Last year, a contracting firm known as Leidos generated over $16 billion in revenue, much of it coming from contracts with federal bodies like the Department of Veterans Affairs.
When budget cuts were proposed by the Trump administration aimed at the V.A. recently, it was concerning not only for the department’s staff but also for private companies like Leidos. The V.A. secretary, Doug Collins, voiced a strong stance against the need for consultants for tasks such as creating PowerPoint presentations and writing meeting minutes, announcing that the department was set to cancel over 850 contracts worth around $2 billion.
Yet, not long after Collins made this announcement, there was a change in the landscape for some V.A. contractors. The department decided to put a hold on the cancellations, stating they needed to reassess the contracts to ensure there wouldn’t be any negative impacts on benefits or services provided to veterans. Consequently, the list of canceled contracts was reduced by several hundred.
Experts in government contracting suggested that the department’s staff cuts – aiming to reduce by 80,000 from a workforce of about 480,000 – might lead to increased contract spending. Eliminating positions while maintaining essential services like healthcare and veteran benefits – services where Leidos plays a significant role – often shifts responsibility to contractors.
Stan Soloway, a former Defense Department official under President Clinton who led a government contractor trade group, pointed out, “If you’re reducing employees but not the mission, you have to depend more on other sources to fulfill the work.”
Brandon Ver Velde, a spokesperson for Leidos, emphasized their support for creating a more efficient government that costs less in taxes, stating that delivering necessary innovations is central to Leidos’s mission.
Despite the uncertain climate initiated by President Trump and Elon Musk, head of the government efficiency initiative, the specialized realm of federal contractors like Leidos isn’t completely insulated from these unpredictabilities.
Following the presidential election, stocks of publicly traded contractors such as Leidos and Booz Allen Hamilton dropped sharply as Trump and Musk’s intentions to scale back agency roles became clear. However, a memo soon emerged from the acting General Services Administration head, urging heads of federal agencies to scrutinize contracts considered nonessential and to justify those they deemed necessary.
Subsequent communications identified the top 10 consulting firms poised to earn over $65 billion in fees, urging a review of contracts slated for termination or continuation. Among these was Leidos, although a slight softening of the stance was observed following discussions with executive contractors. An official from the G.S.A. later expressed value in partnerships that aim to curtail excessive spending while retaining essential services.
Analysts remain optimistic about the future prospects of companies engaged in federal contracts. Scott Mikus from Melius Research noted that although contractors might face short-term disruptions and uncertainty, the long-term outlook appears positive. Wells Fargo’s equity analyst, Matthew Akers, remarked on the few large contracts canceled, questioning whether redundancies in funding had been missed if easier cuts were possible.
Leidos exemplifies this dynamic adjustment well. Established by a nuclear physicist in 1969, the firm initially focused on studying nuclear weapon effects for the federal government. Over time, it ventured into healthcare by obtaining contracts to study radiation treatments. Profiting from federal workforce reductions under the Clinton administration and subsequent increases in private reliance under George W. Bush, Leidos, originally named Science Applications Inc., went public in 2006 and rebranded in 2013. The company has since expanded significantly in scope.
Leidos now produces diverse offerings, including airport scanners and guided missiles, cyber capabilities, intelligence services, and manages both veteran medical exams and a federally funded cancer research lab, employing thousands. Such an extensive portfolio benefits from Leidos’s deep understanding of the intricate and prolonged federal contract acquisition processes.
Robert Guerra, with decades of experience in senior positions at federal contracting firms, underscored the importance of mastering the entire procurement process for successful contract management.
Leidos, which employs nearly 50,000 people last year, yielded over $16 billion in revenue and approximately $1.25 billion in profit. The overwhelming majority of its revenue comes directly or indirectly from federal contracts, with connections to the Pentagon and U.S. intelligence accounts making up about half of the revenue.
Although they face potential exposure to cuts on the civil side, Leidos continues pursuing advantageous opportunities amid Trump administration priorities, with emerging contracts reflecting potential growth areas.
Peter Kasperowicz, a V.A. representative, affirmed the agency’s commitment to redirect billions toward reducing backlogs and enhancing care by canceling or creating contracts as necessary.
Nonetheless, assuming stability will return to pre-election federal contracting days may be premature. The economics of federal business, traditionally offering steady revenues but lower margins, might shift amid government unpredictability.
Mr. Guerra suggested the industry’s resilience through even harsher past challenges, like the Obama-era spending reductions and Snowden’s leaks, highlights its robustness. Despite Boop Allen’s initial stock drop post-Snowden revelations, shares rebounded significantly soon after, illustrating contractor adaptability.
