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Agentic AI Becomes a Federal Priority, Reshaping the IT Services Value Chain for 2026

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What is the demand for agentic AI from federal agencies?

Federal agencies have shown increasing interest in agentic AI, fueled largely by efficiency mandates from the Trump administration. These mandates, which originated primarily from the Department of Government Efficiency (DOGE), are expected to continue at least until the second half of federal fiscal year 2026 (FFY26). There are unconfirmed reports that DOGE has been disbanded and that the U.S. Office of Personnel Management has taken over DOGE’s responsibilities as of 3Q25. However, TBR believes that key leaders from DOGE have transitioned into other roles within the federal government and are still working to execute on DOGE’s core mission. The Trump administration continues to aggressively push agencies to accelerate their adoption of automation technologies and modernize their IT infrastructures. At the same time, federal systems integrators (FSIs) continue to invest heavily in the development of agentic and other AI technologies.


TBR anticipates AI-led modernization will take center stage in the federal IT market in FFY26, after the disruption from DOGE and the 43-day federal shutdown that began the fiscal year subsides. Federal agencies are increasingly embracing AI technologies to automate IT management and ensure mission success. Health and human services agencies will leverage AI to enhance benefits processing, while agencies in the Department of Defense (DOD) will use AI to streamline and secure defense supply chains and enhance battlefield operations.


FSIs, including Accenture Federal Services (AFS), Booz Allen Hamilton (BAH), CACI, CGI Federal, Leidos and SAIC, report growing demand for agentic AI across all federal sectors and are increasingly being tapped to develop and deploy new agentic AI systems in civilian, defense and intelligence operational environments.

Which parts of the value chain will AI disrupt? And who will capture the AI revenue?

AI is fundamentally transforming public engagement and workload processing across civilian agencies. Although many call center agents, dispute adjudicators, intake processors who manually input data, and regulatory clerks are being replaced, many are being upskilled in AI technology to enhance their productivity. Internally, FSIs are offering AI training to their employees to stay ahead of AI-based disruptions in these roles. Externally, FSIs are offering AI training to policy analysts, financial auditors, supply chain operators and regulatory compliance staff in federal agencies. Often, these people are being trained by the FSI’s consultants, who have developed AI expertise since the pandemic.


Vendors with extensive portfolios of offerings that deliver AI-enabled customer experience at scale (e.g., AFS’s multilingual service and workflow automation solutions; BAH’s automated regulatory approval platform) are generating early revenue and profit streams. Civilian agencies also need to consolidate disparate systems across their operations, prompting FSIs like AFS to emphasize enterprise AI and data transformation in their offerings for the Department of Education, the Internal Revenue Service, the United States Social Security Administration, the Centers for Medicare & Medicaid Services, the Department of Veterans Affairs (VA) and the U.S. Department of Homeland Security. FSIs are also actively establishing or enhancing partnerships with commercial AI leaders, such as Palantir, to build AI-ready data networks. Among the DOD, Intelligence Community and civilian law enforcement agencies, AI is enhancing and automating data analysis, operational decision making and mission execution.


AI is upending the IT modernization process: AI-assisted code generation and test automation are accelerating DevOps adoption; security implementations increasingly feature automated controls; AI is being used to scale, monitor and repair modernization platforms; and cloud implementations increasingly depend on AI for migration mapping. Software developers, cloud and platform engineers, program auditors and cybersecurity specialists at both federal agencies and within FSIs are enhancing their productivity and relevance by upskilling in AI.


The Trump administration wants to fundamentally transform federal contracting by adopting more outcomes-based engagement models, which TBR believes will be accelerated by AI-enabled efficiencies in agency procurement processes. While the administration has furloughed large portions of the federal acquisition workforce, the remaining contracting officers, pricing analysts and acquisition planners will be required to adopt AI-based platforms and methodologies, emphasizing data-driven requirements for vendor selection and AI-driven service-level agreements. TBR has observed FSIs introducing more AI “as a Service” solutions for federal procurement — a trend we expect will accelerate in FFY26.


The most labor-intensive activities in federal operations are facing significant disruption from AI, and FSIs such as AFS, CACI and SAIC are steadily introducing new AI-enhanced accelerators, product operating models and automation tools to reduce agency dependence on human resources and increase platform-led delivery of low-level tasks.

Vendors are leveraging AI in many ways, including:

  • AFS expects strong bookings for its Agentforce for Public Sector, which will enable AI-based automation in federal contact centers.
  • SAIC enhanced its alliance with ServiceNow in 3Q25 to bring new agentic AI technologies to defense and intelligence missions.
  • FSIs with strong footprints in federal health IT (e.g., Leidos, BAH and Maximus) are implementing AI technologies to reduce backlogs and automate claims processing services at the Department of Health & Human Services and the VA.
  • Leidos’ federal civilian, defense, intelligence and healthcare clients are scaling their use of next-generation agentic AI, creating opportunities for Leidos to strengthen the security of new AI platforms. The company’s recent acquisition of Kudu was made to enhance Leidos’ capabilities in AI-enabled offensive cybersecurity.
  • SAIC emphasizes its partner-agnosticism to derive opportunities from the adoption of emerging commercial AI in federal IT environments.

What services are needed in a new AI world? What is needed for the transition?

While demand for AI is growing rapidly, several factors are complicating its widespread implementation across federal agencies. For example, the Government Accountability Office (GAO) has repeatedly documented that federal agencies’ “legacy” IT systems are outdated and need to be modernized. The GAO has even recommended that Congress force agencies like the Department of Energy to outline modernization strategies, given the critical nature of their systems.


Robust, modern infrastructure is necessary to fully reap the benefits of AI. Federal agencies will need to pivot away from outdated mainframe systems and archaic software as part of their digital modernization efforts. With the Trump administration aiming to reduce the headcount of non-defense agencies by 107,000 in FFY26, the adoption of scalable and secure cloud infrastructure will accelerate to ensure that AI and other productivity-boosting technologies can be implemented across the federal civilian market.


More vendors like Peraton are operating as cloud services brokers to help agencies customize their cloud platforms with third-party services, capitalizing on demand for these cloud capabilities. Investments in 5G, zero-trust security, large-scale storage and more will also be necessary to ensure agencies have cloud infrastructure capable of leveraging emerging technologies. Similarly, agencies will need guidance from FSIs as they prepare their data for AI and educate their workforce on how to use it.


Federal agencies have traditionally refused to be locked into one hyperscaler’s platform, requiring FSIs to maintain relationships with all of them to avoid limiting potential opportunities with clients. As demand for AI rapidly increases, vendors are becoming more dependent on their partner networks. They have been deepening existing relationships and seeking new allies to gain an edge in AI and other emerging technologies that align with the priorities of the Trump administration.


General Dynamics Information Technology (GDIT) is one vendor tracked in TBR’s Federal IT Services Benchmark that has notably expanded its partnerships since 3Q24. For example, GDIT is working with ServiceNow to augment GDIT’s Cove AI Ops digital Accelerator with ServiceNow’s AI and machine learning IT operations platforms to optimize clients’ workflows while further exploring how AI can support federal agencies. The vendor is also working with Everfox to develop an AI solution that helps clients predict when discontented employees are likely to become insider threats, enabling preemptive security of sensitive data.


The Trump administration has strengthened the federal government’s ties with commercial technology companies through initiatives like Detachment 201: The Army’s Executive Innovation Corps and the Genesis Mission. As a result, vendors are likely to continue seeking closer relationships with these entities in FFY26, especially given the growing influence of the private sector on how both defense and civilian agencies adopt and utilize AI.