United States' DOGE Is Putting Private Sector Contractors on Edge

Since being established in January 2025, the U.S. Department of Government Efficiency (DOGE) has been aggressively targeting the reduction of federal spending, and its actions could affect the credit profiles of business-to-government service providers. In our view, professional services, information technology, and other support services are at higher risk of federal contractual interruptions, while contractors in resource development fields, including critical minerals, energy, and agriculture, may be less affected.

Key Highlights:
-- We expect pressure (via contract terminations, delays, and/or renegotiation of price and scope) for activities DOGE deems nonessential or not sufficiently aligned with the rapidly evolving policy direction of the current administration.
-- Reduced headcount and resources at administrative agencies could result in a longer and potentially cumbersome procurement process, leading to program interruptions and overall uncertainty for the contractors.
-- The share of revenue from federal contracts, essentiality of services, and leadership in technology will play a role in the level of financial risk these contractors are exposed to.
-- Large, globally diversified issuers will likely be less affected than small, regional issuers with a limited diversification profile.

"Although we don't expect significant credit rating implications in the near term, we expect issuers to experience a decline in revenue visibility and increased volatility from contract cancellations or realignments compared with historical periods, which may have a negative effect on credit quality," said Azande Ntanzi Ndlovu, Assistant Vice President, Corporate Ratings, Diversified Industries.