Noura Bashshur | February 10, 2025
The 2025 federal transition is shaping up to be one of the most consequential shifts for government contractors in recent history. With a new administration comes changing budget priorities, evolving procurement strategies, and potential regulatory upheavals, all of which will determine how federal dollars are allocated.
Contractors who rely on business as usual are at risk of being left behind. Those who anticipate shifts in funding, policy, and procurement pathways will have the competitive advantage.
This post explores the three most critical changes contractors must prepare for in 2025:
- Deregulation & Industry-Led Innovation – A shift away from regulatory oversight, particularly in AI, cybersecurity, and environmental policy.
- Acceleration of AI, Defense, and Cyber Technologies – Increased government investment in autonomous systems, hypersonics, and military-grade cyber solutions.
- Adapting to a Faster, More Agile Procurement Landscape – The rise of rapid acquisition models, flexible contracting, and proactive industry engagement.
For contractors, understanding these changes is not optional—it’s essential for survival and success.
1. The Shift Toward Deregulation & Industry-Led Innovation
The incoming administration has signaled a move toward rolling back regulatory oversight in key areas, particularly artificial intelligence, cybersecurity, and environmental policy. While this may accelerate industry-driven innovation, it also reshapes how federal contracts will be structured and awarded.
Key Policy Shifts to Watch
- AI Regulations Are Expected to Loosen
- The Biden administration’s AI executive orders, designed to establish ethical AI guidelines and risk management frameworks, are likely to be repealed or rewritten.
- The incoming administration favors a pro-industry, innovation-first approach—meaning less oversight but more pressure on contractors to self-regulate.
- The potential appointment of an AI czar could centralize AI policy under a single authority, favoring commercial adoption over regulatory constraints.
- Cybersecurity Policy Will Become More Business-Friendly
- Federal agencies have spent the last several years tightening cybersecurity regulations, including zero-trust mandates, supply chain security requirements, and software liability frameworks.
- The new administration may roll back some of these regulations, shifting responsibility to private-sector partnerships rather than government-imposed mandates.
- Contractors will have more flexibility—but also greater responsibility for securing their own systems, networks, and supply chains.
- Climate and Energy Investments Will Shift Toward Fossil Fuels & Traditional Energy
- Expect a major pullback from renewable energy and carbon reduction programs, with potential withdrawal from the Paris Agreement.
- Federal investment in climate technologies, carbon capture, and alternative energy R&D is likely to decline, favoring traditional energy production like oil, gas, and nuclear expansion.
- Contractors working in clean energy, sustainability, and emissions tracking will need to pivot toward state and local opportunities, where funding may still be available.
What This Means for Contractors
- AI and cybersecurity companies should prepare to operate with fewer regulatory constraints but greater accountability for security and ethical implementation.
- Energy and climate contractors may see federal investment in sustainability initiatives shrink and should consider shifting focus to state-level programs or defense-related energy efficiency projects.
- R&D-focused companies should anticipate a pivot away from long-term research in favor of rapid commercialization and deployment.
2. The Acceleration of AI, Defense, and Cyber Technologies
While deregulation will impact civilian and tech policies, defense spending is set to surge, particularly in areas that enhance military superiority, autonomous warfare, and cyber resilience.
Defense & AI Priorities for 2025
- AI-Enabled Military Decision-Making
- The Department of Defense (DoD) is prioritizing AI for real-time operational command and control.
- AI will be used for battlefield decision support, autonomous targeting, and mission planning.
- Expect faster adoption of AI-enhanced defense systems, unmanned combat vehicles, and sensor-driven warfare.
- Hypersonic Weapons & Missile Defense
- China and Russia are advancing hypersonic technology, and the U.S. is ramping up its response.
- The administration is expected to accelerate funding for next-generation missile defense systems and offensive hypersonic strike capabilities.
- This creates major opportunities for contractors in aerospace, advanced materials, and high-speed defense technology.
- Cyber Warfare & National Security Tech
- The shift away from Biden-era centralized cyber regulations will likely come with a greater reliance on private-sector partnerships for cyber defense.
- AI-driven cybersecurity solutions, automated threat detection, and offensive cyber capabilities will see expanded funding in intelligence agencies and the DoD.
- Space-Based Defense Systems
- The expansion of military satellite networks, space-based missile tracking, and AI-powered orbital surveillance will be a priority.
- The Space Force budget will increase, with a focus on low- and mid-earth orbit satellite constellations and AI-enhanced space security.
3. Adapting to a Faster, More Agile Procurement Landscape
With policy shifts and budget realignments, federal contractors must embrace new procurement strategies to stay competitive.
Key Procurement Trends to Watch
- Rise of Rapid Acquisition Models
- Expect increased use of Other Transaction Authority (OTA) agreements for AI, cyber, and defense tech, bypassing traditional RFP processes.
- Contractors should engage before a formal solicitation is released, shaping opportunities instead of reacting to them.
- Increased Demand for Small Business & Private-Sector Innovation
- The administration will likely expand direct-award opportunities for small, agile tech firms, reducing reliance on large primes.
- This creates opportunities for partnerships, subcontracting, and acquisitions in the GovCon ecosystem.
- State & Local Contracting as a Safety Net
- Some federal programs will see funding reductions, but state and local governments may continue investing in critical infrastructure, cyber, and AI projects.
- Contractors should monitor state-level procurement trends as a hedge against shifting federal priorities.
Final Thoughts: The Future is Yours to Shape
Change brings uncertainty, but it also creates opportunities for those who are ready to adapt and lead. The 2025 federal transition isn’t just a challenge—it’s a moment to rethink strategies, strengthen partnerships, and position for long-term success.
- You have the expertise. Your knowledge and experience are what agencies need now more than ever.
- You have the opportunity. In every shift, there’s a chance to innovate, to lead, and to build something stronger.
- You have the power to shape what’s next. The contractors who stay informed, agile, and proactive will not just navigate this transition—they will define the future of government contracting.
The landscape is evolving, but those who stay ahead of the curve will be the ones driving the industry forward. Approach this transition with focus, adaptability, and confidence—because the future of federal contracting will be shaped by those who are prepared to meet it.
