1863 Leadership · Issue Paper No. 7
Picking Winners
The federal government buys nearly $800 billion a year, and states give away tens of billions more. Six repairs so that none of it turns on who you know.
Abstract
The United States government is the largest purchaser of goods and services on earth. State and local governments hand out somewhere between sixty and a hundred billion dollars a year to individual companies. Neither of those facts is going to change, which makes the integrity of the buying the whole question. About a third of federal contract dollars are awarded without competition, and that share has not moved in a decade. Economists have found that once a state begins writing large subsidy checks, political contributions in that state rise — which is the machine this paper is about, because the money that buys the favor is generated by the favor. Six repairs follow: competition as the default with a published justification for every exception, ceilings on how much of a government's business one firm may hold, an end to taxpayer money going to named companies, a prohibition on government taking ownership stakes in private firms, closing the gap that lets federal contractors spend politically through channels the law was written to shut, and attaching a consequence to that ban worth more than the fee it currently costs to ignore. None of the six requires new spending. Five of them are narrower than rules Congress and the acquisition regulations have already adopted.
Key findings
- In fiscal 2025, roughly $278 billion of about $793 billion in federal contract obligations was awarded without competition. That share has held between 31 and 38 percent every year for a decade.1
- The competitively awarded share is falling, not rising. At the Department of Defense it dropped from 58 to 53 percent in a single year.2
- State and local subsidies to individual companies cost an estimated $60 billion a year, with credible estimates ranging as high as $113 billion. Nobody knows the true figure because most governments do not disclose it.3
- Once a state begins awarding large corporate subsidy packages, annual political contributions to candidates for state office rise. The favor generates the money that buys the next favor.4
- Federal contractors have been barred from contributing to federal candidates since 1940. In 2015 the D.C. Circuit upheld that ban unanimously, sitting en banc, and the Supreme Court declined to hear the appeal. The principle is settled; the enforcement gap is not.5
- The penalties actually assessed have been smaller than the illegal contributions — $34,000 on $200,000 in one case, $125,000 on a refunded $500,000 in another, and nothing at all in a third. No contractor was excluded from federal business in any of them.8
- Those penalties were roughly a tenth of what the law already authorized — the civil ceiling is 200 percent of the amount involved — and every one of the three cleared the threshold at which a knowing and willful violation is already a felony.13
- Concentration is a market phenomenon, not an agency one. No single firm approaches 10 percent of federal contract obligations, but in federal aerospace manufacturing one firm holds about 37 percent and four hold 78 percent.12
Section 1The question before us
A market works when the buyer cannot be bought. Everything else in economics — price signals, competition, the efficient allocation of capital — rests on that one condition, and it is the condition the United States government cannot reliably meet, because it is simultaneously the largest customer on earth and an institution run by people who need money to keep their jobs.
This paper is not about the size of government. Reasonable people who agree about everything else in this series disagree about how much the federal government should buy. It is about whether what it does buy is bought honestly, and whether the tens of billions it and the states give away are given away by any rule a citizen could read.
Being pro-business and being pro-market are not the same thing. They are frequently opposites, and the difference is usually a check.
This author spent fourteen years building and operating a multi-unit restaurant enterprise. We competed against companies that received public money to open the store across the street — abatements, infrastructure, sometimes a forgivable loan — and we did not, because we did not ask and were not the kind of company anybody thought to offer. That is not a grievance. It is the point. A subsidy to a competitor is not neutral toward you. It is a tax on you, collected in the form of a rival who does not have to earn his cost of capital.
1.2 Our own share of the failure
The people most responsible for defending free markets in America have spent decades defending businesses instead, and those are different clients.
When a large employer asks a legislature for an incentive package, the argument it makes is a conservative-sounding one: jobs, growth, competitiveness, keeping the plant from moving to another state. The argument is often made by people we agree with, to legislators we voted for, on behalf of firms whose executives fund our institutions. And so a movement that says it opposes government picking winners has, in practice, voted for a great many winners.
There is a second failure that belongs to us specifically. We have been loud about welfare for individuals and quiet about welfare for corporations, though the second is larger per recipient, less scrutinized, and far more distorting to the economy we claim to be protecting. A family receiving food assistance does not thereby acquire an advantage over its neighbors in the marketplace. A company receiving a hundred-million-dollar abatement does.
Section 2How the money actually moves
Three facts, none of them contested, which together describe a machine.
2.1 A third of federal contracting is not competed
Federal law requires full and open competition and then provides exceptions. The exceptions have become a third of the business. In fiscal 2025, of roughly $793 billion in federal contract obligations, about $278 billion was awarded without competition. That share has held between 31 and 38 percent every year for the past decade.1
The direction of travel is the wrong one. The Government Accountability Office found the competed share falling from 68 to 66 percent in a single year, driven by the Department of Defense, where competition fell from 58 percent to 53. Non-defense agencies competed 84 percent of their dollars.2
Separately, contracts that are formally competed but draw only a single bid have run at roughly 13 percent of obligations. GAO also found that about 18 percent of the contracts in one sample were miscoded — recorded as competed when they were not, or as single-offer when they had never been competed at all.6
Some of that is legitimate and Section 9.1 says so at length. But a rule with a third of the business inside the exception is not a rule. It is a preference.
2.2 Nobody knows what the giveaways cost
Timothy Bartik of the Upjohn Institute estimated the annual cost of state and local business incentives at about $60 billion in 2023 dollars. Reviewing a range of estimates, scholars at the Mercatus Center found figures running as high as $113 billion a year.3
The spread between those numbers is itself the finding. This is public money, appropriated or forgone by governments answerable to voters, and the honest answer to how much of it there is remains a range of fifty billion dollars wide. Most states do not disclose company-level awards. Most localities disclose nothing at all.
