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Obama Outlines Plan To Slash 'Wasteful' Spending

President Obama signed a directive Wednesday that changes the way government contracts are awarded and who can get them, a move he said could save as much as $40 billion a year.

The amount the government spends on contracting has ballooned over the past eight years, with outlays for goods and services increasing from $200 billion in 2000 to more than $500 billion in 2008. The president said his plan would make the contracting process more competitive and accessible to independent contractors — and more difficult for contractors to defraud taxpayers.

"It's time for this waste and inefficiency to end," the president said Wednesday morning at the White House. "It's time to invest only in what works."

Obama said his administration would stop hiring private contractors to perform work that government employees could handle. In addition, he pledged to open the process to small businesses and eliminate "unnecessary" no-bid contracts. The plan also strengthens oversight of contracts to cut overruns and fraud.

White House Budget Director Peter Orszag and Cabinet officials will have new guidelines for contracting ready by the end of September, Obama pledged.

On the hot topic of defense spending, the president said he would draw a line between spending that keeps Americans safe and money that largely enriches defense contractors.

Last year, a Government Accountability Office study of 95 major defense acquisitions projects found cost overruns of 26 percent, totaling $295 billion over the life of the projects. Obama said investing in proven technologies and increasing oversight would make the defense contracting system more efficient.

Cost overruns on defense contracts came up last week at the White House summit on the economy, when Arizona Sen. John McCain used the president's fleet of Marine One helicopters as an example. Obama said he had already spoken to Defense Secretary Robert Gates about the fleet of 28 helicopters costing $11.2 billion over budget.

Obama also endorsed a bipartisan effort by McCain and Sen. Carl Levin (D-MI) to change defense procurement and asked Gates to work with the two on legislation that would end the cost overruns common in defense projects.

"The days of giving defense contractors a blank check are over," Obama said.