Federal Contracting Trends and Forecast for 2026

Introduction

Understanding federal contracting trends helps contractors position themselves for success. This analysis covers key trends, top-spending agencies, and emerging opportunities for 2026.

Federal Spending Overview

FY2026 Budget Highlights

The federal government is projected to obligate over $750 billion in contracts in FY2026:

• Defense: ~$420 billion (56%)
• Civilian agencies: ~$330 billion (44%)

Year-over-Year Growth

Federal contract spending has grown approximately 5-7% annually, with certain sectors seeing much higher growth.

Top Spending Agencies

Department of Defense

Projected spend: $420+ billion

Key priorities:

• Modernization: Next-gen weapons systems
• Cybersecurity: Zero trust implementation
• AI/ML: Autonomous systems and decision support
• Supply chain: Domestic manufacturing initiatives

Department of Health and Human Services

Projected spend: $35+ billion

Key priorities:

• Pandemic preparedness: Continued investment
• Healthcare IT: Modernization and interoperability
• Medicare/Medicaid services: Administration support

Department of Homeland Security

Projected spend: $25+ billion

Key priorities:

• Border security: Technology and infrastructure
• Cybersecurity: CISA initiatives
• Immigration services: Processing modernization

Department of Veterans Affairs

Projected spend: $35+ billion

Key priorities:

• Electronic health records: Ongoing modernization
• Facilities: Construction and maintenance
• IT infrastructure: Cloud and cybersecurity

Hot Industries for 2026

1. Cybersecurity

Growth: 15-20% annually

Opportunities:

• Zero trust architecture implementation
• Security Operations Center (SOC) services
• Penetration testing and assessment
• Identity and access management
• Cloud security

2. Artificial Intelligence / Machine Learning

Growth: 25-30% annually

Opportunities:

• Natural language processing
• Computer vision applications
• Predictive analytics
• Autonomous systems
• Decision support tools

3. Cloud Computing

Growth: 12-15% annually

Opportunities:

• Cloud migration services
• Multi-cloud management
• FedRAMP consulting
• Cloud security
• DevSecOps

4. Healthcare IT

Growth: 10-12% annually

Opportunities:

• Telehealth platforms
• Health data analytics
• Interoperability solutions
• EHR implementation
• Patient engagement tools

5. Clean Energy and Sustainability

Growth: 20-25% annually

Opportunities:

• Renewable energy installation
• Energy efficiency consulting
• Electric vehicle infrastructure
• Sustainable building design
• Environmental compliance

Emerging Opportunities

Infrastructure Investment

The Infrastructure Investment and Jobs Act continues to drive spending:

• Transportation projects
• Broadband expansion
• Clean water infrastructure
• Grid modernization

Supply Chain Resilience

Focus on domestic manufacturing:

• Semiconductor production
• Critical minerals
• Pharmaceutical ingredients
• Defense industrial base

Digital Transformation

Agencies accelerating modernization:

• Legacy system replacement
• Customer experience improvement
• Data analytics platforms
• Robotic process automation

Small Business Trends

Set-Aside Goals

The government maintains aggressive small business goals:

• Overall small business: 23%
• Small disadvantaged business: 15% (increased from 10%)
• Women-owned small business: 5%
• Service-disabled veteran-owned: 3%
• HUBZone: 3%

Best Agencies for Small Business

1. SBA: 70%+ to small business
2. GSA: 40%+ to small business
3. Education: 35%+ to small business
4. HHS: 30%+ to small business

Contract Vehicle Trends

Multiple Award Contracts

Agencies increasingly use:

• GWACs: Government-wide IT contracts
• BPAs: Blanket purchase agreements
• IDIQs: Indefinite delivery contracts

Best-in-Class (BIC) Vehicles

OMB pushing consolidation to BIC vehicles:

• Alliant 2 / Alliant 3
• OASIS+
• STARS III
• CIO-SP4

What Contractors Should Do

1. Invest in Emerging Tech

If you're in IT, develop capabilities in:

• AI/ML
• Zero trust security
• Cloud (especially multi-cloud)
• Automation/RPA

2. Get on Contract Vehicles

Position for upcoming recompetes and new vehicles:

• OASIS+ (SB and unrestricted)
• CIO-SP4
• STARS III
• Agency-specific vehicles

3. Build Past Performance

Seek opportunities to build past performance in hot areas, even if smaller initially.

4. Partner Strategically

For emerging tech areas, consider:

• Teaming with tech innovators
• Joint ventures
• Mentor-protégé relationships

5. Track the Market

Use intelligence tools like GovCon Data to:

• Monitor spending trends by agency
• Track upcoming opportunities
• Analyze competitor wins
• Identify set-aside opportunities

Conclusion

2026 presents significant opportunities for government contractors, particularly in cybersecurity, AI/ML, cloud, and clean energy. Success requires strategic positioning on contract vehicles, capability investment in emerging technologies, and smart pursuit of opportunities aligned with your strengths.

Stay ahead of the market with GovCon Data's analytics and opportunity tracking to identify the best opportunities for your business.