- The GovCon market is expected to remain highly competitive in 2026, according to analysis by Kevin Plexico, Deltek senior vice president of information solutions, a six-time Wash100 awardee and a GovCon Expert.
- The state, local and education market is broadly seeing a transformation as it shifts away from a reliance on federal funding
- Lear more from Plexico at the 2026 GovCon Executive Leadership Summit on Feb. 26!
The year 2025 was in many ways a tumultuous one, and the government contracting market is expected to remain highly competitive in 2026. To develop a winning strategy that can help fill their sales pipelines, government contractors need to have a clear line of sight into the external factors that are most likely to impact the contracting market.
For instance, the federal market saw contractors experience unprecedented policy shifts, aggressive efficiency initiatives, and fundamental regulatory transformation under the Trump Administration’s second term. In SLED (state, local and education), a desire for “affordable government” and the need for efficiency compete with increased spending on AI (artificial intelligence) and public safety. And in the Canadian market, a renewed focus on defence and infrastructure is becoming increasingly important.
These are just some of the factors contributing to a complex but opportunity rich landscape for government contractors to navigate in 2026. Below, we’ve compiled a deeper analysis of each government market in 2026, some of the key trends to watch, and next steps that businesses selling to the public sector can take to gain the clarity and control they need to make next year a successful one.
U.S. Federal Government Trends for 2026
Department of Government Efficiency (DOGE) contract terminations, broad acquisition policy changes, aggressive agency workforce reductions, and the recent government shutdown were all major events in 2025 that caused many federal contractors to shift their strategies.
While those factors will continue to reverberate and create a more intense competitive environment, we’ve identified several other trends to watch in 2026:
- Budgets and Spending: Post-shutdown contracting delays, DOGE-driven terminations and a clear split in defense vs. civilian spending ($831B+ defense vs. potentially declining civilian budgets) have created unprecedented market volatility. Given the multiple continuing resolutions for FY 2025-2026, the final FY 2026 discretionary budget – when it arrives – will provide the administration’s much needed latitudes to carry out their spending agenda.
- The General State of the Economy: The Trump Administration tariff agenda has contributed to some economic instability, with mixed signals showing 3.8% GDP growth alongside rising inflation, wage pressures, and other costs that contractors cannot fully recover under fixed-price contracts.
- GSA Acquisition Reform: In its role as executive agent, GSA is tasked with contract consolidation, using various strategies like the new Office of Centralized Acquisition Services (OCAS), OneGov direct-to-OEM purchasing, and pending mandates for the use of existing government-wide vehicles.
- FAR Overhaul: The Revolutionary FAR Overhaul (RFO) strips the FAR to statutory essentials, grants contracting officers broader discretion across set-asides and source selection, and mandates “commercial-first” approaches prioritizing existing vehicles over new procurements. Although agencies can incorporate RFO revisions now, formal rulemaking to codify the changes is expected to begin in earnest in 2026.
For a comprehensive list of the federal trends to watch in 2026, contractors can view the full Federal Trends to Watch report from Deltek GovWin IQ, which highlights both timely trends and critical insights for government vendors.
SLED (State, Local and Education) Government Trends for 2026
The SLED market is broadly seeing a transformation as it shifts away from a reliance on federal funding. Instead, our SLED government forecast for 2026 projects stabilizing in bidding activity from SLED governments, with more contract activity being done through cooperative purchasing and specific focuses on a few industry areas in particular.
Here are four trends we are tracking:
- Artificial Intelligence Ramps Up. The growth in AI spending has implications for what’s being purchased as well as the buying process itself (i.e., whether AI will be used in performing that service or delivering that product, and whether AI is used to complete the proposal or respond).We expect strong bid trends to continue and robust growth rates in AI through 2027 and well beyond.
- Infrastructure is Resilient. The funding allocations from the IIJA (Infrastructure Investment and Jobs Act) are officially done by the end of 2026 and contract spending will continue through 2027. State and local government support will help bridge any gaps from reduced federal funding. The consensus is that total AEC spending will slow but not decline over the next 1-2 years.
- Public Safety is Strong. This sector benefits from recent federal support for law enforcement and the border in the One Big Beautiful Bill, and powerful societal trends toward increasing safety and security in multiple areas.
- A Focus on Funding and Budgets. Q3 revealed a spike in financial RFPs while state budgets are up for the 2025-26 fiscal year. Many state governors this year discussed a need for efficiency and a more “affordable government.” More financial and consulting services will be needed to keep up with changes in federal funding and grants, develop forecasts and create plans.
Canadian Government Trends for 2026
Recent federal legislation, and the responses to U.S. tariffs, will encourage Canadian governments to focus more of their spending in several priority areas, including some of those that we’re seeing in SLED. Below are four trends in our 2026 Canadian Market Outlook that are worth following in the year ahead.
- Revitalizing Strategic Defence Capabilities. Canada’s government is accelerating its defense expenditures to reach 2% of GDP by 2026 (and 5% by 2035), modernizing defense procurement, and upping its contributions to NATO.
- Driving Economic Renewal Through Infrastructure. The federal government is investing in “nation-building” projects, housing, and other major infrastructure. The federal budget cycle is also being moved to the fall to accommodate planning for the construction season.
- Redefining Governance in the Age of Artificial Intelligence. Strategic investments in AI and other key technologies are transforming Canadian governments, a 2025 trend we expect will continue into 2026 and beyond.
- Charting a New Course in Global Partnerships. The public sector will be impacted by ongoing trade negotiations and further repercussions from the trade war with the U.S., potentially spilling into other areas like defence partnerships.
Government contractors who take the time to understand the time to understand each of the key trends from the governments that they sell to, and incorporate their learnings into their business development strategies, will gain the clarity they need to develop a stronger strategy for success in 2026 and beyond.
