Understanding the New Landscape of Defense Spending and Its Impact on SMBs

As the U.S. government heads into a period of tightening budgets and increased scrutiny, the landscape for federal contracting appears increasingly challenging, especially for small and medium-sized businesses (SMBs) like yours that are engaged or looking to engage with governmental bodies. A recent forecast from the Professional Services Council (PSC) suggests that defense spending is projected to rise through 2035, while civilian agencies are facing budget cuts, making it vital for SMBs to understand how this may affect their opportunities.

Projections from the PSC Forecast

According to PSC’s latest federal market forecast, defense spending is expected to continue increasing by approximately 2% annually, following an initial surge resulting in a $1 trillion budget in fiscal 2026. This rise in defense budget comes amid a backdrop of cuts and stagnant budgets for civic agencies; it signals a potential shift in federal contracting strategies and opportunities that SMBs should be aware of.

In a world where legislative gridlock can create uncertainty, businesses that are agile and maintain strong relationships with their congressional representatives and advocates will likely fare better. “It’s best to keep your customers close and your congressional supporters and lobbyists closer,” says Mike Riley from PSC, emphasizing the importance of staying connected within the federal procurement ecosystem.

 See Related Article:

US economic forecast Q3 2025 and what this means for small business

Priorities in the Defense Sector

Currently, the Department of War (DoW) appears to be undergoing a strategic realignment, focusing heavily on the Indo-Pacific region, along with greater emphasis on homeland security initiatives and Latin American operations. SMBs that can align their services and products to meet these strategic needs may find opportunities amidst shifting agency priorities.

Jason Dombrowski, another PSC volunteer, notes an increasing involvement of the Pentagon in domestic politics, suggesting that businesses should be prepared to adapt their approaches accordingly. Those involved in sectors that support the military’s homeland security focus can position themselves to benefit from this strategic pivot.

Furthermore, the administration is also investing significantly in modernization and infrastructure areas, particularly with the Golden Dome missile defense system and shipbuilding efforts. If your SMB has capabilities in innovative technologies, this could be an avenue worth exploring.

The Role of Acquisition Reform

The DoW is undergoing sweeping acquisition reforms led by War Secretary Pete Hegseth, aimed at fostering greater competition and enhancing the speed of procurement processes. These reforms present an exciting opportunity for SMBs to enter the defense industrial base more readily. The new strategies promise lower barriers to entry for small vendors, but the impact of recent personnel cuts across the contracting workforce raises questions about effective implementation.

While many stakeholders remain cautiously optimistic about these reforms, it’s vital for SMBs to stay informed about the updated regulations and how they can position themselves as viable contenders in the federal market. At Select GCR, we offer extensive resources on navigating these acquisition processes effectively.

Identifying Winners and Losers in Today’s Market

In this evolving federal landscape, some sectors may face significant challenges. Areas such as legacy systems and advisory services are expected to face cuts, particularly as the DoW reallocates funds toward higher priority initiatives. Contrarily, sectors focused on research, development, and advanced weapons technology stand to gain from increased investment.

Dombrowski points out that while the DoW’s budgeting remains tight due to inflation, there remains a keen interest in energy resilience. SMBs involved in sustainable technologies or solutions may find new opportunities here, given the government’s prioritization of energy-efficient options.

Moreover, logistics and scalability are becoming significant focal points, hinting at a need for agile production capabilities. Demonstrating your business’s ability to quickly ramp up production in crisis scenarios will be crucial for attracting interest from federal partners.

How Select GCR Can Assist You

For SMBs looking to break into or grow within the government contracting space, understanding the complex landscape of federal spending and acquisition is crucial.

Here’s how we at Select GCR can help:

1. Consulting Services: We provide tailored consulting services to assist businesses in understanding and navigating federal contracting laws and regulations. Whether you’re a veteran-owned business or a startup, we guide you through the pitfalls of government contracts.

2. Resources for Veterans and Disadvantaged Groups: As a business owner in groups such as veteran-owned service-connected disabilities (SDVOSB) or small disadvantaged businesses (SDBs), you may qualify for grants and opportunities not available to mainstream contractors. Explore options that could potentially bolster your business.

3. Training Workshops: We offer workshops that cover essential topics from understanding SAM registration to Federal Acquisition Regulation (FAR) compliance, helping you gain a competitive edge in the contracting arena.

4. Networking Opportunities: Join our networking events to connect with other vendors and government representatives. Establishing strong relationships is paramount in federal contracting, and networking can provide the insights you need to secure contracts successfully.

5. Market Intelligence: Stay updated with the latest market trends and forecasts relevant to your sector with our detailed reports. Knowledge of government priorities can help you align your services effectively.

For upcoming opportunities and tools specifically designed for SMBs, explore our services at Select GCR.

Conclusion

As defense spending continues to rise, the path can seem daunting for SMBs trying to carve a place in federal contracting, especially with the anticipated cuts in civilian agency budgets. However, by adapting to new priorities, leveraging acquisition reforms, and remaining proactive about opportunities within the DoW, your business can navigate these changes effectively.

For more insights on government contracting, check out our blog for a wealth of resources designed to help your business thrive in this competitive arena. Remember, understanding the federal landscape and being prepared to pivot as necessary can make all the difference in securing your spot in government contracting.

Sources

– Federal News Network

– Government Executives

See The Latest In Government Contracting News