DOGE generated significant initial turmoil in federal IT that could linger through the end of FFY25, but in the longer term, the key technology focus areas of Trump 2.0 will generate new growth streams

Following the January 2025 inauguration, President Trump’s administration immediately generated upheaval across the federal IT segment with the creation of the Department of Government Efficiency (DOGE). Within weeks, thousands of technology and professional services contracts described by DOGE as “non-mission critical” were canceled or scaled down. Federal IT and services vendors also struggled with an initial lack of clarity and transparency as to how DOGE’s advisory board would evaluate the merit of federal contracts, making effective strategic planning nearly impossible.

As 1Q25 progressed, the IT priorities of Trump 2.0 began to take shape, and the administration slowly increased its collaboration with technology industry vendors to develop and implement digitally based solutions to drive greater efficiencies in government operations. The administration’s IT strategy is heavily biased toward accelerating the digital modernization of federal IT infrastructures, maximizing border security with advanced digital technologies, and implementing software-defined capabilities across defense and national security operations while pivoting from a hardware-centric to a software-centric approach in technology procurement.

The Trump administration also has plans to leverage digital technologies to fortify the nation’s electrical grid, modernize air traffic management, ensure dominance in the maritime and space domains, and enhance healthcare services for veterans. The Department of Defense (DOD) is prioritizing the development of the “Golden Dome” missile defense shield, and federal IT contractors with large-scale DOD-based operations like Booz Allen Hamilton (BAH), CACI, General Dynamics Technologies (GDT) and Leidos are already collaborating with Pentagon planners to develop initial pilot programs.

The specifics behind Trump 2.0’s investment imperatives regarding defense and national security, IT modernization and other areas are still in development, though early indications from the administration’s 2026 budget request suggest federal IT vendors can expect significant new outlays by Trump 2.0 in digital transformation and in technologies that support DOD and Intelligence Community (IC) missions. The federal IT community will have to navigate additional disruptions from DOGE and the typical budgetary turmoil in Congress as new budgets are debated and discussed, but the longer-term outlook for the sector is positive in TBR’s view.

DOGE’s impact varies across the vendors covered in TBR’s Federal IT Services Benchmark. The contractors with the most extensive footprints in the defense and intelligence sectors experienced minimal DOGE-based disruption to their P&Ls or order books in early 2025. The opposite was true for vendors with a significant share of their operations in the civilian sector, though, and was especially apparent among the consulting-led vendors (i.e., Accenture Federal Services, BAH, Deloitte Federal, IBM Consulting and, to a lesser degree, CGI Federal).

The impact of DOGE on the federal M&A market, which saw a minor resurgence in activity in 2024, remains unclear, though Leidos did end its two-plus-year M&A hiatus with the purchase of a cybersecurity specialist early in 2Q25.

BAH and ICF brace for contraction in FY26 as defense-aligned peers prepare for growth under Trump’s pro-defense agenda

BAH and ICF International were hit particularly hard by DOGE in 1Q25, and each company’s respective outlook for the remainder of FFY25 and the beginning of FFY26 is a clear reflection of how DOGE has upended the civil market. BAH’s Civil unit posted flat sales in 1Q25 following 13 consecutive quarters of double-digit growth from 3Q21 through 3Q24, and the company expects low-double-digit contraction in civilian-sourced revenue in its FY26 (ending March 31, 2026), which in turn will significantly moderate the firm’s FY26 overall sales growth.

BAH is projecting that its FY26 revenue will be flat to up only 4% following three straight years of double-digit top-line expansion, with the steep deceleration driven exclusively by the company’s expectations for contracting civilian growth. ICF’s full-year revenue growth guidance currently ranges between -10% and 0%, which translates to between $1.82 billion and $2.02 billion in revenue during 2025.

The Trump administration’s recent “skinny” budget proposal for FFY26 suggests that nondefense spending will fall from around $720 billion in FFY25 to approximately $557 billion in FFY26, representing a 23% decline. Contractors with any level of exposure to the civilian sector can expect agency reorganizations, layoffs, budget reductions and in-depth contract reviews within civil agencies for the remainder of FFY25 and likely into at least the first half of FFY26. The pace of new awards has already slowed significantly at some civilian agencies, as has the rate of new bookings on existing civilian engagements.

BAH, CACI and Leidos anticipate continued strong growth in their DOD and IC units in FY26. This is consistent with what TBR has observed at other defense- and intelligence-focused federal IT peers, which appear to be well aligned with the Trump administration’s emerging defense and national security priorities. Defense discretionary spending will not be reduced, according to the Trump administration’s skinny budget proposal, and could even surpass $1 trillion when factoring in the House and Senate Armed Services Committees’ proposed defense reconciliation bill.

The federal IT community should expect some progress toward federal procurement reform during Trump’s second term, including a marketwide shift to more fixed-price and outcome-based structuring of IT engagements. Some federal professional services and IT vendors claim they have been advising federal clients to embrace more fixed-price contract approaches for years. Others are already working with federal procurement organizations, such as BAH, which is helping the General Services Administration develop innovative ways to transform federal procurement using digital technologies.


TBR has already observed several federal IT contractors adjust their go-to-market messaging to emphasize how they deliver innovation at speed within outcome-based contracting arrangements, as well as to deemphasize anything that could be considered consultative in their portfolios. Vendors will also be tapped by federal agencies to navigate the elimination of regulations and ways to enhance public-private collaborations between government agencies and industry.
Having a well-managed, robust ecosystem of partners will be key for federal IT vendors to navigate the near-term DOGE-based disruption and to position strongly for new opportunities to digitally enhance operating efficiencies in the later years of Trump 2.0.

 

TBR’s Federal IT Services Benchmark focuses almost exclusively on the U.S. federal IT market. The benchmark provides growth data and analysis specific to the federal defense and federal civilian sectors. Some of the vendors we track have operations in public sector markets outside the U.S. federal government sector. We detail some additional developments and/or market trends in other public sector markets in the report’s appendix, but our principal research and analytic focus remains the U.S. federal IT sector. To gain access to our latest federal IT data and analysis, start your TBR Insight Center™ free trial today.