*Obama estimates reforms will save $40 bln annually

*Reforms would end unnecessary no-bid, cost-plus contracts

*Defense companies say they played by the rules

(Updates with additional quotes)

By Ross Colvin

WASHINGTON, March 4 (Reuters) - President Barack Obama said on Wednesday the U.S. government was paying too much for things it did not need and ordered a crackdown on spending "plagued by massive cost overruns and outright fraud."

The Democrat, under fire from Republicans for the $3.5 trillion price tag for his 2010 budget plan, also took aim at predecessor George W. Bush and noted the cost of government contracts had doubled to more than half a trillion dollars over the past eight years.

Obama, who inherited a $1.3 trillion budget deficit when he took office on Jan. 20, said wasteful spending was a problem across the government, but he zeroed in on the defense industry and costly weapons projects hit by "delay after delay."

"The days of giving defense contractors a blank check are over," Obama told reporters in a briefing on his reforms.