The $755 Billion Market With a Completion Problem: Federal Contracting Inefficiencies Over 20 Years

Over the past two decades, the federal government has built one of the largest and most resilient contractor markets in the world. In fiscal year 2024 alone, federal procurement obligations reached approximately $755 billion, continuing a steady upward trend from roughly $550 billion in 2018. This growth underscores a critical reality: federal contracting is not a marginal activity—it is central to how the government operates.

Yet despite its scale and importance, federal contracting continues to face persistent inefficiencies, particularly in how contracts are executed and completed. These inefficiencies are not new. Reports from the U.S. Government Accountability Office (GAO) and other oversight bodies show that many of the same issues identified in the early 2000s remain unresolved today.

A Growing Market With Structural Friction

Federal contracting has expanded significantly, especially following the COVID-19 pandemic, which accelerated spending in defense, healthcare, and information technology. However, growth in spending has not been matched by equivalent improvements in contract execution.

The core issue is not demand—agencies continue to rely heavily on contractors—but rather the effectiveness of contract management across the lifecycle: from planning and award to oversight and closeout.

The Most Persistent Inefficiencies

1. Schedule Delays and Cost Overruns

One of the most consistent findings across GAO reports is the prevalence of schedule delays and cost growth, particularly in defense and IT projects. For decades, federal IT investments have struggled with missed deadlines and budget overruns, often delivering reduced functionality or outdated capabilities.

Defense programs show similar patterns. For example, modernization efforts for the F-35 fighter jet have experienced billions in cost increases and multi-year delays. These outcomes are frequently tied to unclear requirements, evolving project scope, and insufficient early-stage planning.

2. Contract Closeout Backlogs

Even after work is completed, many federal contracts remain administratively open for years. This “closeout backlog” creates financial risk, ties up funds, and reduces transparency.

A key contributor has been delays in auditing contractor costs. In some cases, audits have taken years to begin, slowing the entire closeout process. Despite ongoing reform efforts, multiple agencies continue to report significant backlogs and weak closeout controls.

3. Inefficient Contract Structures

Certain contract types, particularly time-and-materials and labor-hour agreements, have been flagged as higher risk. These structures reimburse contractors based on time worked rather than outcomes delivered, reducing incentives for efficiency.

Between 2017 and 2021, the federal government obligated approximately $139 billion under these contract types. While they are sometimes necessary, especially when requirements are uncertain, they are consistently associated with weaker cost control.

4. Limited Competition in Some Awards

Competition is a key driver of efficiency, but not all federal contracts achieve it. Some awards receive only a single bid, even when classified as competitive. This reduces pricing pressure and limits alternatives if performance issues arise.

Over time, GAO has identified this as an ongoing concern, particularly in specialized or highly technical procurement areas.

5. Workforce and Oversight Gaps

Finally, many inefficiencies stem from internal capacity challenges within government agencies. Effective contracting requires skilled acquisition professionals, accurate cost estimation, and strong oversight mechanisms.

However, agencies have repeatedly reported shortages in qualified personnel and gaps in technical expertise. These limitations can lead to poorly defined requirements, weak contractor oversight, and ultimately, delays and cost increases.

The Bigger Insight

The evidence from the past 20 years points to a clear conclusion: federal contracting inefficiency is not primarily about whether the government uses contractors—it is about how contracts are designed, managed, and completed.

Despite reforms and modernization efforts, the same structural challenges continue to appear across agencies and sectors. This suggests that meaningful improvement will require not just policy changes, but sustained investment in acquisition strategy, workforce capability, and accountability systems.

Conclusion

Federal contracting will remain a cornerstone of government operations for the foreseeable future. The market is too large and too embedded to change direction dramatically. However, the persistence of execution inefficiencies presents both a challenge and an opportunity.

Improving contract outcomes—reducing delays, controlling costs, and accelerating closeouts—could unlock significant value without reducing overall spending. For policymakers, contractors, and stakeholders alike, the focus should shift from how much the government spends to how effectively those dollars are delivered.

Works Cited

U.S. Government Accountability Office. Federal Contracting: Opportunities Exist to Improve Transparency of Defense Contract Actions. GAO, 2010.https://www.gao.gov/products/gao-10-833

U.S. Government Accountability Office. Federal Contract Closeout: DOD Has Made Progress but Needs to Address Challenges to Ensure Timely Closeout of Contracts. GAO-17-738, 2017.https://www.gao.gov/products/gao-17-738

U.S. Government Accountability Office. Trends in Federal Contracting. GAO, 2017.https://www.gao.gov/blog/2017/07/12/trends-in-federal-contracting

U.S. Government Accountability Office. Time-and-Materials Contracts: Actions Needed to Ensure Effective Use. GAO-22-104806, 2022.https://www.gao.gov/assets/gao-22-104806.pdf

U.S. Government Accountability Office. Defense Acquisitions: Annual Assessment of Major Weapon Programs. GAO, 2025.https://www.gao.gov/products/gao-25-107632

U.S. Government Accountability Office. High-Risk Series: Dedicated Leadership Needed to Address Limited Progress in Most High-Risk Areas. GAO-25-107743, 2025.https://www.gao.gov/products/gao-25-107743

U.S. Government Accountability Office. Information Technology: Federal Agencies Need to Address Persistent Challenges. GAO-25-107852, 2025.https://www.gao.gov/products/gao-25-107852

U.S. Government Accountability Office. Federal Contracting Snapshot (FY2018–FY2024). GAO, 2025.https://www.gao.gov/products/gao-25-107469

U.S. Department of Agriculture, Office of Inspector General. Controls Over Contract Closeout Need Improvement. Audit Report 03601-0003-41, 2020.https://usdaoig.oversight.gov/sites/default/files/reports/2025-09/03601-0003-41FR508.pdf

U.S. Government Accountability Office. F-35 Joint Strike Fighter: Cost, Schedule, and Performance Issues. GAO, 2025.https://www.gao.gov/products/gao-25-107632

U.S. Government Accountability Office. National Science Foundation: Project Management and Construction Delays. GAO, 2026.https://www.gao.gov