The Federal Government Shutdown: What It Means for Leading Federal System Integrators

How are federal systems integrators interpreting the latest federal shutdown?

Federal fiscal year 2026 (FFY26) began on Oct. 1, 2025, with the federal government shuttering most operations after lawmakers failed to reach a budget agreement. The current stoppage is the fourth full shutdown since 1995. The last federal closure was the 35-day partial shutdown that occurred from December 2018 to January 2019, during President Trump’s first term. TBR believes federal systems integrators (FSIs) are intensely concerned that the current shutdown will be as long and disruptive as the 2018-2019 shutdown.

Some integrators have noted that while the short-term impact of the shutdown will create a significant growth headwind in the current fiscal year, they expect to see opportunities to backfill shutdown-related sales gaps by mid-FFY26. Again, the duration of the shutdown will be critical, but federal IT vendors are hoping that Congress passes a continuing resolution to end the current shutdown.

Contractors are preparing for the worst-case scenario: Program funding is interrupted altogether for an unknown duration, which seems more likely this time around. The federal IT community is looking to prior shutdowns for strategies to navigate the latest shutdown, such as heavily scrutinizing their current order book for the most vulnerable engagements while prioritizing preservation efforts on strategic, mission-critical work. From what TBR is hearing, the final quarter of FFY25 was more irregular than usual in sweeps and budget flush, which does not bode well for the federal IT community.

Fortunately for contractors, the shutdown comes at the beginning of the federal fiscal year, when prior-year funding remains available, enabling them to continue working on some programs, at least until the funding runs dry. In contrast, the 2018-2019 shutdown began with fewer budget dollars available, exacerbating the fiscal disruption on contractors’ P&Ls and order books.

How are FSIs navigating the shutdown?

FSIs got a head start of sorts earlier in the year with their responses to the disruption caused by the Trump administration’s Department of Government Efficiency (DOGE), and we are seeing contractors take many of the same actions.

Vendors are again drawing closer to procurement staff in the agencies, and contractors’ development teams are pushing to launch recent contract wins, renewals and expansions as soon as possible, while accelerating the adjudication of programs in the business development pipeline. However, the furlough of so many contracting professionals across the federal government since DOGE’s cost-rationalization efforts began in January will make communications with agency acquisition counterparts more difficult than ever. TBR has heard that procurement staff in some agencies has declined by two-thirds compared to their size during the Biden administration. Many other agency contracting professionals retired early or accepted resignation offers.

TBR also expects the shutdown will impact vendor balance sheets in the third calendar quarter (FF4Q25) in terms of more aggressive collections and a sequential decline in days sales outstanding. FSIs will also have limited latitude with efforts to preserve profitability, as they had already implemented tighter expense controls in response to DOGE’s aggressive contract reviews and cost-cutting actions, leaving little room to further optimize operations and contract execution.

HR managers are struggling to manage myriad shutdown-related challenges affecting contractors’ workforces. HR teams are being forced to develop plans for employees most likely to be affected by the shutdown, in terms of temporary furloughs and reassignments, while having honest discussions about the potential for shutdown-driven furloughs becoming permanent. Vendors are reaching out to their strategic and solutions partners, which should expect leading integrators to help them navigate the shutdown.

Vendors are evaluating new cost-cutting measures to offset the inevitable erosion of margins that accompany any shutdown, which will include doubling down on efficiencies in operations and contract delivery, and, unfortunately, layoffs. Many federal IT professionals at FSIs have defected to commercial IT companies in the wake of DOGE’s impact on the federal technology sector, and attrition among IT workers could spike at FSIs, especially with a prolonged shutdown, creating additional challenges for FSI HR teams.

Project teams are preparing for the challenges of restarting programs stopped by the shutdown and expect, in some cases, it could take up to a week for paused programs to return to full operating tempo. Resuming project work will be complicated by layoffs across agencies and in the FSIs themselves.

We will hear from the federal IT community at the end of October — when the next earnings season begins — regarding how the FSIs expect the shutdown to impact current fiscal-year performance. The full impact will be visible with the 4Q25 earnings season.

What are the biggest risks facing FSIs amid the shutdown?

TBR believes federal IT vendors will suffer multiple margin headwinds, disrupted cash flows from operations, invoicing challenges, and delays in receivables collections in 4Q25 that may linger into 1Q26. We expect most FSIs will be forced to reduce growth, margin, earnings per share and cash flow guidance for FY25 or FY26.

TBR has observed IT professionals at both federal agencies and federal IT vendors departing the sector altogether since the changeover in administration, and we believe the brain drain of IT workers with significant experience and institutional knowledge of federal agency missions and IT infrastructures could continue during the shutdown. Once these people are gone, particularly professionals with advanced technological degrees and/or training in digital technologies like AI, cybersecurity and quantum computing, they will be very difficult to lure back, let alone replace.

Recent contract wins may be at risk of cancellation, and delivery timelines on programs that endure will be significantly delayed as contractors struggle to maintain communications with agency procurement staff. In some cases, program continuity will be disrupted as project teams will not have access to shuttered government facilities.

Contractors who fail to fully and proactively document every shutdown-related expense or disruption may not be able to recover those expenses when the government resumes operations. TBR has heard that once the federal government reopens, contractors may have only 30 days to submit reimbursement claims.

Which contractors are best positioned to minimize shutdown-related disruptions?

FSIs that operate as subsidiaries of larger global IT services firms or consultancies — for example, Accenture Federal Services (AFS), CGI Federal, Deloitte Federal and IBM Consulting’s federal operations — have been moving resources from federal projects to other public sector or commercial programs to retain highly experienced workers. However, transitioning them back to federal work after the shutdown may be met with consternation from workers reluctant to return to the turbulent federal market.

Leidos has more globally diverse operations than many other leading FSIs, with operations in Europe, the Middle East and Australia, as well as in commercial healthcare IT, and has the option of offering to reassign federal IT workers to projects in these markets to prevent them from leaving altogether.

The largest FSIs, particularly those with the flexibility afforded by strong profitability (e.g., Leidos, CACI and Booz Allen Hamilton [BAH]), will use the shutdown as an opportunity to cross-train large swaths of their workforce on AI, cloud, cybersecurity, data science and other emerging technologies, versus implementing layoffs, again to avoid losing skilled IT professionals. The leading FSI with strategic awards funded by prior-year appropriations (e.g., Leidos, BAH, CACI and SAIC) may also be able to avoid work stoppages or interruptions on ongoing, big-ticket engagements.

FSIs with significant volumes of work on programs considered “essential,” such as national security and national defense work, most notably CACI but also Leidos, BAH and SAIC, may avoid the same shutdown-related pitfalls as vendors without a large presence in the Department of Defense, Intelligence Community or national security agencies in the civilian sector.

Federal IT vendors with large cash reserves will be able to tap into their fiscal war chests to defray at least some of the financial impact of the shutdown on profitability, but this will mean deferring any funding for M&A, joint ventures or internal implementation of AI to streamline operations. Conversely, TBR expects small to midsize federal contractors, particularly those focused exclusively on the federal space, will suffer the most severe consequences of the shutdown.

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