When results are examined, they are frequently poor. New Jersey governments committed more than a billion dollars to a single megamall that has since been unable to generate cash flow sufficient to cover the interest on the bonds issued to build it.3 That is not an indictment of anyone's motives. It is what happens when the entity choosing the investment bears none of the loss.
2.3 The favor generates the money that buys the next favor
This is the finding that turns five separate complaints into one argument.
Economists Russell Sobel, Gary Wagner, and Peter Calcagno examined what happens to a state's politics after it begins offering large corporate incentive packages. Once a state has started awarding megadeals, annual contributions to candidates for state office increase.4
Read that mechanically rather than morally. A legislature acquires the power to write very large checks to named companies. Companies that want checks now have a reason to fund the people who write them. The funding buys access, access improves the odds, better odds justify more funding, and the cycle turns. No one has to be bribed. The incentive structure does the work, and it does it to honest people.
This is not corruption in the sense of a briefcase in a parking garage. It is corruption in the older sense — a thing decaying because of how it was built.
Section 3Reform I: Competition as the default, with the reason published first
Every government contract should be competitively bid. Where an exception is used, the written justification should be published before award, the official approving it should be independent of the office that wants the award, and a competitor should have a short window to object.
3.1 Most of this already exists, which makes it cheap
Federal law has required full and open competition since the Competition in Contracting Act of 1984. A noncompetitive award already requires a written Justification and Approval setting out which statutory exception applies and why. Approval is already tiered by dollar value and already leaves the contracting officer for anything of size: at intermediate values it must be approved by the procuring activity's competition advocate, and that authority cannot be delegated; at higher values it rises to the head of the procuring activity and then to the agency's senior procurement executive. Every agency is already required to designate a competition advocate whose function is to challenge procurements that limit competition. And the justification is already required to be posted publicly on the agency's website and on SAM.gov.11
We set that out at length because it disposes of the strongest practical objection to this reform. We are not proposing a new office, a new document, a new filing, or a new layer of review. Every element already exists.
The document is already written and already published. We are asking that it be published two weeks earlier.
Publication after award is a historical record. Publication before award is a discipline, because the competitor who was shut out is the one person in the country motivated to read it closely, and he will do oversight work no inspector general has the staff to do. The marginal cost of the change is the cost of changing a posting date.
3.2 Move the competition advocate out from under the people he polices
The second change is a reporting line rather than a new institution.
The competition advocate is presently an official of the agency whose awards he is meant to challenge, evaluated within the organization whose exceptions he approves or blocks. That is not an accusation against anyone holding the job. It is the same structural point this paper makes everywhere else: a reviewer whose career runs through the people he reviews will, over time and without anyone intending it, review differently.
The position should be independent within the agency in the manner of an inspector general, or should report to a central procurement authority outside it, with dissents recorded and published. Requiring outside sign-off on every award would be the red tape critics fear. Requiring it on every exception above a threshold is a small fraction of the volume and nearly all of the risk.
3.3 What the penalty should be, and what it should not
Ask what happens today to an official who awards a contract noncompetitively when he should not have. The answer is: a disappointed bidder may protest, the agency may be told to recompete, and the official faces nothing at all. The statutes that do carry personal consequence reach adjacent conduct — obligating funds beyond an appropriation, disclosing source-selection information, bribery, self-dealing — and none of them reaches simply failing to compete.11
We do not propose to make it a crime, and we want to be explicit about why. A contracting officer makes judgment calls under time pressure with incomplete information. Criminalize the judgment and you do not get better judgment; you get paralysis, defensive documentation, trivial purchases over-competed, and urgent ones delayed while counsel is consulted. You would also make the job harder to fill, at a moment when the government already struggles to fill it. A rule that deters competent people from public service has costs that do not appear in any enforcement statistic.
The proportionate consequence is administrative and it is nearly free. A justification overturned on protest should appear in the approving official's performance record. Publish the advocate's dissents. Report agency exception rates annually by program. None of that requires a prosecutor, and all of it operates on the incentive that actually governs a career civil servant.
Section 4Reform II: Ceilings measured where the dependency actually is
No single beneficial owner should hold more than a stated share of a defined federal market without a published finding and a plan to develop a second source — and the total federal support flowing to any one owner, across every instrument, should be published annually.
4.1 A cap on agency share would catch nothing
We began with the intuition that one firm should not hold too much of an agency's business, and the data does not support writing the rule that way.
Government-wide, the ten largest contractors together take something on the order of a quarter of all federal contract obligations, and no single firm approaches ten percent of the total. Even at the Department of Defense, the most concentrated large buyer, the top five primes account for roughly thirty percent of spending and no one firm dominates the agency. A ceiling set at any defensible share of an agency or of the government would bind on nobody.
Now look at an actual market. In federal aerospace product and parts manufacturing, one firm holds roughly 37 percent and the four largest families hold about 78 percent.12 That is the concentration worth worrying about, and neither an agency-level nor a government-wide cap would ever see it, because the same firm is a modest share of its agency and a small share of the federal government.
Dependency is a property of the thing being bought, not of the buyer's budget.
A supplier that is a fifth of a percent of an agency's dollars but the only source of a critical component creates far more dependency than one that is eight percent of the agency selling commodity services against a dozen rivals. Dollar share at the agency level is simply the wrong instrument, and we would rather correct our own framing than defend it.
4.2 Measure it by what is being bought
The operative trigger should be set at the product line — by product and service code, or by industry classification. Where a single beneficial owner exceeds a stated share of a defined federal market, the buying agency must publish a concentration finding and a second-source plan with a timeline and a budget.
