2026 Predictions: Federal IT Services

Senior Analyst John Caucis and Analyst James Wichert explore how a turbulent 2025 — marked by budget uncertainty, a prolonged government shutdown and shifting federal priorities — is setting the stage for a more stable, but structurally different, federal IT market.

Learn why 2026 is likely to bring stabilization rather than a full rebound, with defense, intelligence and national security-related spending remaining resilient while civilian agencies take longer to normalize procurement cycles.

Additionally, the pair will look at what will matter most in 2026: accelerating partnership activity, deeper engagement with commercial technology providers, and AI-led modernization as a core differentiator for federal systems integrators

Episode highlights:

• The new normal, post-government shutdown

• Prioritizing defense over civilian or health opportunities

• TBR’s federal IT services portfolio focuses for 2026

“Well, it’s been a heck of a ride in 2025 to be sure. So, I think one of the easiest predictions is that things are going to stabilize finally. However, what we’re keeping an eye on is the timeline of that stabilization, especially now that we factor in the 43-day government shutdown that kicked off federal fiscal ‘26 in October. What we’re hearing, what we’re observing, the vendors that we track, what they’re saying is that some agencies may not get back to normal in terms of procurement, in terms of funding cycles, in terms of the cadence of funding until late March or even the second calendar quarter of next year. I think it’s going to be concentrated more in the civilian sector than the defense and intel,” said Caucis.

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Edited by Haley Demers

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Art by Amanda Hamilton Sy

2026 Predictions: Federal IT Services

TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms. Where we talk business model disruption in the broad technology ecosystem from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors, and chip manufacturers to value-added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors. 

I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about our 2026 federal IT services predictions with John Caucis, Senior Analyst for TBR’s Federal IT Services Practice, and James Wichert, Analyst for TBR’s Federal IT Services Practice. 

Predictions: The new normal, post-government shutdown

I’m here with John and James to talk about the Federal IT Systems Integrators, the group of companies that they cover as part of their research here at TBR. So, what we want to talk about today, John and James, is what your prediction is for 2026. What do you see coming? We’ll cover that first, and then I’d really love to hear what you want to dive deep into. What are the trends? What particular company? What are you seeing in the market that you know in 2026 is going to take up a lot of your time? So, John, why don’t you go first? Give us a prediction for 2026.

John Caucis, TBR Senior Analyst: Well, it’s been a heck of a ride in 2025 to be sure. So, I think one of the easiest predictions is that things are going to stabilize finally. However, what we’re keeping an eye on is the timeline of that stabilization, especially now that we factor in the 43-day government shutdown that kicked off federal fiscal ’26 in October. What we’re hearing, what we’re observing, the vendors that we track, what they’re saying is that some agencies may not get back to normal in terms of procurement, in terms of funding cycles, in terms of the cadence of funding until late March or even the second calendar quarter of next year. I think it’s going to be concentrated more in the civilian sector than the defense and intel. 

And that kind of leads me to my next prediction, which is that defense, intel, and in the civil market, the overlap, the national security overlap in the civil market, border security, law enforcement, those sectors are going to remain robust. We’re seeing that as we tabulate the current data for the third calendar quarter benchmark, which will be out in a couple of weeks. I expect to see that happening in the fourth quarter as well as we then move into federal fiscal ’26. So, we’re keeping our eye on how long is it going to take before things return to normal and what’s that new normal going to look like.

Patrick: Right, but a new normal, but you’re anticipating it’s going to be a more stable kind of year for 2026 with respect to federal IT services spend and the rest?

John: Well, I don’t think it can be disrupted any more than it has been. So, things, what goes down, you know, must come up at some point.

Patrick: Yup.

John: However, what’s important to keep in mind is that the underlying demand for digital modernization remains intact. It has endured throughout this process. And the drivers of the disruption in the market in 2025 are actually pushing the market to accelerate AI-led digital transformation. And that’s what we expect to see. That’s going to be an area that we’re also keeping an eye on in 2026.

Prediction: Prioritizing defense over civilian or health opportunities

Patrick: All right, absolutely. And so, James, what do you think is going to happen next year?

