Guest Post: Four Federal A/E/C Budget Takeaways for Government Contractors in FY2025

Article contributed by Deniece Peterson, Deltek

Federal FY2025 Budget Takeaways for Government Contractors

The annual U.S. federal budget request release is a time when government contractors are paying especially close attention to market conditions for the year ahead. That’s why every year, Deltek’s Federal Market Analysis team analyzes the federal budget request for GovWin IQ. This year, our team reviewed the budget details for our Federal A/E/C Budget Outlook Report, and we found some interesting details worth noting for the biggest departments and agencies.

In this article we offer a quick examination of the top-level trends that GovWin’s research team identified in the budget request release, specifically areas that are most relevant to companies who offer A/E/C (architecture, engineering, and construction) services to the federal government.  

U.S. Federal Government Contracting Trends for FY2025

The President is requesting $34 billion for A/E/C-related activities for FY2025, representing a 2.5 percent decrease from FY2024 estimates. The administration included funds authorized by the Infrastructure and Investment Jobs Act for federal agency use, as well as funds to improve Department of Defense (DOD) facilities that support readiness, adapt facilities for climate resilience, and improve medical facility infrastructure.

Interestingly, the trendlines are different in different areas of the A/E/C market. Most of the overall federal A/E/C expenditures (more than 65 percent) are related to construction services, and this segment decreased from an estimated $26.5 billion in FY2024 to a requested $25 billion in FY2025. On the other hand, requested funding in the architecture and engineering services category is $7.4 billion for FY2025, an increase from an estimated $6.7 billion in FY2024.  

DOD represents more than 40 percent of the overall contractor-addressable budget, and budgeted spending from those agencies remains very strong. The Army is projected to have roughly the same contractor-addressable budget as it did in FY2024, and the budget is also expected to increase for the Navy. Conversely, spending from the Department of the Interior was estimated to be $4.6 billion in FY2024 but is projected at just $1.6 billion for FY2025.

Four A/E/C Government Contracting Areas to Monitor

In Deltek’s full Federal A/E/C Budget Outlook Report, our research team examined each of the top market segments and major federal departments in more detail. From that information, we have called out four areas for A/E/C vendors to be aware of.

1. Budget Constraints. The Fiscal Responsibility Act limits growth in discretionary budgets, driving agencies to seek cost efficiencies via contract support and increased automation.
2. Made in America Standards. The Biden Administration continues to push for more American-made goods in infrastructure projects, particularly through the Build America, Buy America Act. The Federal Highway Administration’s proposed rule on Buy America Requirements for Manufactured Products is also in progress.
3. Climate Resilience. The FY2025 budget request proposes investments to address facilities’ climate resilience, with departments including DOD, General Services Administration, and Department of Veterans Affairs planning targeted facilities upgrades and modernization. Contractors should also be prepared to address climate impact provisions that are emerging within requests for proposals.
4. Targeted New Construction. Although much of the funding from the Infrastructure and Investment Jobs Act remains and budgets are tight, agencies are planning selective and modest investments in some of their priority construction projects.

Deniece Peterson is Senior Director of Federal Market Analysis for Deltek.