Contracting Process Changes Complicate Industry Outlook

The absence of information continues to handicap the ability of federal contractors to conduct strategic planning: deciding where to invest, who to hire, what companies to partner with, what companies could be merger/acquisition target are just some of the questions contractors must wrestle with routinely. Not knowing what agencies plan to spend (Congress doesn’t know either) on specific programs and activities between now and the end of FY25, let alone how much they’ll have to spend in FY26, makes answering those questions more difficult.

Add to the budget information gap a new factor—turmoil in federal contracting procedures. The Trump administration wants to consolidate contracting and simplify federal contracting regulations. Even if the simplifying of federal acquisition is something contractors have requested for decades, in the short term that adds to the challenges of doing business with Uncle Sam.

DOUBLE WHAMMY?

What’s the intersection between budget uncertainty and contracting process confusion? First, the second straight year of appropriations five months into the fiscal year pushes more agency contracting decisions into the fourth quarter (July – September). Second, the combination of flat or falling federal spending in specific markets (especially on the civilian side) and near-simultaneous changes to contracting likely results in increased competition for fewer overall opportunities. Finally, a Trump executive order undercuts traditional congressional preferences for contracting with small businesses and potentially preferential contracting opportunities such as set-asides for women and minority-owned businesses —see the January 20 EO in Chart I below.

WHO YA GONNA CALL?

Contractors must maintain relationships with different parts of a federal agency: program managers to understand requirements and come up with solutions that meet them; policy officials to understand agency strategic priorities; and contracting shops to understand not just what the government hopes to buy but how it plans to buy and what types of funding will be used. Agencies can issue requests for information, sources sought notices, hold industry days to talk to vendors, plan competitions, even before funding is provided by Congress. Some of that communication will take place as usual this summer. It’s unclear how the restrictions on federal travel for conferences or “other non-essential purposes” in the February 26 “DOGE” executive order will affect contracting officers.

Those conversations will answer key questions. Will the acquisition be funded with research and development dollars, procurement funding, or from (typically) one-year operation and maintenance/salaries and expenses appropriations? Will the government use a single award or multiple award contract? Will it use an Other Transaction Agreement or a similar R&D type of contracting? Will it use simplified acquisition rules? Is it going to be categorized as a commercial acquisition? Will it use an existing contract vehicle? These and many other questions must be explored by the government and often they interact with industry to make those decisions. But as government contracting is consolidated, that may mean contractors will have to form new relationships, or existing relationships may be altered.

DEFENSE ACQUISITION UNIVERSITY’S “CONTRACTING CONE”

As noted in Chart I, the March 20 EO calls for consolidating the number of federal contracts. The Government Services Agency (GSA) (which already handles a number of government-wide contracts), Congress, and the White House Office of Federal Procurement Policy have been working on this objective for several years but the EO suggests greater urgency. Also flagged in Chart I on page 13, there are talks underway to move two of the largest federal contracts from the agencies that issued them to GSA. That could affect contractor-government communications. For example, contracting officers at NASA working on the SEWP contract (the next iteration, now in source selection, could be worth $60 billion) are transferred to GSA. Or what if the NIH’s CIO SP3 (the next iteration could have a $50 billion ceiling) contracting shop takes longer to return calls because they aren’t sure if they are being transferred or going to be declared surplus?

These two examples of transfers to GSA may not happen this fiscal year but they do point to the additional uncertainty for both the government and contractors across the government; other contracts may move more rapidly to GSA.

Meanwhile, a Congressional response to the Jan. 20 EO for the role small business plays in federal contracting may also show up in FY26 appropriations action or the FY26 National Defense Authorization Act. While FBIQ is predicting a high chance that FY26 appropriations will eventually end in a full-year CR, we’re also predicting that it will be more prescriptive, than the FY25 bill, especially for civilian agencies. Included in those details could be language that reinforces Congress’ traditional support for small business or, alternatively, backs Trump’s view that some aspects of set-asides unduly advantage minority businesses.

Credit: Defense Acquisition University

WHAT’S AHEAD

In the short term, the churn in federal contracting has the potential to further exacerbate the challenges for both federal agencies and federal contractors to put funds on contracts in Q4 – July 1-September 30. In the medium term, say through FY26, federal contractors will need to gather intelligence about which contracts (and contracting officers) are likely to move to GSA and build the appropriate relationships. Over the longer term, the number of contract vehicles, especially multiple- award indefinite-delivery/indefinite quantity contracts will decrease. Depending on the number of seats on those contracts remaining, that may spell fewer chances of winning work.

Experts in federal contracting argue that many of the changes sought by the Trump administration can be made without legislation. One big exception is some of the small business subcontracting goals and set-aside categories (e.g., women- owned businesses. The Small Business Act, 15 USC 644(g)(2), establishes mandatory floors for small business contracting goals. If statutory changes are requested by the administration, the most likely path for consideration would be via the NDAA, which annually contains an entire title dealing with acquisition policy (some provisions typically affect only DOD, some all of government) and is considered a “must-pass” bill.

Finally, expect some of the other issue areas raised by the Trump Executive Orders to be addressed in the NDAA, whether in legislation or in report language.

Chart I. Source: White House, GSA, Federal News Network, NextGov, FBIQ