The recent shifts in federal priorities under the 2025 Trump Administration have created an environment of uncertainty for some government contractors. While there is a lot of emphasis right now on the “contract stops” and footing may seem unstable, there are still indications of “contract starts” and certain elements contractors know to be true:
- We know the federal government will always be remarkably stable compared to other industries.
- We know diversification is an effective protective measure.
- We know some industries are more insulated than others right now.
Understanding the Current Market Environment
With new executive orders and changes in federal priorities, it’s essential to stay informed. Here are some key areas to focus on:
Terminated Contracts
Stay updated on the types of delayed, modified or terminated contracts and understand the reasons behind these decisions with analyst-backed updates. This knowledge can help you understand when you may need to pivot strategies.
Executive Orders
Monitor new executive orders and their implications for your business. Understanding these changes will enable you to adjust your approach and remain compliant. Executive orders often create opportunities for companies to assist agencies in their implementations.
Funding Shifts
Track how federal funding is being reallocated, especially towards defense technology, immigration, border security, technology modernization, and the flow down to state and local municipalities. This can help you identify new agencies and markets of opportunity, should you need to adjust your business strategy.
Policy Changes
Stay informed about policy changes that could affect your contracts. This includes understanding new regulations, compliance requirements, and reduced regulations that may impact your operations.
The Government is Always Open for Business – Historical Resilience
Throughout history, moments of significant change and uncertainty, especially during presidential transitions, have tested the resilience and adaptability of government contractors. Here are some notable examples:
- Franklin D. Roosevelt’s New Deal (1930s): Focused on economic recovery and social reform, leading to increased government spending on infrastructure projects.
- Ronald Reagan’s Administration (1980s): Emphasized deregulation and tax cuts, creating opportunities for contractors in defense and technology sectors.
- Barack Obama’s Administration (2009-2017): Prioritized healthcare reform and renewable energy investments, opening new markets for contractors in these fields.
- Donald Trump’s First Administration (2017-2021): Focused on immigration policies and economic deregulation, creating opportunities for contractors involved in border security, defense and infrastructure projects.
While today’s environment may seem on the surface to be quite different from the past, adapting to new priorities and diversifying your portfolio are still the top strategies needed in our ever-evolving landscape of government contracting.
Exploring the SLED Market as a Diversification Strategy
As federal priorities shift, it’s an ideal time to consider diversification with the US State, Local, and Educational (SLED) government market. The SLED market offers $2 trillion worth of opportunities for government contractors. Here are some reasons to consider this market:
Diverse Opportunities
The SLED market comprises a wide range of projects, from infrastructure development to education initiatives. This diversity allows you to explore various sectors and find niches that align with your expertise.
Stable Funding
With some federal funding flowing to states and localities, the SLED market remains a strong option.
Lower Entry Barriers
There are lower barriers to entering the SLED market than in federal. With often fewer requirements and complexities, it can be a strong market to recoup some lost federal revenue and diversify your portfolio.
Whether pursuing federal, SLED, or even Canadian government contracts, winning public sector work is about building trust, understanding the agency’s needs, and positioning yourself as a partner in their success. These best practices will help protect your firm from shifts in federal priorities to remain competitive no matter the market change.
High-Demand NAICS Codes: Where to Focus Your Efforts
In addition to exploring more state and local business, some industries will provide a bit more insulation during these market changes and are receiving signs of future federal investment from this administration such as technology modernization, advanced defense technology and mission-critical professional services. Partnering with other firms as a sub-contractor is a great way to get exposure into new industries and diversify your footprint.
The North American Industry Classification System (NAICS) codes are a standardized method to classify business establishments based on the type of economic activity they engage in. These codes are crucial in government contracting as they help agencies identify potential vendors, categorize procurement opportunities and in the federal market determine small business classifications. By focusing your efforts on high-demand industries, you can strategically position your business to find and secure new opportunities in the government contracting market. The following list highlights just a few of the industry areas analysts see continued strong federal spending and growth:
| 334511 | Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing |
| 336413 | Other Aircraft Parts and Auxiliary Equipment Manufacturing |
| 336414 | Guided Missile and Space Vehicle Manufacturing |
| 336415 | Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing |
| 336419 | Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing |
| 423430 | Computer and Computer Peripheral Equipment and Software Merchant Wholesalers |
| 517410 | Satellite Telecommunications |
| 518210 | Computing Infrastructure Providers, Data Processing, Web Hosting, and Related Services |
| 541330 | Engineering Services |
| 541511 | Custom Computer Programming Services |
| 541512 | Computer Systems Design Services This code is for businesses that design computer systems that integrate software, hardware, and communication technologies |
| 541519 | Other Computer-Related Services This code is for other computer-related services |
| 541611 | Administrative Management and General Management Consulting Services This code is for businesses that provide administrative management and general management consulting services |
| 541715 | Research and Development in the Physical, Engineering, and Life Sciences |
| 928110 | National security |
| 33641 | Aerospace Product and Parts Manufacturing, which includes manufacturing, developing, and overhauling aircraft, missiles, and space vehicles |
In these changing times, it’s crucial to have the right solutions to help you navigate the complexities of government contracting.
Frequently Asked Questions
- What are the key challenges contractors face during a Presidential Transition? Contractors must contend with changing budget priorities and contracting strategies and establish relationships with new agency leadership. There are often delays in new RFPs and/or awards that may impact contractors’ timelines.
- What strategies can contractors use to adapt to shifting federal priorities? Contractors should evaluate several aspects of their strategic plans to assess alignment with the new administration’s budgetary and policy agenda. This includes evaluating solution offerings, changes to new agency leadership priorities, teaming strategies, and pipeline composition and health.
- How can contractors identify new opportunities during periods of political change? Finding new opportunities in a new administration requires contractors to assess the tactical and operational requirements of new or changing program priorities. Whether it’s emerging technology enablers, sought-after expertise or other innovations, contractors should position themselves to partner with government to address evolving priorities.
