How Government Contracts Actually Work
Published: February 2025
Your money, their contracts.
The Money Flow
Every federal contract starts the same way: with your paycheck. Here is the journey your tax dollars take before they land in a contractor's bank account.
Your Paycheck
Federal taxes withheld
IRS
Collects $4.9T/year
Treasury
Holds the money
Congress
Decides who gets what
Agencies
97 federal agencies
Contractors
Private companies paid to deliver
Six handoffs before a dollar does anything useful. At every step, someone takes a cut — administrative overhead, compliance costs, lobbying influence.
How a Contract Gets Awarded
1. The Solicitation
An agency posts a request — "we need X." This is supposed to be public and competitive. In practice, solicitations are often written so specifically that only one or two companies could possibly qualify.
2. The Bidding
Companies submit proposals. Evaluations happen behind closed doors. The Government Accountability Office receives thousands of bid protests every year from companies who believe the process was rigged.
3. The Award
A winner is selected. Or, increasingly, the agency skips all of this and hands the contract to a single company with no competition at all. That is called a sole-source contract.
In theory, competitive. In practice, the same handful of companies win year after year. See the top contractors who dominate federal spending.
The No-Bid Problem
Sole-source contracts mean no competition, no price pressure, and no reason for the contractor to deliver on time or on budget.
The federal government awarded $74 billion in no-bid contracts in FY2025 alone. That is $74 billion where nobody had to compete for the work, nobody had to offer a better price, and nobody had to prove they were the best option.
There are legitimate reasons for sole-source awards — classified programs, genuine emergencies, unique capabilities. But when 66% of the largest no-bid contracts go to the Department of Defense, the question is whether "national security" has become a blank check. Explore the data →
Cost Overruns
A contractor bids $10 billion. The project ends up costing $20 billion. In the private sector, this gets you fired. In government contracting, it gets you a contract extension.
Cost-plus contracts — where the government pays the contractor's costs plus a guaranteed profit margin — create a perverse incentive: the more you spend, the more you earn. There is no penalty for going over budget, and there is no reward for coming in under.
The F-35 Joint Strike Fighter program was estimated at $233 billion. The current projection is over $400 billion — and counting. The contractor, Lockheed Martin, remains the government's largest contractor by a wide margin.
The Revolving Door
Pentagon officials retire on Friday and start as defense company lobbyists on Monday. Agency procurement officers who awarded contracts leave government to work for the companies they were overseeing.
Cooling-off periods exist on paper, but they are narrow and routinely circumvented. The result: the people deciding who gets billions in contracts are often the same people who will later profit from those decisions.
This is not a partisan issue. It happens under every administration, across every agency, and it ensures that the contracting system serves insiders first and taxpayers second.
The Concentration Problem
The top 10 federal contractors receive over $150 billion per year. That is more than the GDP of 130 countries.
Lockheed Martin, Boeing, RTX (Raytheon), Northrop Grumman — the same names appear at the top of every spending list, every year, regardless of performance. When a handful of companies control most of the market, competition is a fiction.
Small businesses are technically supposed to get a share of federal contracts, but the reality is that large primes subcontract the work — taking their cut on the way through. See the top contractors →
What DOGE Is Trying to Fix
The Department of Government Efficiency (DOGE) was created to cut waste, reduce redundancy, and hold agencies accountable for how they spend taxpayer money. The premise is straightforward: government spending should be transparent, efficient, and justified.
Whether DOGE will succeed is an open question. Previous attempts at government efficiency — from the Grace Commission in 1984 to the Government Performance and Results Act — produced reports, not results. Bureaucracies are remarkably good at surviving reform.
The data on this site is the starting point. Before you can fix government spending, you have to see it. That is what OpenSpending is for — following the money so you do not have to take anyone's word for it.
Follow the Money
Now that you know how the system works, explore the data for yourself.