Note what this is not. It is not a bar on awarding the contract. It never prevents the government from buying what it needs from the only firm that makes it. It is a declaration and a remediation duty: name the dependency, and say what you intend to do about it. A dependency nobody is required to admit is a dependency nobody fixes, which is how a market ends up with one supplier and a government ends up without leverage.
4.3 Aggregate across instruments, not just across agencies
The concern that a single person may collect a manufacturing subsidy, an energy credit, and a major contract simultaneously is a real one, and it is not a contracting question at all. It spans instruments.
Any serious accounting must aggregate contracts, grants, loans, loan guarantees, and targeted tax benefits flowing to one beneficial owner, and publish the total annually. No one produces that number today for anyone, which is why the debate about it consists entirely of anecdote.
And the aggregation must be by beneficial ownership rather than legal entity — parents, subsidiaries, and affiliates counted together. Otherwise the reform dissolves on contact with the same organizational chart that defeated the contribution ban in Section 7.1, this time deployed as a compliance strategy.
4.4 First, a measurement standard
Published figures for the largest federal contractor's fiscal 2025 obligations range from roughly $50 billion to roughly $74 billion, depending on whether the source rolls awards up to parent companies or counts entity identifiers, measures obligations or revenue, covers one agency or all of them, and uses the fiscal year or a trailing twelve months.12
A ceiling that cannot be measured cannot be enforced. So the first provision of this reform is the least interesting one: a defined standard for what counts, published by a single authority, applied consistently. It is an unglamorous thing to put in a white paper. It is also the provision without which the rest is decoration.
We use the word ceiling rather than diversity throughout. This proposal has nothing to do with who owns a company or what its workforce looks like. It counts dollars.
Section 5Reform III: No public money to named companies
Governments at every level should be prohibited from providing cash grants, tax abatements, forgivable loans, infrastructure built to order, or other financial benefits to individually named private firms. Where a policy goal justifies public support, the support should be available to every firm meeting stated criteria, by formula, without discretion.
This is the distinction on which the whole reform turns, and it is one this organization has drawn before. A rule that applies to everyone who qualifies is a policy. A check written to a company somebody chose is a favor. The first can be argued about on the merits in public. The second cannot, because the argument is over before anyone outside the room knows it happened.
The market case against the favor is stronger than the fairness case. A subsidy to an incumbent raises the cost of entry for everyone who did not receive one. It signals to potential competitors that the field is tilted and that capital deployed against a subsidized rival is capital at risk from the legislature rather than from the market. The predictable result is fewer entrants, less competition, higher prices, and an incumbent who has learned that the most reliable return available to him is political rather than commercial.
That last effect is the one that should trouble a free-market reader most. Every hour a firm's leadership spends cultivating a governor is an hour not spent on the product, and the firm that allocates its effort correctly under these rules is the one that lobbies.
Section 6Reform IV: The government should not own the companies it regulates
The federal government should not take or hold equity stakes, warrants, or similar ownership interests in private operating companies, except as a temporary and disclosed incident of a bankruptcy or resolution proceeding, with a statutory deadline for divestiture.
The conflict is structural and does not depend on anyone behaving badly. A government that owns a share of a firm has a financial interest in that firm's profits. It also writes the rules the firm operates under, awards the contracts the firm bids for, and enforces the laws the firm may violate. Every one of those functions is compromised by the ownership, and the compromise runs in both directions: the regulator has an incentive to go easy, and the competitor has every reason to believe he will.
It also puts the taxpayer in a position no investor would accept — bearing the downside of a concentrated equity position selected by officials who face no consequence for losses and who chose the investment for reasons that were not primarily financial.
We note that federal equity arrangements with private firms have expanded recently, and we have deliberately not catalogued specific transactions here. Any published version of this paper should list them with citations to primary documents.7
Section 7Reform V: Contractors out of political money
Here is the fact that should reframe this debate: the rule already exists, and it has survived every challenge brought against it.
Federal contractors have been prohibited from making contributions in connection with federal elections since 1940. The prohibition now sits at 52 U.S.C. § 30119. In Wagner v. FEC, individual contractors challenged it on First Amendment and equal protection grounds. On July 7, 2015 the United States Court of Appeals for the D.C. Circuit, sitting en banc, rejected the challenge unanimously, finding that substantial evidence supported the anti-corruption interest. The Supreme Court denied certiorari on January 19, 2016.5 Connecticut's parallel state ban was upheld by the Second Circuit in 2010.5
So the principle is not novel, not partisan, and not constitutionally doubtful. A person seeking money from the government may not simultaneously fund the people who decide whether he gets it. Eighty-five years of law, and a unanimous en banc court, agree.
The ban is also enforced against both parties when it is enforced at all. The Commission found that a Boston construction firm holding federal contracts violated the law by giving $200,000 to a super PAC supporting one party's presidential candidate in 2015, and settled for a civil penalty. A Florida disaster-recovery contractor paid a larger penalty over a $500,000 contribution to a super PAC supporting the other party's candidate, which was refunded.8 The statute has no partisan valence. Its enforcement is simply intermittent.
What has changed is that a channel opened around it. After Citizens United and SpeechNow, independent expenditure is not limited — and the provision that would restrict contractor independent spending has gone unenforced.5 A corporate contractor may also establish a political action committee, and its officers and shareholders may give personally.
We propose closing the gap to the full extent the Constitution permits: enforcing the existing restriction on contractor independent expenditures, extending the prohibition to contractor-affiliated committees and to the controlling owners of contracting firms, applying the same rule to entities receiving direct subsidies, and requiring disclosure of all political spending by any firm holding a government contract above a threshold. Disclosure is the backstop that survives regardless of how the constitutional questions resolve, and it needs no new agency to work.
7.1 Three ways around the rule
The gap is wider than the independent-expenditure question, and the cases are on the record.
