The United States Department of Defense spends billions of dollars annually on outsourcing functions to private contracted companies without knowing if their actions are effective. Guided by Feigenbaum, Henig, and Hamnett's theory of privatization and President Eisenhower's warnings of the impending military-industrial complex, the intent of this grounded theory study was to develop relevant theory regarding how the Department of Defense might accomplish missions through outsourcing during current and future fiscal constraints. This study sought to understand the perceived effectiveness of outsourcing Department of Defense functions through the perspectives of 2 employment groups directly affected by such outsourcing: federal employees and privately contracted employees. In this study, 24 federal employees and 20 privately contracted employees completed qualitative surveys about their perceptions of effectiveness in regards to outsourcing Department of Defense functions. Data were inductively analyzed through open, axial, and selective coding via constant comparison. Findings from this study generated a grounded theory, one positing that 2 distinct elements are important in outsourcing during fiscal constraint: well defined legal requirements and private sector technical expertise. Evidence from this study suggests that when these elements are in place, outsourced Department of Defense functions can progress, regardless of fiscal restrictions. The implications for social change include assisting political leaders with better decision making in support of effective national security policies, while providing good stewardship of tax payer funds.