Washington - President Barack Obama promised to cut waste across all government agencies, announcing a review Wednesday of the administration's methods for awarding contracts.

With an economic crisis that has forced the government to run up a massive budget deficit, Obama said he could cut billions of dollars of spending in the Defence Department and other agencies by reducing cost overruns, ending needless projects and limiting the use of private contractors.

"It's time for this waste and inefficiency to end," Obama said at the White House, promising to "dramatically reform the way we do business on contracts across the entire government."

As an example, Obama cited a study by the Government Accountability Office that found cost overruns in 26 per cent of major defence projects, costing 295 billion dollars.

"We can't keep spending good money after bad," Obama said.

Obama signed a memorandum instructing the government's budget office to issue a new set of guidelines for awarding contracts by September.

He also instructed Defence Secretary Robert Gates to work with US senators Carl Levin and John McCain - Obama's former presidential rival who was present for the remarks - to reform the defence procurement process. (dpa)