Axed $170 million contract shows how DOGE-led cuts came over US Navy objections

Business Insider

3 days ago

A US Navy contract to move sailors' server-stored records to a secure cloud system was recently torpedoed as part of DOGE-led cuts that show how top officials are under pressure to find large cost-savings even over the objections of their own organizations.
An IT services provider named Pantheon received a $170 million contract last year to relocate the records threatened by flooding from a Tennessee data center to cloud storage. But a top Navy official ordered it to be cut, at the suggestion of Department of Government Efficiency newcomers, over the strenuous warnings of their own personnel officials.
An internal memo reviewed by BI highlighted that the system that DOGE recommended reverting to has been plagued by delays, a bloated budget, and little to show for it all.
Continued "delays have resulted in the Navy having to expend even more resources on legacy systems that are past end of life and do not meet the needs of the Service," the memo said.
The Navy's Information Officer argued the contract was duplicative of legacy software, and justified the cancelation with the idea that government workers could do the same cloud migration contractors were then performing.
But none of that is true, three sources familiar with the contract said, arguing this was hype from Navy leaders eager to offer up juicy cuts to DOGE officials to boost their own standing.
The "decision, driven by demonstrably false and misleading claims, directly contradicts the Administration's goals of cutting waste, improving efficiency, and reforming failing IT programs," a second internal document says.
If the archaic data center in Tennessee floods, as Navy HR officials fear, the impact to personnel would be excruciating, sources said, hampering salary payments, recruiting efforts, and stalling promotions. Without such data on hand, it would be impossible to know who is eligible to promote and when, or even how to readily assign qualified troops during a war. The location maintains records for the over 330,000 sailors on active-duty.
"We were making good progress," said one Navy official familiar with the efforts, a tough chore considering that dozens of interconnected systems feed data throughout each other system for Pantheon's 500 data workers to map out. The Navy halted their work and canceled the contract earlier this month. Military.com first reported the contract's cancelation last week, and potential impacts to sailors' careers.
The modernization efforts were led by the Navy's "N1," the military equivalent of a human resources section that oversees almost all Navy administrative matters, led by Vice Adm. Richard Cheeseman. Sources told BI that oversight passed only recently to the Navy's Chief Information Officer, Jane Rathburn.
Internal documents reviewed by BI noted that the CIO's office told DOGE officials that the contract was duplicative, and that the government would be better served relying on old software known colloquially as "NP2."
But the Pantheon contract was anything but duplicative, as the CIO claimed, and the company would have saved the Navy hundreds of millions, according to sources. What's more, the old NP2 system has its own problems.
Sources said that by the time Pantheon arrived, the legacy software's price tag had ballooned to an eye-watering $1 billion over the last five years in Tennessee, with no real progress to show. One source estimated the actual cost to be closer to $5 billion.
A source with knowledge of Pantheon's work, and who voiced support for DOGE goals of improved efficiency, noted that the NP2 program requires staffing and oversight from the Navy. He suggested that rendering NP2 obsolete — in part by through contracts like Pantheon's — could mark some government offices and jobs for elimination.
The debacle began to unfold just before Secretary of Defense Pete Hegseth directed the DoD to curb IT contracts, and instead "in-source more expertise and harness the unparalleled talent of our existing experts," according to a memo released this week.
Navy leaders underscored to DOGE officials that government employees could instead tackle the cloud migration efforts. But internal memos decried such a move, noting that government personnel have not performed any of the hundreds of previous migrations, and calling such an idea "not financially responsible."
Navy spokesperson Ferry Gene Baylon told Business Insider that the contract was canceled based on recommendations from DOGE.
"The Navy is focused on the wellbeing of the men and women who serve as we look to optimize resources essential to Navy personnel systems, pay management, and operational readiness," Baylon wrote in an email, adding that "it would be premature to comment on the details of future contracts." She did not comment on internal memos.
Sources told BI that Pantheon has already received $30 million of the $170 million total due. Now, it's unclear what will happen next to fix sailors' data, and who will be in charge.
That the data in Tennessee will continue to be at-risk rather than proceeding with Pantheon will inevitably hurt sailors, the Navy official said, adding that amid years of recruiting challenges, the service's ability to retain its force depends on paychecks.
"If you can't pay them or promote them correctly, you're not going to keep people," the official said. "They're going to leave, rightly so, because they're not being treated the way they deserve to be treated."