James Wichert, TBR Analyst: So, I mean, looking back to 2025, there was a lot of disruption around the federal civilian market. And a lot of that entailed, you know, more programmatic work, more consulting-oriented engagements. And the Trump administration’s skinny budget proposal for federal fiscal year 2026 calls for non-defense spending to be slashed by, it’s like north of 20%. Simultaneously, defense spending, like John mentioned, it’s going to increase. It could be north of $1 trillion this year. And what I would say is we’re seeing- what we saw during 2025, and we’re going to keep seeing it happen in 2026, is more vendors expanding their portfolio into the defense base to capture those additional opportunities. So, for example, take Maximus. Maximus is a company that just historically has been more in the federal civilian space, working in federal health, but they’ve been appointing more leaders with defense backgrounds. And they’ve been finding ways to align their portfolio of cybersecurity and IT solutions with defense agencies’ needs rather than just purely civilian agencies. 

Patrick: Right.

James: And it’s been fairly successful thus far. They’ve gone from zero meaningful defense wins in like the last few years to all of a sudden just two in the last few months with the US Air Force that are genuinely interesting and could evolve into something more. Now in the same breath, you know, civilian spending is not going to go away. I just see vendors being more strategic, you know, jockeying for certain opportunities. So, you know, the Department of Government Efficiency may be gone as like a standalone entity in that wave of contract terminations. But elements of its mission still remain within the federal document, streamlining operations, combating fraud, waste, and abuse. So you wind up with vendors like GDIT or CGI developing solutions that can streamline those operations, increase productivity, leverage all these emerging technologies that are in demand, like AI, but you have to fully do that, there’s still a ton of work to be done.

Patrick: Right.

James: And yeah, they have a lot of outdated infrastructure that needs to be modernized. And with their headcounts being rapidly reduced during the next year or so, they need to invest in IT. So, there’s still plenty of opportunities for IT vendors.

Patrick: Right, and it’s fascinating that they would be- it’s not fascinating that the companies would be moving to where the money is. That totally makes sense. It seems to me though that if they already have two wins, just talking about Maximus. So, they’re introducing Maximus and others then a new competitiveness to the market that wasn’t maybe there yesterday or last year or the year before. So that’s a good thing, I would think, overall.

John: Yeah, I think to your point, there’s still going to be plenty of headroom for growth in the defense sector and national security, border security, and the intelligence space. And vendors like Maximus that we haven’t traditionally seen go after that market are looking at their portfolios. They’re seeing the differentiation there. And they’re looking for ways to repurpose. And this is kind of the opposite of what we’ve seen over the last few years, where the growth in the civil market prompted several of these integrators that we track to take a second look at their defense IT capabilities and find ways to repurpose them for civilian applications. We’re now seeing that have been flipped on its head. And competitors like Maximus and others, you know, what can we do? How can we take some of the technologies, the capabilities, the platforms that we built for the civilian space and reimagine them for use in the defense sector?

Federal IT services portfolio focuses for 2026

Patrick: All right, excellent. And let’s, and maybe that’s one of the trends, but let’s pivot now to what are you going to individually, personally, professionally dive deeper into in 2026? What’s one of the companies or the issues or the trends or the technology or whatever it might be that you’re looking forward to sinking your teeth into this coming year? James, we’ll go to you first.

James: Thanks. So, I would say during 2025, there was this significant ramp up in partnership activity. And that was something I was following with General Dynamics Information Technology. It was a company, a business segment that really didn’t announce that many partnerships. And then all of a sudden there was just this wave of them. They just kept coming one after another. And then eventually their leadership team disclosed this past summer that, this is all intentional, this is all part of their strategy to enhance the digital accelerators they’re working on and to align their portfolio with the Trump administration’s needs. 

Patrick: Right.

James: I think they’re kind of the perfect example in the market of what we’ve been seeing for all these vendors, where the most successful ones are ramping up their partnership activity. They’re increasingly leaning on commercial technology companies. We’ve even seen the federal government itself lean on commercial technology companies lately with Detachment 201 and the Genesis mission. So I think you’re going to keep seeing vendors that want to compete, that want to really make a difference and capture on all these like shifting priorities that the government’s looking to spend on, they’re going to ramp up their partnership activity and that’s going to continue into 2026.

Patrick: That’s perfect because that’s, I mean, as you know, our ecosystem intelligence reports have become the hottest selling thing we have. But really, truly, it has opened up a lot of opportunities for our clients to see their world in a slightly different way. And then that was being pushed by what was happening in the commercial sector. But hearing that it’s happening and going to be happening even more in the fed space is fantastic. John, what about you?

