As we get closer to the mid-point of 2025… We clearly have experienced some interesting and continuously evolving times since the beginning of the year. While the headlines in the daily news about DOGE seem to have subsided somewhat, there continues to be change and disruption across the space. Many companies are already well underway with the response both at the strategic and tactical levels – at the link below is just one of many perspectives out now on what companies of all sizes are doing to adjust and evolve to meet the new challenge and opportunity landscape that will likely carry on through the remainder of 2025.

At the link below, Deltek provides a report from mid-May on a 2025 outlook. Lots of interesting data, but it comes from a survey of companies in early January, so well before DOGE was underway and having the impact it did. Some highlights:

• Contractor Confidence Drops: The Government Contractor Confidence Index fell by 3.5%, hitting its lowest point in six years, and signaling increasing caution around federal spending and growth prospects for contractors.
• Efficiency is a Focus: Labor and the rising costs of goods remain among the top concerns for contractors. Firms reported that improving internal efficiencies is their primary strategy to overcome these barriers.
• AI Adoption Surges: 45% of respondents are now using artificial intelligence to streamline their operations and enhance business development efforts—up 10 percentage points from last year.
• Small Business Struggles Intensify: Many small business contractors continue to face slower growth and limited access to federal resources. Nearly half (46%) of small business respondents indicated that they aren’t currently taking advantage of federal support programs such as 8(a), which could help ease growth barriers. These contractors also report the greatest difficulties in adopting new technologies like AI and managing rising labor and compliance costs.
• Compliance Costs Are Rising: More than half of respondents anticipate increased compliance costs due to updated CMMC requirements and related infrastructure upgrades and tools. Enterprise firms have already invested an average of $100K or more. While small businesses have typically spent far less, the DoD estimates the cost to support a CMMC Level 2 Certification for SMBs will be around $100k.
• Proactive Business Development is a Must: Finding opportunities too late was the top business development challenge. The industry’s top performers – those in the top 10% of self-reported new bid win rates – are leveraging AI, proposal automation, and early lead identification to stay ahead.

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