The start of a new administration always means a change in government services and a slowdown in spending. But under the current administration, government contractors can expect to see more changes than usual, a reality that will require them to think differently about business resilience.  

Small businesses received more than $183 billion in prime contracts from the federal government in 2024, but in 2025, that level of spending is likely to decline overall, with some service areas seeing increased contracting needs and many others seeing a significant decrease.  

Mike Clark, Regional VP, Northeast Region, at AR Funding, has worked with government contractors for 37 years. At various industry events and in conversation with his clients, he is hearing that while the situation is still in flux, there are a few trends emerging. Services related to clean energy and sustainability are likely to see a sharp decline, with existing procurement-related orders potentially even seeing repeals. However, mandates banning overseas outsourcing could create opportunities for onshore contracting in general, and areas such as security and defense are likely to see increased demand.

“I’m hearing that security, and especially security technology, is a big focus for the federal government at the moment,” Clark said. “The United States has to catch up to other major powers, and the government will rely on contractors to help them do that.”

Clark is also seeing a change in the way his clients approach contracts. Based on his own decades in the field and the insights of his clients, Clark offered these best practices for government contractors seeking to protect and strengthen their companies during this period of change. 

Know your competition

Before you bid, know who you’re competing against and how likely you are to win a contract over them. Use sites such as SAM.gov, USASpending.gov, and FPDS.gov to collect as much information about similar contracts and the companies that win them.

Leverage your history 

Once you’re ready to bid, know your history and your relationship with the federal government so that you can build on that context and position yourself as a trusted and preferred provider. 

“Often, the people preparing the bids are newer, and they don’t have that history,” Clark said. “Before bids are submitted, the owner or the most senior staff member needs to review them and make sure it’s reflected. Those relationships are just as important as your capabilities and skills.”

Diversify your offerings 

Many service areas are becoming much more competitive, with far fewer contracts to go around. Even government contractors with a long history of service delivery with the federal government are learning to bid more and broaden their niche.

“In addition to exploring different areas within government contracting, companies are also looking beyond government contracts to the commercial side, putting themselves in the marketplace to diversify, survive, and be successful,” said Clark.

Tap into your network

Whether the changes affecting government contracting have the potential to limit your business or expand it, this is a good time to consult with experts who can provide specific expertise or new perspectives. 

“Over the decades, I’ve built up a network of specialists in this marketplace,” Clark said. “They include CPAs, bankers, consultants, and fractional CEOs and CFOs. Connecting my clients to these resources gives them what they need to succeed.”

Improve your financial flexibility

With the level of uncertainty in the contracting marketplace, it’s important to be able to access working capital, whether to mobilize quickly if you get a contract or fill the gap if you don’t. Companies that sell services to the government can struggle with cash flow at the best of times: during periods of increased unpredictability, cash flow can become even more strained. (This case study is a great example.)

Bank loans and lines of credit are often the first line of defense, but invoice factoring can provide an extra layer of resilience. By factoring your invoices, you can access the cash you need for payroll and other operating expenses sooner.

“Government contractors have unique needs in terms of needing to fund payroll every week or two, but often waiting 90 days or more to be paid themselves,” Clark explained. “At AR Funding, our thorough onboarding process means we can be very flexible in extending financing that meets the customer’s changing needs.”

Factoring is particularly valuable for government contractors that need to prove their creditworthiness as well as those that are growing quickly. When growth accelerates beyond a certain point and the business starts using up equity, it can take the business out of covenant or prevent it from accessing additional financing.

“Banks will give small businesses a $50,000 to $100,000 loan based on the owner’s personal credit and very modest business assets, but that may not be enough to flourish,” said Clark. “If they win two or three contracts, that could represent a doubling or tripling of their business. That’s where we can step in, advance them the funds they need to make payroll.”  

And unlike some other forms of debt-free financing, factoring doesn’t dilute ownership.

If you own a government contracting business, contact one of our regional experts to discuss your options.