John: Well, I kind of have to dovetail on James’ point about partnerships, but then kind of drill down one level. The kinds of partnerships, the kinds of companies that we’ve observed the bulk of partnership activity over the last year, and that’s in the AI space, which is not surprising. I think AI-led modernization is really going to be the mantra in federal IT in the current fiscal year, which is fiscal ’26, as well as in fiscal ’27. We have seen a significant uptick in the amount of partnership activity, expanding existing collaborations with people like Palantir, Shield AI, and the like, as well as forging new collaborations with these companies. They’re out in front. While we don’t track the Palantirs of the world explicitly, we are kind of tracking them, softly tracking them based on their activity with companies like Booz Allen Hamilton, who vastly, they might have been the most active company during 2025 in terms of tying up, shoring up their collaboration with Palantir. But in the AI space, especially, and that’s something overall that we’re going to be keeping an eye on, and we’re going to be trying to inject more AI-focused research, TBR insights, TBR opinions around the AI topic as relates to the federal systems integrators in 2026.

Bets for most discussed company in 2026 

Patrick: Excellent. So, let’s wrap this up with, we’re going to be sitting here in a year. So, in December of 2026, give me the name of one company and maybe two reasons why you’ve talked about that company more than any other company over the course of 2026. So, I’m not saying who’s going to grow the most. I’m not saying who’s going to fall apart. I’m just saying what’s the company that in December of 2026, you need to look back and say, we couldn’t stop talking about, John.

John: Booz Alan Hamilton. The company that got hit hardest within the sphere that we track, the slice of the market that we’re following. Their civil business is expected to be down over 20% when their fiscal year wraps up on March 31st of ’26. We’re going to find out just how smart they are, whether they’re going to parlay all of that expertise. They’ve been in the market for over a century. As I just mentioned, they’ve gotten out in front of the AI wave by shoring up partnerships with Palantir and the like. They also have a very- they just tripled the funding that they’re allocating to Booz Allen Ventures, their internal joint venture C Capital Group. So, a year from now, they may not have recaptured those double-digit growth rates. They just came off of a three-year stretch of double-digit top-line growth. I was fully expecting to see their revenue hit at $11 or $12 billion. That’s not going to happen, unfortunately. But how quickly are they going to get back on track? I think underpinning that is going to be certainly how quickly can they affect a rebound in their civil business? Because their defense business is still strong and they do have the largest, as I understand it, over a billion or billion and a half in AI specific revenue coming from the defense sector. So, they’re one of the leaders there. That’s going to be a growth engine for them. But how are they going to rebound? And not just them specifically, but we’ve observed this, James can certainly talk about the impact of the civil slowdown on his companies, but how are companies going to recapture, get their mojo back in the civil space?

Patrick: Yeah, fantastic. And that’s such a- it’s always been a fascinating company and to hear where they are right now and to say this is a pivotal year for them. I love the way he framed it that, you know, we’re going to find out how smart they really are. So, all right, James, what do you got?

James: I kind of wanted to say Maximus, but I’ve already, like, talked about what they’ve been doing in the defense base. So, I’m just going to cave and give it to Peraton. I think Peraton’s just an interesting story. Recently, they secured the FAA’s north of $10 billion contract to be their main integrator. And Peraton had a strange year. It was a lot of difficulties. I thought they would go public initially, but then with all the leadership changes they were doing with Stu Shea out the door, I figured that was in the cards. And then, you know, that didn’t happen with the waves of just all of a sudden changes, the Department of Government efficiency, all that. It just didn’t happen. There was some disruptions to their business this year, but that went with the FAA. It’s very, very promising for them. And I’m curious to see where they go through 2026.

Patrick: So, do you think this will be the year they go public? Or do you think it will be December 2026, we’ll be saying so they didn’t do it again.

James: That’s a great question. 

Patrick: We’ll come back in December 2026. 

James: Yeah *laughs* I was so much more confident last year that they would go public and then everything else happened, just made it chaotic.

Final thoughts

Patrick: Excellent. All right. Thank you, gentlemen. Appreciate it. 

John: Thank you. 

James: Thank you.

Patrick: We’ll be taking a break over the winter, and we’ll be back with season 5 later in 2026. 

Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies, large and small, answer these questions with the research, data, and analysis that my guests bring to this conversation every week. 

Once again, I’m your host, Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.

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