https://crsreports.congress.gov
Updated December 17, 2021
Defense Primer: Department of Defense Contractors
Throughout its history, the Department of Defense (DOD)
has relied on contractors to support a wide range of military
operations. A defense contractor, as defined by the Code of
Federal Regulations, is “any individual, firm, corporation,
partnership, association, or other legal non-Federal entity
that enters into a contract directly with the DOD to furnish
services, supplies, or construction” (see 32 C.F.R. 158.3,
“Definitions”).
Within the defense policy community, the term contractor
is commonly used in two different contexts. The word can
describe the private companies with which DOD contracts
to provide goods and services. It can also describe
individuals hired by DOD—usually through private
companies, which are also considered contractors in the
previous context—to perform specific tasks. The term
“contractor” does not refer to military servicemembers,
civilian DOD career employees, or civilian political
appointees.
Operations over the past 30 years have highlighted the
central role that contractors play in supporting U.S. troops,
both in terms of the number of contractors and the type of
work being performed. During recent U.S. military
operations in Iraq and Afghanistan, contractors frequently
accounted for 50% or more of the total DOD presence in-
country.
Contractors as Companies
In Fiscal Year (FY) 2020, DOD obligated more money on
federal contracts ($420 billion in current dollars) than all
other government agencies combined. While DOD
contracts with many companies for all kinds of goods and
services, its contract activities are dominated by five
companies: Lockheed Martin, Boeing, Raytheon, General
Dynamics, and Northrop Grumman (see Table 1). In
FY2020, these companies together received 54% of all of
DOD’s contract obligations for the year. These five
companies are often referred to as the primes, signifying
their frequent role as prime contractors who in turn
subcontract to other companies.
Table 1. Five Largest DOD Contractors by
Obligations, FY2020
in billions of current dollars
Source: beta.SAM.gov Top 100 Contractors Report, FY2020.
Note: Fifty percent of the Bell-Boeing Joint Project Office is
attributed to the Boeing Company.
In FY2020, 51% of total DOD contract obligations were for
services, 41% for goods, and 8% for research and
development (R&D).
Contractors as Individuals
Individual DOD contractors fulfill a wide variety of
organizational roles and functions from logistics and
transportation to intelligence analysis and private security.
Why Does DOD Use Individual Contractors?
Following the conclusion of the Cold War, the U.S.
military—in line with a government-wide trend—embraced
outsourcing, increasing reliance on contractors instead of
using military servicemembers or government civilians to
perform certain tasks.
Some analysts have highlighted numerous benefits of using
contractors. These benefits include freeing up uniformed
personnel to focus on military specific activities; providing
supplemental expertise in specialized fields, such as
linguistics or weapon systems maintenance; and providing a
surge capability to quickly deliver critical support functions
tailored to specific military needs. Because a contractor can
be hired when a particular need arises and released when
his or her services are no longer needed, some have argued
that meeting immediate personnel needs through surges in
the use of contractors by the federal government is more
cost-effective on a long-term basis. Just as the effective use
of contractors can augment military capabilities, the
ineffective use of contractors can prevent troops from
receiving what they need, when they need it, and can lead
to wasteful spending. Contractors can also compromise the
credibility and effectiveness of the U.S. military and
undermine operations, as many analysts believe occurred
during operations in Iraq and Afghanistan.
How Many Contractors Does DOD Employ?
DOD’s Inventory of Contracted Services (ICS, see 10
U.S.C. §2330a(c)) is a required annual report to Congress
that provides information on certain categories of contractor
hiring by individual DOD components (e.g., the military
departments and defense agencies).
Under 10 U.S.C. §2330a, DOD is required to collect and
report data for each purchase of services in excess of $3
million within four service acquisition portfolio groups:
logistics management services, equipment related services,
knowledge-based services, and electronics and
communications services. In the report, DOD must also
provide the number of contractor employees associated
with these services. The report historically has not included
a total number of individual contractors—instead, it has
provided an estimate of contractor full-time equivalents
(FTEs) for direct labor, a measure referring to the estimated
numbers of man-hours contracted. According to the
FY2017 ICS report, the most recent available report with