The subsidiary. On August 19, 2016 — one day after the administration announced it would phase out federal private-prison contracts, and the day a federal detention contract extension was rescinded — a wholly-owned subsidiary of one of the largest private prison companies gave $100,000 to a super PAC supporting a presidential candidate. A second contribution of $125,000 followed a week before the election. The company drew roughly 45 percent of its revenue from federal contracts. After a five-year investigation the Federal Election Commission's own Office of General Counsel recommended enforcement. The Commission did not follow the recommendation.8
The defense was structural rather than factual: the entity that wrote the check was a subsidiary, and the contracts were held by affiliated entities. A rule that can be satisfied by incorporating a second company at the same address is not a rule.
A prohibition that a competent lawyer can defeat with an organizational chart does not protect anything.
The affiliated organization. A contractor may not give, but a trade association, membership organization, or advocacy nonprofit that contractors fund is under no such restriction. The money makes one additional stop and the prohibition disappears. This is the largest of the three gaps and the least documented, because the intermediary generally does not have to disclose who funded it.
Buying the policy rather than the officer. This is a different problem from the other two and in some ways a worse one.
The contractor ban was written to stop a company from buying the official who awards its contract. It says nothing about a company spending to enlarge the policy that creates its market. A firm paid per detainee-day has a direct financial interest in detention policy. A firm that builds fighter aircraft has one in the procurement budget. A firm that installs solar panels has one in the credit that subsidizes them, a road builder in the highway bill, a hospital operator in coverage expansion, a pharmaceutical manufacturer in what a federal program agrees to pay. In each case the spending is not aimed at winning a particular award. It is aimed at making sure there is more to win.
We list those examples across the whole range of American industry on purpose. Every faction in this country has a version of it, each is convinced its own version is different, and the reader who finds one of them outrageous and another sensible has located the reason nothing has been done about any of them.
Section 9.10 explains why we think this third problem is largely beyond legal remedy, and why disclosure is the only honest answer to it.
Note that this reform and the last are the same reform. A company that cannot receive a directed subsidy has less reason to fund the officials who direct them. A company that cannot fund those officials has less prospect of receiving one. Either provision alone leaks. Together they close a circuit.
Section 8Reform VI: A consequence that matters
A violation of the contractor ban should trigger an automatic review of the firm's fitness to hold government contracts at all — and pay-to-play conduct should be an enumerated cause for suspension and debarment.
The five reforms above are rules. This one is the reason anybody would follow them.
8.1 The present penalty is a fee, not a deterrent
Consider what the existing sanction has actually cost. A construction firm holding federal contracts gave $200,000 in violation of the ban and settled for a $34,000 penalty. A disaster-recovery contractor gave $500,000, had it refunded, and paid $125,000. A private prison company's subsidiary gave $225,000, the Commission never acted, and the company later received a $110 million contract.8
When the penalty is smaller than the contribution, it is not a deterrent. It is a price, and it is a very good one.
Now set those settlements against what the law already allowed. A knowing and willful violation carries a civil penalty of up to the greater of roughly $53,000 or 200 percent of the amount involved — so the ceilings in those three matters were about $400,000, $1 million, and $450,000. The penalties actually imposed were $34,000, $125,000, and nothing.13
And a knowing and willful violation aggregating $25,000 or more in a calendar year is already a felony, punishable by up to five years in federal prison. Below that, down to $2,000, it is a misdemeanor carrying up to a year. The Commission refers matters it believes willful to the Department of Justice, which decides independently whether to prosecute.13 All three contributions described above cleared the felony threshold — one of them by nine times. None was prosecuted.
The penalty schedule is not the problem. Congress wrote a felony and a fine of twice the contribution. What arrived was a tenth of the fine and no charge.
A firm weighing whether to make a prohibited contribution is doing arithmetic. Against a contract worth tens or hundreds of millions, a five-figure fine assessed years later — if the Commission acts at all — does not enter the calculation. Any honest accounting of the current rule has to concede that breaking it is rational.
8.2 The tool already exists, and it is not a speech penalty
Federal acquisition regulation permits an agency's suspending and debarring official to exclude a contractor for any cause of so serious or compelling a nature that it affects the firm's present responsibility — no conviction required, on a preponderance of the evidence.9
The governing principle matters here more than the mechanics. Debarment is expressly not punishment. The regulation states that it may be imposed only in the public interest, for the government's protection. The question is never whether a firm deserves to suffer. It is whether the government should keep doing business with it, and once a cause is established the burden falls on the contractor to show that it should.9
That distinction answers the objection that this punishes political speech. It does not. A company that spends money to influence the award of its own contract has told the government something about how it intends to compete, and the government is entitled to believe it. Every private buyer in America makes that judgment about counterparties. A firm may bid, win, and perform. It may not also fund the people who decide whether it wins, and a buyer who declines to transact with someone who tried is not censoring anybody.
8.3 It reaches the structures the election rules cannot
Recall from Section 7.1 that the contractor ban was evaded by routing a contribution through a wholly-owned subsidiary, and that the Commission never resolved it.
The procurement rules do not have that weakness. Improper conduct by an officer, director, shareholder, partner, or employee may be imputed to the company where it occurred in the performance of duties or with the company's knowledge, approval, or acquiescence — and the regulation provides that a company's acceptance of the benefits derived from the conduct is itself evidence of acquiescence. The imputation also runs the other way, reaching any officer, director, or shareholder who participated in the conduct, knew of it, or had reason to know. Exclusion covers all divisions of the contractor and may be extended to affiliates.9
The anti-structuring machinery that the election law lacks is already written. It simply sits in a different title of the code, administered by officials who never hear about the violation.
8.4 What we propose
Because the crime and the penalty already exist, we propose nothing new in either. What is missing is the machinery that makes them operate.
