President Barack Obama announced on March 4 that he is revamping the process by which the U.S. government gives out contracts in an effort to stoke competition and cut down on wasteful spending.

Obama ordered White House Budget Director Peter Orszag to work with agencies and the Cabinet to come up with a plan to reduce contracting waste by July 1. He also ordered Orszag to develop guidelines that end superfluous no-bid and cost-plus contracts that allow prices to go up over the course of a job.

"There is a fundamental public trust that we must uphold. The American people's money must be spent to advance their priorities – not to line the pockets of contractors or to maintain projects that don't work," Obama said.

Government spending has more than doubled since 2000, from $200 billion then to $500 billion now. According to Obama, these changes have the potential to save up to $40 billion a year in wasteful government spending.

These changes, if implemented, will likely have the largest effect on the defense contracting industry, which has seen the largest increase in government spending in the last decade. But Obama's proposed changes could also have a dramatic impact on the way USAID does business.

There is a controversy within the development community as to what kind of contracts USAID prefers. Because the agency lacks resources to monitor all contracts, it tends to give out these types that don't require much oversight – a lump-sum contract for instance, in which the contractor is paid a flat fee for work with little accountability during the process. If Obama's proposals come to be, such practice could change.

Compared to defense spending, USAID spending is a drop in the bucket. Whatever regulations are drafted could deal specifically with rewards coming out of the Pentagon and have little impact beyond it.