DOGE Federal IT Vendor Impact Series: ICF International

The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of May 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

ICF struggles as uncertainties mount

While several vendors in TBR’s DOGE Federal IT Vendor Impact Series have managed to largely escape the Trump administration’s chainsaw, ICF International has not been as lucky. ICF’s revenue from the U.S. federal government plummeted 12.6% year-to-year and 7.0% sequentially, to $239.6 million, in 1Q25. Contract terminations and stop work orders have surged, upending around $115 million of ICF’s FY25 revenues as of May 1 and $375 million of its backlog. Solicitations and award activity also began to slow as DOGE started assessing contracts, causing ICF’s pipeline of opportunities also to contract from $11.2 billion in 4Q24 to $10.5 billion in 1Q25.

 

ICF was already struggling with unfavorable year-to-year comparisons as it was letting small business contracts that it inherited through its wave of digital modernization-focused M&A activity from 2020 to 2022 roll over while it faced delays on some programs for the U.S. Agency for International Development (USAID). The Trump administration has quickly dismantled USAID, a client that ICF holds multiple, lucrative engagements with, including a $236 million contract to facilitate the Demographic and Health Surveys initiative, within just a few months.

 

ICF’s programmatic business has been severely disrupted by the chaos at USAID and at other federal civilian agencies, with its consulting and engineering services work rapidly being scaled back. These types of engagements with the U.S. Department of Health and Human Services (HHS), which as ICF’s single largest customer in 2024 was responsible for 25% of the company’s $2.02 billion in revenue, are also under intense scrutiny. While ICF’s IT modernization work has not experienced any substantial disruptions thus far, solicitations and award activity have slowed down.

 

Being selective and pursuing optimal fixed-price contracts has helped ICF shed its margin laggard status in TBR’s Federal IT Services Benchmark over the last two years. While stop work orders and other impediments disrupt ICF’s economies of scale on federal engagements, the vendor has been able to mitigate some of the resulting impact on its operating margin by leveraging the demand for its highly lucrative commercial energy programs. For example, ICF’s operating margin of 7.9% in 1Q25 decreased 40 basis points on a year-to-year basis but increased 20 basis points sequentially.

How ICF will navigate 2025

ICF’s core federal client base is under unprecedented political pressure that will likely continue, given the Trump administration’s recent “skinny” budget proposal for federal fiscal year 2026 (FFY26). If enacted, non-defense spending will fall from around $720 billion in FFY25 to approximately $557 billion in FFY26, representing a 23% decline. This would result in five of ICF’s eight largest federal clients’ budgets being significantly reduced, upending the rapid expansion that the Biden administration nurtured over the last four years.

 

HHS’ discretionary spending would notably be slashed by more than 26% from $127 billion in FFY25 to $93.8 billion in FFY26 if this proposal is approved. This would negatively impact several health agencies, including the Centers for Disease Control and Prevention (CDC), which ICF has gained traction with after spending more than $600 million on M&A between 2020 and 2022 to penetrate the rapidly developing market. While several opportunities in the federal health market would be lost or meaningfully scaled back, the newly created “Make America Healthy Again” (MAHA) initiative could be a proving ground for ICF.

 

ICF can capitalize on the more than $500 million the MAHA program is set to receive in FFY26 by leveraging its public health research and ICF Next arm to help the new HHS initiative reach people and have an effective impact. Additionally, building out ICF’s existing fraud, waste and abuse capabilities to make them more applicable to agencies is another way for the company to ensure it is aligned with the Trump administration’s priorities.

TBR anticipates that the vendor will also explore ways to make its IT modernization and digital transformation work more agile while increasingly booking these types of engagements as fixed-price, outcome-based contracts, given the Trump administration’s preference for this contracting method. At least 50% of ICF’s IT modernization and digital transformation engagements are already fixed-price, outcome-based contracts.

 

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. ICF has made progress in the defense market over the years, with approximately 3% of ICF’s overall revenue coming from the Department of Defense (DOD) in FY24 and the vendor providing R&D as well as other services to an array of clients. While ICF will jockey for new opportunities to support the DOD and the Department of Homeland Security (DHS), TBR does not anticipate ICF will make meaningful progress in penetrating this space barring a drastic shift in M&A or alliance activity.

 

Although the majority of vendors in TBR’s Federal IT Services Benchmark have been keen to publicly share updates regarding their partnerships with hyperscalers and other allies over the last year, ICF has been largely reluctant to provide any news on its alliance activity. ICF will need to embrace its partners, leaning on commercial IT peers and hyperscalers to ensure it can successfully compete against top-tier vendors while bringing its portfolio more in line with the Trump administration’s goals.

 

Although ICF has relied on M&A activity in the past to rapidly build out its digital modernization business and expand its capabilities with low-code/no-code platforms, ICF is not likely to do this again anytime in the foreseeable future. ICF will not purchase any federal IT companies during 2025 due to the ongoing uncertainty in that space. ICF’s leadership team has, however, indicated that they are open to making another tuck-in acquisition in the burgeoning and highly lucrative commercial energy market.

 

ICF’s presence in the commercial energy market has been quickly growing and helped spur margin growth for the company while also bringing in additional revenue. TBR anticipates that the vendor will increasingly lean on this space and leverage its state and local client base to try and offset the disruptions plaguing its federal-facing operations. The health and social programs client market will continue to comprise a shrinking portion of ICF’s revenue in the near term.

 

Its contribution already declined from 42% of ICF’s revenue in 2023 to 38% in 2024. While there are still opportunities for ICF in the federal sphere and IT modernization is undoubtedly a long-term priority for the Trump administration, given DOGE’s efforts to reduce the headcount of agencies, the vendor will struggle during 2025. 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. TBR suspects that ICF’s operating margin will decline from 8.2% in 2024 to 7.8% in 2025 as the tumultuous environment prevents economies of scale.

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.