WASHINGTON — Taking particular aim at overruns in defense spending, President Obama pledged Wednesday to save up to $40 billion a year through a government-wide overhaul of federal purchasing.
The White House is backing legislation by Sens. John McCain (R-Ariz.) and Carl Levin (D-Mich.) to reform defense spending. But the president also has ordered his budget office to develop new rules by this fall for the way everyone in government does business.
"This problem cuts across the government," Obama said at the White House in signing a memorandum ordering the review. Citing problems in defense spending, Obama said: "The days of giving defense contractors a blank check are over."
Included will be government functions that have been privatized and outsourced over the last 40 years, a practice Obama said does not always yield savings or take advantage of private-sector competition.
Obama cited a Government Accountability Office report from last year on 95 major defense projects that disclosed cost overruns totaling $295 billion.
The president blamed investments in unproven technologies, lack of oversight and "indefensible no-bid contracts that have cost American taxpayers billions of dollars."
Defense Secretary Robert M. Gates has been a critic of defense contracting, calling for changes during testimony before Congress in January.
Gates outlined steps to rein in contracting costs and is expected to propose the elimination of weapons programs plagued by cost overruns or performance problems.
The Pentagon also wants to reinvigorate its acquisition offices, which have been drastically cut by Congress over the last decade.
When he unveils details of the military budget next month, Gates is expected to outline new policies for choosing weapons systems and containing costs.
Overall, government spending on goods and services increased from $200 billion in 2000 to over $500 billion last year, the White House said. Reforms could save up to $40 billion each year, officials estimated.
Peter R. Orszag, director of the Office of Management and Budget, is to oversee the development of guidelines on contracting by Sept. 30, the end of a federal budget year in which the government is expected to run a $1.75-trillion deficit. Obama has pledged to halve the annual deficit by the end of his first term through tax increases for the wealthiest Americans as well as cuts in spending.
The president's memo directs the OMB to issue guidelines by July 1 for reviewing contracts to determine which are wasteful, inefficient or unnecessary. And by Sept. 30, OMB must issue guidelines on "sole-source" and other noncompetitive contracts as well as outsourcing.
Julian E. Barnes in our Washington bureau contributed to this report.