlock significant savings, improve procurement effectiveness, and deliver better outcomes for taxpayers. The five strategies outlined – smarter contracting, curbing end-of-year spending surges, centralizing purchasing, renegotiating labor rates, and implementing zero-based budgeting – offer a roadmap for sustainable, data-driven transformation.
These approaches are not theoretical. They are time-tested methods that have delivered measurable results in the private sector as well as the public sector on both sides of the pond. When adapted to the federal context, they can help agencies do more with less, without compromising mission performance. Emerging technologies such as artificial intelligence can further accelerate these gains, enabling smarter procurement, enhanced supplier oversight, and real-time budget visibility.
As the government continues to move at speed toward greater accountability and value creation, embracing these strategies will ensure that every dollar spent drives impact, efficiency, and public trust. Every organization has the opportunity to improve. Before, it was a decision that had to be made. Now, it’s a necessity – or someone else will make the cuts for you.
We have significant hands-on experience supporting public and private sector organizations transform their procurement strategies to deliver measurable results. If you’re looking to unlock additional cost savings while continuing to drive value, contact us to discuss how we can help.
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