The Department of Defense has once again found its villain: the services industry. In a wave of recent administrative actions, billions of dollars’ worth of service contracts — spanning everything from program management to logistics — have been abruptly canceled or withheld. The justification? Efficiency.

Behind the scenes, the newly minted Department of Government Efficiency (DOGE) — reportedly overseen by Elon Musk and his ideologically aligned “DOGE teams” — is pushing a radical rethink of what work belongs in government hands. The services sector, long essential to military readiness and execution, is now being portrayed as fat to be trimmed.

But the commercial world has long known what Washington is just now rediscovering: measuring efficiency is not the same as delivering outcomes. A lower headcount does not mean a stronger team. And cutting service providers, particularly in areas where government has no organic capability, creates fragility, not resilience.

Let’s be clear about what’s at stake.

This isn’t about wasteful overhead. It’s about the backbone of operational and institutional execution:

• SETA (Systems Engineering and Technical Assistance) teams that guide multi-billion dollar programs
• Program management support offices that keep acquisition timelines on track
• “Butts in seats” staff augmentation that fill skill gaps the government can’t hire for quickly enough

These aren’t nice-to-haves — they’re core capabilities. And they’re being gutted.

So why the about-face?

Artificial Intelligence is often cited as a justification for reducing contracted labor — the idea being that software can now replace large swaths of administrative or analytical effort. And to a degree, that’s true: AI can eliminate redundancy, automate workflows, and accelerate decision cycles. But AI doesn’t remove the need for human judgment, mission context, or policy interpretation — it just raises the bar for what service providers must deliver. The winners in this next chapter won’t be the cheapest labor sources, but the firms that integrate technology while elevating outcomes.

The services surge of the post-9/11 era made outsourcing the norm. It allowed DoD to scale rapidly, stay lean on paper, and tap into specialized skills in cyber, IT, and analytics. But politically, services are easy targets. They’re hard to quantify, easy to caricature, and increasingly perceived as bloated middlemen.

Now, with a renewed push to in-source, the question becomes: which services should come back in-house? Theoretically, core functions like contracting, HR, and administrative oversight might make sense. But even that logic falters when the federal workforce is simultaneously under hiring freezes and headcount reduction mandates.

Here’s the hard truth: insourcing is expensive, slow, culturally difficult, and slow to reverse when quick changes in emphasis become necessary.

Building cleared, competent teams inside the government can take years. Meanwhile, the mission continues — often under-resourced and misaligned.

So what happens next?

Expect a few short-term wins for reformers, followed by operational slowdowns, missed deadlines, and urgent workarounds. Congress may not see the impact until FY26 or FY27 budgets or the Government Accountability Office (GAO) reveal cost increases, not savings.

We’ve seen this movie before. The Clinton-era cuts in the ’90s gutted institutional memory. The post-Iraq drawdowns created a scramble for contract reboots. Each time, the pendulum swung back toward the recognition that the federal government simply cannot do it all alone.

So what should service providers — especially small and mid-sized firms — do now?

Three Moves to Make Before the Axe Swings Again:

1. Reassess Your Customer Alignment. Don’t rely on past performance as a predictor of future business. Re-map your buyers, understand their shifting priorities, and identify emerging champions in new policy regimes.
2. Develop a Pivot Playbook. Anticipate disruption. Build pathways into adjacent markets, non-traditional contracts, and contingency services you can deliver without legacy dependencies.
3. Redefine Your Value Around Outcomes, Not Hours. It’s time to drop the “time and materials” mindset. Winning companies don’t just supply labor — they deliver results. The government may be clinging to old models, but that doesn’t mean you should. Position yourself by the value you create, not the time you spend.

In my advisory work, I help firms make this shift: from defending inputs to showcasing outcomes. We map what’s in your control, align capabilities with budget flows, and sharpen the messages that resonate in today’s zero-margin-for-error environment.

The sky isn’t falling. But if you’re still selling hours instead of solutions, the ground shifting under your feet is a tectonic plate.