By Kevin Plexico, Deltek senior vice president of information solutions, a seven-time Wash100 awardee and a GovCon Expert
The government contracting, or GovCon, industry is at a crossroads. Contractors are pursuing growth, embracing new technologies and driving innovation while facing increasing pressure on margins, compliance requirements and operational execution.
To help contractors make sense of the opportunities and pressures shaping the market, our team publishes the annual Deltek Clarity Government Contracting Industry Study. The study delivers data-driven insights and performance benchmarks that help government contractors measure what matters, spot what’s shifting and make smarter decisions.
In this article, I’ll share some of the highlights from this year’s study and provide some actionable takeaways for GovCon leaders to take, as they position their firms for success in the remainder of 2026 and beyond.
Background on GovCon Clarity
Every year, Deltek analyzes survey responses from hundreds of government contracting leaders on their previous year’s performance, uncovering insights on the entire government contracting market. This includes specific analysis on top challenges impacting business development, or BD, human capital management, project management, procurement and contract management, estimating and pricing, finance and financial compliance and more.
The resulting report is a unique and trusted resource that helps performance-minded businesses identify areas to improve operational efficiency and effectiveness, help set business goals, inform BD strategies and better understand how they compare to their competition.
Despite a challenging and uncertain market environment, this year’s Clarity report highlights areas of opportunity, with most respondents expecting future growth in government sales. It also found several themes repeatedly emerging that GovCon leaders should note.
Growth is Real – But the Environment Is Challenging
The GovCon industry averaged approximately 15% revenue growth, yet 90% of contractors that we surveyed reported at least one declining financial metric over the past year. This is the finding that probably best measures the temperature of an industry that is both resilient and optimistic, while also operating under increased scrutiny and with less margin for error.
Across the board, contractors are under pressure to move faster across nearly every function. From business development and pricing to automation and project delivery, speed has become a requirement to compete. At the same time, expectations around pricing defensibility, cybersecurity, compliance, governance and performance oversight continue to rise. Navigating this tension is key to how contractors are either growing or struggling in today’s market.
AI Adoption Is Universal; AI Maturity Is Not
Implementing AI capabilities is the number one priority for government contracts to help prepare for growth in 2026, and investing in automation was a top three strategy to address the rising cost of doing business. Contractors face persistent labor shortages and increasing compliance requirements, so automation and AI are viewed as tools that can support that revenue growth while maintaining operational control.
Most teams, though, do not have their AI strategies fully baked. While 90% of GovCon firms report using AI in some way, only 5% have what they considered to be ‘fully developed’ AI maturity, and only a quarter of firms have advanced or established AI governance models in place. The challenge for many of these firms is how to integrate AI responsibly into its existing operations, and the gap between those with mature AI governance and those without is continuing to grow wider.
Compliance & Data Security Are Top of Mind
Along with continued AI adoption – and increased maturity in how those AI tools are used and scaled – are increased investments in cybersecurity and compliance. For most GovCons, a need to strengthen their compliance and data security standing is on the horizon for 2026 and beyond, changes which, when implemented properly, are likely to result in cost savings and greater efficiency.
Some of the top challenges trending among respondents include the need to streamline business processes and automate without losing control amidst operational pressure and a reshaped policy environment. Stability for these companies is going to depend on strict operational and financial management as well as openness to diversification.
Diversification Is a Stabilizing Strategy
As consolidation reduces the amount opportunities to serve as a prime contractor and the competition for those prime spots intensifies, many contractors are turning to diversification as a stabilizing strategy. For some of them, it’s a matter of long-term competitive viability.
There has been something of a pivot around diversification strategies this year. A full 35% of Clarity respondents reported that “Offering a more diversified set of products and services” was the most common diversification strategy. But there are other paths, whether it’s GovCon firms growing through M&A, through targeting new federal agencies or programs, or even through expanding into the state and local and education markets.
Four Takeaways for GovCon Leaders
Out of all of this, a clear pattern has emerged: contractors are under pressure to move faster across nearly every function. Here are a few actionable steps that BD leaders can take to follow this path.
- If your BD and proposal teams are feeling the pressure to move more quickly on capture, pricing and delivery, then they’re correctly understanding the reality of the market right now. The question for leadership to ask themselves is whether your systems and processes can support that pace without creating additional risk.
- Nearly 9 out of 10 contractors reported at least one declining financial metric despite revenue growth. For executives, that’s a signal to reexamine how you’re measuring organizational health and whether your BD strategy is prioritizing the right opportunities.
- If your teams are using AI tools for proposals, pricing, or compliance work—and odds are they are—your job as a leader is to make sure that adoption is happening with a governance framework behind it. The liability risk that comes with ungoverned AI in both federal and SLED contracting environments is real and growing.
- Expanding into new markets effectively isn’t possible without the operational infrastructure to support it. Before you pursue diversification, make sure your financial systems, compliance posture and BD tools and partners can scale with you, or the growth you’re chasing will create more risk than opportunity.
These overall findings make one thing clear: success for GovCon teams going forward will be defined by the ability to move faster, maintain control and make decisions with discipline in a more scrutinized environment.