A statutory floor, not a higher ceiling. Civil penalties for contractor-ban violations should be not less than 100 percent of the amount involved, so that the Commission cannot settle at a tenth of what the statute authorizes. A ceiling nobody approaches is not a deterrent; a floor is.
Mandatory referral to the Department of Justice where a violation clears the existing felony threshold, with any declination published. We do not ask for prosecutions. We ask that the decision not to prosecute be made by someone whose name appears on it.
Penalties scaled to the contract, not the contribution. This is the one genuinely new element. The present fine is calibrated to what a firm spent breaking the rule; it should be calibrated to what the firm was trying to buy. A percentage of the affected contract's value, or of the firm's federal revenue for the year, is a number no general counsel can advise a client to treat as a cost of doing business.
Enumerate the cause. Add pay-to-play conduct — violation of the contractor contribution ban, or the equivalent at state and local level — to the listed causes for suspension and debarment, rather than leaving it to a residual clause nobody invokes.
Require referral. A finding by the Federal Election Commission that a contractor violated the ban should go automatically to the awarding agency's debarring official, who must open a present-responsibility review and publish the result either way. Today the two systems do not speak to one another, and an election agency has no power to touch a contract.
Presume suspension pending review above a dollar threshold, rebuttable by the contractor, so that the review happens while the government still has leverage rather than after the contract has been performed.
Graduate the response. Exclusion is not the only remedy, and for some suppliers it is not a remedy at all. Section 8.5 sets out the ladder.
8.5 When the supplier cannot be replaced
Some contractors cannot be excluded. There are items with one American producer, and there is software the entire federal government runs on. A penalty everyone knows will never be imposed is not a penalty, and a rule whose only sanction is unavailable against the largest firms is a rule that binds the small and exempts the powerful. That is worse than no rule, because it looks like one.
The acquisition regulations already solve this, and the solution is better than it first appears: the finding and the consequence are separate things. An agency may determine that a contractor is not presently responsible and then, where it must, issue a documented determination that a compelling reason exists to continue doing business with it anyway.10
Make the government say out loud that it cannot walk away. That sentence is worth more than the fine.
A published compelling-reason determination is the government putting its own dependency on the record — naming the supplier it cannot replace, and the product it cannot source elsewhere. That is uncomfortable reading for an agency and it is exactly the discipline Reform II is about. A dependency nobody has to admit is a dependency nobody fixes.
Between a fine and exclusion there are five rungs, all of them available today.
A published finding of non-responsibility. The determination itself, on the record, regardless of what follows. Reputation is an asset, and an official document saying a firm attempted to buy its own award impairs it.
A past-performance downgrade. Contractor performance ratings are consulted in every future source selection, and agencies already record exclusion actions in those databases. A rating that follows a firm into every competition for years is a more durable cost than a one-time penalty.10
Partial exclusion. An exclusion may be limited to specific divisions, organizational elements, or commodities, and agency guidance already directs officials to consider whether a division-level action would adequately protect the Government's interests. A firm that supplies something irreplaceable in one line of business need not be irreplaceable in all of them.9
Exclusion of the individuals. This is the most important rung and the least used. The regulations impute a company's improper conduct to any officer, director, or shareholder who participated in it, knew of it, or had reason to know.9 The government cannot do without a particular software firm. It can do without the executive who authorized the contribution, and so can the firm.
This is also the fairest rung. The objection to debarring a large company is that the cost falls on employees and shareholders who decided nothing. Excluding the person who made the decision puts the cost exactly where the choice was made, and no board will keep a government-affairs executive who has personally become ineligible.
An administrative agreement with a monitor. Agencies already use these as an alternative to exclusion — imposing compliance obligations and outside monitoring while the contractor remains eligible — and they are credited with preserving competition where exclusion would destroy it.10 For an indispensable supplier this is the realistic outcome, and it should be a published agreement with enforceable terms rather than a private understanding.
One further remedy is worth legislating, because it does not exist in usable form today: a monetary penalty scaled to the contract rather than to the contribution. The present fine is calibrated to what a firm spent breaking the rule. It should be calibrated to what the firm was trying to buy. A percentage of the value of the affected contract, or of the firm's federal revenue for the year, is a number no general counsel can advise a client to treat as a cost of doing business.
Section 9 · The strongest case against
9.1 Sometimes there really is only one supplier
The largest category of noncompetitive award is the determination that only one responsible source can meet the requirement, and it is often true. Spare parts must fit the equipment already in the field. Classified work cannot be advertised. A ship under repair cannot wait ninety days for a solicitation. In one GAO sample, 57 percent of noncompetitive awards rested on the single-source exception, and many were defensible.6
Our proposal does not remove the exception. It requires that its use be published, attributed, and reviewed outside the office that wants it. A reader who thinks even that will slow urgent procurement has a fair point, and any statute should carry a genuine emergency provision with after-the-fact publication rather than before.
9.2 Concentration ceilings may cost more than they save
If the best supplier is excluded by a numerical cap, the government pays more or gets less. Defense in particular has consolidated to the point where the alternative to a dominant prime is sometimes no prime at all, and a ceiling cannot conjure a second shipbuilder into existence.
We think the dependency cost is larger than the ceiling cost over any long horizon, but we cannot demonstrate that, and a reader who weighs it the other way is not being unreasonable.
9.3 A state that stops offering subsidies loses the plant
This is the strongest objection to Reform III and it is not answerable at the state level. A governor who unilaterally stops bidding for factories will watch them go to the state next door, and no amount of principle survives that headline twice.
It is a genuine prisoner's dilemma, and the honest remedy is an interstate compact or a federal restriction on the practice — which means this reform is substantially harder to enact than the other four, and should be presented that way rather than as a matter of individual state virtue.
