Guest Post: Six Trends for Federal and SLED Contractors to Watch in 2025

Contributed by Deniece Peterson, Senior Director of Federal Market Analysis, and Brent Mital, Senior Research Analyst, Deltek

Under new leadership, the evolving government contracting environment is undergoing dramatic change. Policy shifts, budget scrutiny, technology demands, and reform initiatives are happening at lightning speed and have created a complex landscape for government contractors in 2025.

While new developments occur daily, there are a few broad trends that will impact the federal and SLED (state, local and education) contracting landscapes throughout the year ahead. Expanding agency missions, increased compliance requirements, and intensifying competition continue to drive several themes that will impact contractors’ operational costs, business development strategies, and competitive positioning during 2025.

Here are six specific trends that our research teams behind Deltek GovWin IQ have found to be worth watching for federal and SLED contractors aiming to sustain or grow their government business in 2025.

Uncertainty Under the New Administration

The Trump Administration has issued a flurry of executive orders and memos, some of which, if implemented, have implications for federal and SLED contractors (many are facing legal challenges). Efforts to pause and review federal assistance, foreign aid, regulations and federal hiring have potential implications for contractors, though a lack of clarity regarding scope and execution makes strategy development difficult. As the Trump Administration’s policy agenda evolves, it will be critical for contractors to maintain awareness, continue contract performance and develop strategic agility.

Contract Consolidation; a Continuing Issue to Watch

Category management practices have been and will continue to be a major factor driving a decrease in the number of standalone or unique contract opportunities. There has been a continued increase in contract spending (along with growth in contract and task order size) flowing through large GWAC and IDIQ contracts. Midsized and large businesses are likely to pursue more subcontracting opportunities as prime opportunities decline.

Also worth watching is the impact of the declining number of prime opportunities for small businesses, which are often unable to finance competition for positions on those vehicles.

Contract Spending Going to Fewer Contractors

Directly related to contract consolidation is the amount of contractors that are able to serve as primes. Although total contract spending has increased 29.3 percent over the past 5 years, the number of unique or standalone contracts has been declining – along with the number of vendors winning awards. The consolidation of contracts into larger vehicles (e.g., GSA’s Multiple Award Schedule) is reducing the number of prime contract opportunities.

The contractor pool is also shrinking, particularly small businesses, which are leaving the federal market faster than new small businesses are entering.

Artificial Intelligence Remains Relevant

The strong growth trajectory in spending on AI goods and services from FY 2021 to 2023 is expected to continue in both the federal and SLED markets. At the same time, there are a few factors worth watching as the AI contracting market continues to develop.

• Recent policies regarding AI acquisition and national security emphasize innovation while also addressing technological risks.
• The Trump Administration has already repealed the AI Executive Order and has plans to promote policies with reduced regulation and barriers that may stifle AI innovation at agencies.
• Federal agencies aiming to integrate AI into their organizations must address challenges such as investment in AI-enabling infrastructure, data reliability and ethical and regulatory concerns.
• Artificial intelligence solutions are being integrated into major federal contract vehicles, with no current plans to establish a separate vehicle for the technology. More SLED organizations are leveraging AI tools in their procurement efforts as well.

Relative Stability in State and Local Spending

The SLED market is in reset mode, finding its footing in a post-pandemic era where it will rely less on federal funding (with the end of ARPA stimulus winding down in 2024) and more on organic growth in tax collections. While being somewhat sensitive to the economy, it is expected to stabilize and begin a more typical pattern of incremental growth.

SLED governments saw about 5 percent fewer bids in 2024, but this trend is expected to stabilize or post positive growth by 2026 as resilient governments continue to meet needs and make necessary investments regardless of the sector.

Expanding Horizons in Cooperative Purchasing

SLED governments are increasingly turning to cooperative purchasing as a strategy to save time and money, especially in the face of ongoing inflation and economic uncertainty. Traditionally used for commodities and routine products and services, cooperative purchasing is now expanding to include more complex offerings, potentially attracting a new audience. According to current GovWin projections, the market size is expected to grow from approximately $74 billion in 2024 to nearly $100 billion by 2026.

For more detailed information on trends impacting the contracting market this year, don’t miss the Federal Contracting Trends to Watch in 2025 and 2025 SLED Government Contracting Forecast free summary reports.