The $1.5B Shake-Up in Federal Consulting – What’s Next?

Transcription:

Hello and welcome to the special episode of Strategy Simplified. Namaan here with some breaking news.

Earlier this week, the General Services Administration, this is the procurement arm of the US federal government, announced $1.5 billion in spending cuts from consulting contracts.And so these are large consulting firms that rely on U.S. federal government contracts for much of their revenue.

They are under the microscope and at least $1.5 billion in immediate cuts have been identified from these top 10 consulting firms.

Now, Guidehouse and Deloitte were by far the biggest firms who were hit and impacted negatively by this activity.

So as you can see here, if you're watching this on YouTube or if you're watching the video version of the podcast, the government extracted over $375,000,000 in savings from Guidehouse and about $372 million in savings from Deloitte.

Now, what's interesting to note here is that Deloitte had over twice the amount of contracts

cancelled or affected than Guidehouse did.

And so this gives us some insight into the price per engagement at Guidehouse versus Deloitte.

It also gives us some insight into the types of work that Deloitte might have been doing for the government versus Guidehouse, some work that was probably billed at a lower hourly rate because it was maybe less specialized or being done at non core cabinet level agencies.

Now, according to reporting at the Financial Times, Deloitte has lost more contracts than what you see here. Every round of review and spending cuts that has been done across agencies, it seems like Deloitte has lost contracts across the federal government as the administration continues to root out spending that it sees as excessive and wasteful.

And so you can see here some of the other firms that were affected, Accenture, specifically the federal practice inside of Accenture, $240 million worth of contracts that were affected. Booz Allen Hamilton, $207 million worth of contracts that were affected.

Why this is such a big deal for Booz is that 97% of the revenue comes from government consulting, and so a lot of these other firms are more diversified than Booz Allen Hamilton.

So even though they're losing a bigger piece of the pie in terms of revenue, this effects Booz Allen Hamilton more in terms of their business than any of the other firms.

From there you've got General Dynamics, Lados and IBM, who are also affected, but to a smaller degree than Guidehouse, Deloitte, Accenture and Booz.

Now, beyond the spending cuts that have been identified here that negatively affect consulting

firms, there's another major shift that's happening. And this is what that shift is.

Consulting firms are offering to cut back additional contracts proactively to negotiate in good faith with DOGE and the GSA. They're also offering to forego price changes. And when I say that, what I mean is they are offering to forego price raises that have been written into multi year contracts and they are also shifting to performance based compensation.

So there's a big shift happening at the macro level in terms of how government and federal and

public sector consulting is done.

And so you're moving away from, you know, an hourly billable model more to a performance based compensation model, which is going to have big impacts on how much money the government spends on consulting.

It's going to have big impacts on, of course, how these projects are structured. It's going to have impacts on how consultants are compensated. And it's also going to have impacts on on the speed and the pace of work in terms of how quickly the projects begin, how quickly the projects make it through different stage gates and milestones and how firm structure them to deliver quick wins to the federal government so that they can start to get paid on some of the work that they're doing.

So more to come on that, you know, as we see exactly how firms kind of reorient and restructure their project teams and their project approaches in a performance based compensation world.

But this is a bigger shift than just some contracts being cut.

It's a fundamental reordering of how consulting firms do business with the US government. And that has implications not just for these firms, but also for those of you who are in federal consulting or want to go into federal consulting.

Now, the Financial Times also reported that firms are taking this opportunity, this dialogue, this

back and forth with the federal government to also make recommendations on how the government can continue to extract cost savings and efficiencies from their consulting relationships.

And what they're doing is they're making recommendations that they know would hurt their

competitors.

So the gloves have come off, if you will.

You know, if I'm a large consulting firm that does business with the US government and I know how some of my competitors work with the US government, I'm starting to make recommendations that are going to negatively affect my competitors if the US government decides to accept and implement those recommendations.

So firms aren't just being magnanimous. They're not just making some of these concessions, you know, because they care about the federal deficit.

They're not even also just making these concessions to protect their own business. They're also making some of these recommendations to hurt their competitors.

So we're, we're seeing a shift away from the consulting industry, kind of speaking as one,

operating as one to firms really openly look undercutting their competition, at least in the public sector space.

More to come on this as we have it. But I wanted to bring you this breaking news now #1 so you're aware of what's happening in the consulting space and #2 for my candidates out there, so you know which practices and which firms are being affected by what's happening in the landscape right now.

And so you can choose accordingly your target firms and where you decide to recruit.

That's all for me for now.

If you want to get this kind of breaking news in your inbox, subscribe to the Management Consulted newsletter, follow along on Managementconsulted.com.

And of course, we'll continue to bring you the latest and greatest breaking news right here on

Strategy Simplified.

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