9.4 Some of what we are calling corporate welfare is defense policy
Sustaining a shipyard through a lean year, or paying above market to keep a domestic source of a critical material, is industrial policy with a national security rationale rather than a favor to a friend. GAO has documented sole-source awards justified explicitly on the ground of keeping a repair yard in business.6
We would require that such support be authorized openly as defense policy, debated as such, and available by stated criteria — not that it stop. But we acknowledge the category is real and that our rule would have to accommodate it, which creates precisely the exception that swallowed the competition requirement in the first place.
9.5 The independent-expenditure gap may not be closable
Wagner upheld a ban on contractor contributions. The plaintiffs there expressly declined to challenge the statute as applied to independent expenditures, so the question was not decided. Under Citizens United, a restriction on contractor independent spending faces a materially harder test than the contribution ban did, and it may not survive.5
This is why we place disclosure at the center of Reform V rather than at its margin. Disclosure of contractor political spending was upheld in the same decision that opened the channel, requires no new doctrine, and gives a competitor and a journalist what they need.
9.6 Officials face no consequence, and we have declined to create one
A reader who has followed the argument this far may reasonably ask why a contractor faces a felony while the official who hands out the award faces nothing, and may find our answer unsatisfying. We think criminalizing a procurement judgment produces paralysis and drives capable people out of public service, and we would rather have the discipline come from a published document and a competitor's objection than from a prosecutor.
But we recognize the asymmetry is real, that our administrative remedies are weak, and that a reader who wants symmetry between the two sides of a corrupt transaction is applying a principle we generally endorse.
9.7 More process means slower and costlier government
Every review adds delay, every publication requirement adds staff, and bid protests already extend timelines and raise costs. Procurement reform has a long history of adding layers in the name of integrity and producing a system so slow that agencies reach for exceptions to escape it — which is part of how the exception became a third of the business.
That is a real risk and it cuts directly against Reform I. The mitigation is that our proposal adds disclosure rather than adjudication: publishing a justification that already has to be written is nearly costless, and the enforcement is done by the competitor rather than by a new office.
9.8 Serious practitioners say the premise is wrong
The phrase "too big to debar" is contested by people who administer this system, and their argument deserves to be stated rather than dismissed. It is that large contractors are excluded less often not because they are too large to touch, but because they maintain the most sophisticated compliance programs in the world and can therefore demonstrate present responsibility after a failure — which is precisely what the regulation asks. On this view the system is working as designed, and calls for more debarment reflect a desire to punish rather than an understanding of a risk-management tool.10
We think that argument is strong on the mechanics and incomplete on the incentives. A firm that can always remediate its way back to eligibility faces a different calculation than one that cannot, and the remediation is cheaper than the conduct was profitable. But a reader persuaded by it should note that our proposal does not ask for more exclusions. It asks for a review that must happen, a finding that must be published, and a ladder of consequences below exclusion — which is closer to that critique than against it.
9.9 Debarment is a blunt and very heavy instrument
Exclusion from federal contracting is close to a death sentence for a firm that depends on federal work, and debarring officials know it. That is precisely why the tool is underused: an official facing a choice between destroying a company and doing nothing will frequently choose an administrative agreement, or nothing.
The costs fall on people who did nothing. Employees lose jobs over a decision made in a boardroom. The government may lose a supplier it actually needs, which in a concentrated market can mean no supplier — and the concentration problem described in Section 4 makes that more likely, not less.
We therefore favor a graduated response: mandatory review and publication in every case, suspension presumed above a threshold, exclusion reserved for repeat or egregious conduct, and administrative agreements with real compliance obligations for everything else. A reader who wants a bright line will find that unsatisfying, and a reader who thinks any of this is too harsh should weigh it against a penalty structure in which the fine is smaller than the contribution.
9.10 We cannot stop a company from arguing for its own market
The third gap in Section 7.1 is the one we do not know how to close, and we would rather say so than pretend a provision exists.
Advocating for a policy is core political speech. A defense manufacturer arguing for a larger procurement budget, a detention operator arguing for stricter enforcement, a solar installer arguing for a tax credit, and a hospital chain arguing for expanded coverage are all doing something the First Amendment plainly protects, and something a citizen does when he writes to his congressman. There is no principled line between a company's paid advocacy for a policy it profits from and a citizens' group's advocacy for a policy it believes in, because the difference is motive, and motive is not a constitutional category.
What can be required is that the interest be visible. A firm that holds government contracts, or that receives payment under a federal program, should have to disclose its political and issue spending, so that a reader encountering an advertisement about a policy can learn who is paid by the outcome. That is a labeling requirement, not a restriction, and it is the same instrument this organization has proposed elsewhere for the same reason: it survives, it needs no agency, and it puts the fact in front of the person who has to vote on it.
A reader who finds that insufficient is right. It is insufficient. It is also the most we can propose without handing somebody the power to decide which advocacy is sincere.
9.11 What we concede, and what we do not
We concede that many noncompetitive awards are justified and that some are urgent. We concede that a concentration ceiling could raise costs or exclude the best bidder. We concede that no single state can end subsidy bidding by itself. We concede that some directed support is genuine national security policy. We concede that the contractor independent-expenditure restriction may be unconstitutional and that disclosure may be all that survives. We concede that we have no remedy at all for a contractor spending to expand the policy that creates its market, beyond requiring that the interest be disclosed. We concede that debarment is severe, that it harms employees who made no decision, and that it can leave an agency without a supplier. We concede that added process is a real cost and that procurement reform has made this mistake before.
We do not concede that the present arrangement is a market. A third of the largest procurement operation on earth awarded without competition, tens of billions handed to companies chosen one at a time, and a documented pattern of political money rising once the checks start — that is not the free market defending itself against government. It is a joint venture, and the terms were not negotiated with the taxpayer in the room.
