Government Contracts in 2025: More Fixed-Price Contracts, Budget Cuts, and Regulatory Reforms on the Horizon

The Trump administration moved quickly to fill key positions ahead of inauguration day. And for good reason: it can only achieve its objectives should new leadership not get bogged down moving through Congress.

In any case, major government contract and procurement changes, shifts in spending trends, and regulatory reforms are on the way. Here’s what current and aspiring government contractors need to know.

A Rise in Fixed-Price Contracts

The new administration will aim to transfer financial risk away from government budgets and toward contractors by, for instance, awarding fixed-price contracts versus cost-reimbursable ones. Contractors will need to deliver and require more financial discipline. This may also increase the number of requests for equitable adjustments or additional reimbursements to address contract overages.

Grant recipients, meanwhile, will be under the procurement microscope.

The days of blanket grant awards will begin to go away, opening the door to innovative contract terms, like award fee sharing, cost sharing, or other incentive-driven fixed-price stipulations.

The Department of Government Efficiency Comes Online

Expect the new Department of Government Efficiency (DOGE) to have considerable influence in budget developments for government fiscal year 2026. For instance, DOGE will likely look to:

• Move spending from the federal government to state governments and public-private partnerships.
• Make quick budget cuts to “empty” government facilities and implement personnel reductions. For example, according to the Public Buildings Reform Board, federal buildings in Washington, DC, had a 12 percent average occupancy rate in 2023 and millions of square feet of vacant space.
• Focus on waste, fraud, and abuse arising from spending on programs that are not seen as critical. For example, DOGE has cited international organizations that receive $1.5 billion in grants as candidates for reductions or elimination.

It’s worth noting, however, that DOGE does not have formal power or authority, and its recommendations would need to be enacted by federal agencies or Congress.

Further budget reductions are expected in the Department of Education, Internal Revenue Service, Environmental Protection Agency, Department of Housing and Urban Development, and Department of Agriculture—though these will not occur without extensive debate.

Government Spending Trends Yield New Opportunities

Despite an overarching concentration on budget cuts, contractors will have many opportunities in the year ahead, including anticipated spending increases in:

• Border infrastructure construction.
• Construction of energy plants and infrastructure, both upstream and downstream, as part of an effort to achieve energy independence. An emphasis on artificial intelligence (AI) technology will also drive the need for more natural gas, coal, and domestic energy resources.
• Upgrading defense infrastructure and weapons programs, including cyber defense and cyber weapons, offensive and defensive autonomous vehicles, drone aircraft, self-guided watercraft, and the Space Force (though with the Department of Defense recently failing a financial audit for the seventh time, there will be heavy scrutiny on spending by contractors).

Contract Administration Challenges

Reductions in government agency spending and new regulatory priorities will have widespread impacts on contract administration. For instance, federal staff reductions—not to mention return-to-office policies—could affect contract oversight and employee morale.

On the regulatory front, the focus on waste, fraud, and abuse by contractors will raise the bar on compliance. Significantly, defense contractors will have to achieve Cybersecurity Maturity Model Certification as the result of a new regulation that went into effect in December 2024.

Preparing for the New Administration

Contractors can start by undertaking a critical review of their opportunity pipeline.

Ask yourself:

Is my company reliant on a single agency?

Could this agency move to the states for funding?

Will the agency now receive heightened spending oversight or additional funding? Should my company start diversifying its portfolio?

Leveraging a project management office—or even applying the DOGE concept within your organization—can help.

Consider innovative proposal techniques, including share in savings, efficiency gains, and other cost-saving measures, to enhance competitive positioning for new awards.

Finally, understanding the new dynamics at play—reductions in federal agency staff, political and legal pressures, or regulatory streamlining—will be vital as organizations prepare for an unpredictable government contract landscape in the year ahead.