GovCon enters uncharted territory in Trump's efficiency push

Government contractors hate uncertainty much more than they hate change.

Over the years, many executives have told me they just need to know what the change is so they can plan and adjust. They may not like the change, but they could at least figure out how to manage through it.

With the second Trump administration, there are a lot of ongoing changes with little-to-no clarity on what comes next.

Right now, the administration and the Department of Government Efficiency are almost exclusively focused on firing federal workers and cancelling contracts. They are not openly discussing the future.

We only know their priorities in the broadest terms – stronger border security and more defense spending in areas such as drones and the Golden Dome missile defense concept.

Spending on anything else remains a big question mark.

Our first glimpse will come when the administration releases its fiscal year 2026 budget proposal. That is still a few weeks away.

First, GovCon must get through the passage of a budget agreement for the rest of this current fiscal 2025. Or at least a continuing resolution that can run through the end of September.

As we wait for that budget proposal, we are entering unfamiliar territory because the Trump administration will continue to cut the federal workforce and cut funding across a broad swath of the government.

That is very different than anything we have seen before.

There are two tenets in the government market that dictate when industry is hurt and when it is not.

When administrations reduce the federal workforce, industry tends to benefit. There is more outsourcing to the private sector because the mission still needs to be met. Industry sees a growth opportunity.

After President Trump was elected, I heard several executives talk about how Trump’s push for efficiency could drive opportunities for the private sector.

Much of that talk has died down as DOGE has cancelled contracts. Industry fears have grown because of concerns that the government workforce reductions will leave a customer both under-staffed and ill-equipped to manage their contracts.

The second tenet is that when budgets are reduced, industry suffers. During the mid-2010s period of sequestration, revenue fall for just about every company in the market.

The aggregate value of prime contract obligations on our annual Top 100 fell for four straight years, from $117.4 billion in fiscal 2012 to $97.2 billion in fiscal 2015. It was another four years before the market returned to the 2012 level.

Before Jan. 20 and the kickoff of DOGE, I mostly heard people talking about the expected opportunities. But now no one knows what to expect.

Past attempts to control government spending have involved either budget cuts or reductions in the federal workforce, or both.

The industry has experience it can lean on in navigating both approaches.

But the next year and beyond is especially challenging because industry has never had to face both budget cuts and a shrinking federal workforce at the same time.

Several executives have told me they felt their business was secure because the mission remains intact. That level of certainty feels gone as we see massive layoffs at the Veterans Affairs and Education Department, plus the wind-down of the U.S. Agency for International Development.

If Trump’s fiscal 2026 budget proposal couples workforce reductions with budget cuts, then these could indeed be dark times for government contractors.