Section 10What we are not claiming
We are not claiming that federal contracting officials are corrupt. The overwhelming majority are civil servants applying rules they did not write, and the pattern this paper describes would occur if every one of them were a saint. Structure produces outcomes that no individual intends, which is the argument this organization has made in every paper it has published.
We are not claiming that government should buy less. That is a different argument, and a reader who wants a larger federal government has exactly as much reason to want it purchasing honestly as one who wants a smaller one. Possibly more.
We are not claiming these reforms save a specific sum. Competition generally lowers price, and we would expect savings, but anyone who tells you what a third of eight hundred billion dollars would cost under different rules is guessing.
And we are not claiming that companies seeking subsidies are villains. A firm that declines an available incentive while its competitors accept them is a firm that will be outcompeted by rivals with a lower cost of capital. The behavior is rational. The rules that make it rational are the problem.
Section 11The argument you can carry
The paper compressed to what a person can remember and repeat.
And the one that is ours rather than theirs. The people who defend free markets in America have spent decades defending businesses instead, and those are different clients. We were loud about welfare for families and quiet about welfare for corporations, though only the second one hands its recipient an advantage over his competitors.
Section 12Conclusion
There is a version of this argument that says government is the problem and a smaller one would solve it. That version is incomplete. A government half this size, buying half as much, under these rules, would produce the same pattern at half the scale — because the pattern is not caused by the size of the purchasing. It is caused by discretion without daylight.
Everything proposed here is a rule about how a decision gets made, not about what the decision should be. Compete it, and publish the reason when you do not. Do not let one supplier become indispensable. Write rules rather than checks. Do not own the companies you regulate. Do not take money from the people you are buying from. And make that last rule cost something, because at present it costs less than breaking it is worth.
Five of those six are narrower than restrictions Congress and the acquisition regulations have already adopted, and one of them has been federal law since Franklin Roosevelt's second term. This is not a case for reinventing the relationship between government and commerce. It is a case for enforcing terms we already agreed to, in the one area where the agreement is worth the most money.
A free market is not a natural condition. It is a set of rules maintained on purpose, by people who understand that the alternative is not anarchy but arrangement — and the arrangement is always made by whoever is already in the room.
Notes
- Congressional Research Service, "Noncompetitive Federal Contract Awards: Other than Full and Open Competition," R48980 (June 2026), everycrsreport.com. Fiscal 2025 obligations of approximately $793 billion, of which roughly $278 billion was awarded noncompetitively; the noncompetitive share has ranged between 31 and 38 percent annually over the past decade. Contract obligation totals differ across sources depending on whether all award types are included; verify the current-year figure against USASpending before publication.
- Government Accountability Office contract-spending dashboard, as reported for fiscal 2023: competed share falling from 68 to 66 percent, with Department of Defense competition declining from 58 to 53 percent and non-defense agencies steady at 84 percent. Cite the GAO dashboard directly rather than secondary coverage.
- Chris Edwards, "Reforming State and Local Economic Development Subsidies," Cato Institute (2024), cato.org, summarizing Timothy Bartik's estimate of roughly $60 billion annually in 2023 dollars and a Mercatus Center review of estimates ranging to $113 billion; also the source for the New Jersey megamall example. Company-level award data is compiled by Good Jobs First in its Subsidy Tracker, subsidytracker.goodjobsfirst.org, an organization that advocates for subsidy accountability; its own documentation notes that state totals are not comparable across states because disclosure quality varies.
- Russell S. Sobel, Gary A. Wagner, and Peter T. Calcagno (2022), on the relationship between the adoption of corporate incentive megadeals and subsequent contributions to state candidates, as summarized in the Cato analysis at note 3. Obtain and cite the underlying journal article directly before publication; this finding carries a substantial share of the paper's argument and should not rest on a secondary summary.
- 52 U.S.C. § 30119, enacted 1940. Wagner v. FEC, 793 F.3d 1 (D.C. Cir. 2015) (en banc), upholding the contractor contribution ban unanimously; certiorari denied January 19, 2016. See Federal Election Commission case summary, fec.gov. The Wagner plaintiffs expressly declined to challenge the statute as applied to independent expenditures or to contributions to independent- expenditure-only committees. On the resulting enforcement gap, see Brennan Center for Justice, brennancenter.org, which notes the contractor independent-expenditure restriction is not enforced after Citizens United; the Brennan Center advocates on campaign finance policy and readers should weigh its framing accordingly. Connecticut's contractor contribution ban was upheld in Green Party of Connecticut v. Garfield, 616 F.3d 189 (2d Cir. 2010).
- Government Accountability Office, "Federal Contracting: Opportunities Exist to Increase Competition and Assess Reasons When Only One Offer Is Received," GAO-10-833, gao.gov. Source for the single-offer share, the 18 percent miscoding finding, the 57 percent single-responsible-source share of the sampled noncompetitive awards, the strong-incumbent explanation for single-bid solicitations, and the ship-repair example in Section 8.4. This report is from 2010; check whether GAO has issued a more recent equivalent before relying on the specific percentages.
- Federal equity and warrant arrangements with private operating companies have expanded in recent years. We have deliberately not listed specific transactions in this draft because each should be verified against primary documents — agency announcements, SEC filings, and the terms of the instruments themselves — rather than press characterizations. Any published version should catalogue them with citations.
- On the subsidiary route: Campaign Legal Center, CLC v. FEC (GEO Group contractor contribution), campaignlegal.org, documenting $225,000 in contributions by GEO Corrections Holdings, Inc. to the super PAC Rebuilding America Now in 2016, the timing relative to the August 18, 2016 announcement phasing out federal private-prison contracts, and the Commission's failure to act on its General Counsel's recommendation after a five-year investigation. On enforcement against both parties: the Commission's 2017 finding against Suffolk Construction Company over $200,000 given to Priorities USA Action, settled for a $34,000 penalty; and the $125,000 penalty paid over a $500,000 contribution by a Florida contractor to America First Action, which refunded it. The Campaign Legal Center litigates on campaign finance questions and readers should weigh its framing accordingly; the underlying contributions and the Commission's disposition are matters of public record and should be cited to FEC filings and the relevant Matter Under Review files before publication.
- Federal Acquisition Regulation Subpart 9.4. On causes: FAR 9.406-2(a)(5) (offense indicating a lack of business integrity or business honesty) and FAR 9.406-2(c) (any other cause of so serious or compelling a nature that it affects present responsibility), with debarment requiring a preponderance of the evidence and suspension requiring adequate evidence. On purpose: FAR 9.402(b), providing that debarment and suspension are imposed only in the public interest for the Government's protection and not for punishment. On imputation and scope: FAR 9.406-5 and FAR 9.406-1, including the imputation of an individual's conduct to the contractor and of the contractor's conduct to individuals, the treatment of acceptance of benefits as evidence of acquiescence, and the extension of exclusion to divisions and affiliates. Text at acquisition.gov. Note that no enumerated cause presently addresses pay-to-play conduct, which is the gap Section 8.4 proposes to close.
- On administrative agreements as an alternative to exclusion, and on compelling reason determinations permitting an agency to do business with an excluded contractor: Government Accountability Office, "Federal Procurement: Additional Data Reporting Could Improve the Suspension and Debarment Process," GAO-05-479, gao.gov, reporting 38 administrative agreements across five agencies in a single fiscal year and noting agency views that such agreements improve responsibility, ensure compliance through monitoring, and maintain competition; and Office of Management and Budget Memorandum M-06-26. On recording exclusion actions in past-performance databases, see Department of Homeland Security testimony to the House Committee on Oversight (2010). For the contrary view that the "too big to debar" premise is mistaken, see Jessica Tillipman, "A House of Cards Falls: Why 'Too Big to Debar' Is All Slogan and Little Substance," and her subsequent commentary at briberymatters.com; Tillipman is a law school dean and practitioner in this field, and Section 9.8 states her argument against our own. Current-year figures for administrative agreements should be checked against the Interagency Suspension and Debarment Committee's annual report before publication.
- Competition in Contracting Act of 1984; Federal Acquisition Regulation Part 6. On the justification requirement and its contents, FAR 6.303; on tiered approval authority, FAR 6.304, under which authority rises from the contracting officer to the procuring activity's competition advocate, then to the head of the procuring activity, then to the agency senior procurement executive, with the intermediate and highest levels non-delegable; on the competition advocate, FAR 6.501–6.502; on public posting of justifications to the agency website and SAM.gov, FAR 6.305 and Congressional Research Service R48980. Dollar thresholds are adjusted periodically and differ for the Department of Defense, NASA, and the Coast Guard; verify the current figures before publication rather than relying on the approximate values described in Section 3.1. On the absence of personal consequence for noncompetitive award absent corruption, and on the adjacent statutes that do carry it, see the Antideficiency Act, 31 U.S.C. §§ 1341 and 1349–1351; the Procurement Integrity Act, 41 U.S.C. §§ 2101–2107; 18 U.S.C. § 201 (bribery and gratuities); and 18 U.S.C. § 208 (acts affecting a personal financial interest).
- Market-level concentration figures are drawn from analyses of USASpending obligation data by industry classification. We report them as approximate and directional. The dispersion in published totals for individual contractors — roughly $50 billion to $74 billion for the largest firm in fiscal 2025 across sources — reflects differences in parent-company rollup, obligations versus revenue, agency coverage, and reporting period, and is itself the basis for the measurement standard proposed in Section 4.4. Any published version of this paper should compute these figures from USASpending directly, state the methodology, and avoid secondary aggregators; we encountered at least one widely circulated concentration statistic that contradicted the underlying figures in the same source.
- 52 U.S.C. § 30109(d), providing that a knowing and willful violation aggregating $25,000 or more in a calendar year is punishable by a fine and up to five years' imprisonment, and that violations aggregating $2,000 or more but less than $25,000 carry up to one year. On civil penalties, 11 C.F.R. § 111.24, setting the ceiling for a knowing and willful violation at the greater of an inflation-adjusted figure or 200 percent of the contribution or expenditure involved. The Commission refers matters it believes knowing and willful to the Department of Justice, which makes an independent charging decision. Penalty ceilings are inflation-adjusted annually; verify the current figures before publication.
A note on the author
Issue papers are published under the name of 1863 Leadership rather than an individual byline. Where this paper speaks in the first person, the author is its founder, who served in the United States Marine Corps as a cryptologic Arabic linguist and spent fourteen years building and operating a multi-unit restaurant enterprise that competed against subsidized rivals and received no such support itself.
A note on sources
The load-bearing figures here come from the Congressional Research Service, the Government Accountability Office, and the federal courts. Where we rely on organizations that advocate on these questions — Good Jobs First on subsidy disclosure, the Brennan Center on campaign finance — the notes say so. The subsidy cost range in Section 2.2 is drawn from a Cato Institute analysis summarizing academic estimates, and we report the full range rather than the larger figure, consistent with our practice of citing the less convenient end of a range. Two items in the notes flag work still to be done before publication: the Sobel, Wagner, and Calcagno finding should be cited to the journal rather than to a summary, and the GAO competition figures should be checked against the most recent release.
Recommended citation
1863 Leadership. "Picking Winners." Issue Paper No. 7.
September 2026. 1863leadership.org
Corrections: None to date. Errors of fact are corrected on this page within one business day of notice, with a dated note describing the change.