Three timely trends in government contracting: Insights from J.P. Morgan Commercial Banking

This article was originally published in the Washington Business Journal.

The government contracting landscape is undergoing a period of unprecedented transformation. From the rapid adoption of emerging technologies to significant shifts in the talent pool, the environment looks markedly different than it did even a year ago.

Among the numerous changes in procurement strategies broadly across the federal civilian, defense, and intelligence agencies, three key themes have emerged, all of which present both challenges and opportunities.

1. New Approaches to Contracts

Beyond defense sales, the government’s approach to contracting more broadly is rapidly evolving, with a clear shift toward agility, innovation, and efficiencies.

The initial surge of contracts terminated for convenience, particularly among federal civilian agency customers, has seemed to decelerate. Reduced levels of funding and expectations of greater efficiencies, digital modernization, and agile procurement approaches targeting outcomes will likely be the new normal for contractors partnering with these agencies.

Among the many defense-related initiatives, Executive Order (EO) 14265, a mandate to reform defense acquisition for increased speed and modernization, has materialized into the elimination of the Joint Capabilities Integration and Development System (JCIDS), which is a clear sign that defense agencies are moving toward more agile acquisition processes. This, combined with pending broad changes to Federal Acquisition Regulations, makes it imperative for companies to monitor developments.

Emerging and commercial technologies are increasingly being awarded contracts, challenging the dominance of legacy contractors and signaling a strategic adjustment of the traditional high/low mix of defense systems. This opens the door for non-traditional vendors—including startups and middle market businesses—to compete for government work.

For example, at the recent US Army Demand Signal Forum, a new funding program, Fuze, was announced, which helps scale startups building critical technology. More companies in the defense tech and commercial technology sectors are successfully breaking into the government market, leveraging their agility and innovation to meet agency needs.

For businesses, the key is to remain nimble; find unique ways to team and provide greater contribution in the systems integrator role; invest in and closely monitor evolving compliance requirements; and be prepared to demonstrate value in a rapidly changing procurement environment.

2. Increased spending from allied countries

Last year, Foreign Military Sales (FMS) reached an all-time high of $117.9 billion—a 46% increase from 2023. Of the $117.9 billion, $96.9 billion in arms sales were funded directly by allies and partner nations. This surge underscores the growing demand from U.S. allies who are assuming greater responsibility for their own security needs.

In response to this trend, we are seeing a shift in how national defense companies sell to foreign governments. Traditionally, deals have been conducted through the FMS program, which saw record demand in 2024. Now, businesses are thinking about new ways to work more directly with allied governments to strengthen their security capabilities, as well as our domestic defense industrial base.

In April, an executive order was signed to expedite the foreign defense sales process, reflecting a broader push for efficiency and responsiveness. The order also seeks to improve accountability and transparency throughout the foreign defense sales system to ensure predictable delivery of American products overseas. Increased government and industry collaboration, streamlined approval processes, and thoughtful deregulation should present growth opportunities for companies supporting the U.S. defense industrial base.

To further advance these goals, the House Foreign Affairs Committee’s TIGER Task Force recently passed legislative reforms in an attempt to further improve the FMS process. For example, in August 2025, lawmakers advanced legislation to enable faster delivery of unmanned systems to U.S. partners.

For defense and defense tech companies, this means new opportunities to engage with international partners, but also a need to navigate unfolding regulatory and compliance requirements.

3. Talent Loss at Federal Agencies

Perhaps the most significant—and challenging—trend is the loss of talent within federal agencies, particularly among senior leaders, the potential second-order effects of which will likely not be seen for several more months or well into 2026.

Deferred resignation programs have reopened, encouraging more senior officials to voluntarily leave their roles. Combined with administrative shifts, this has led to a net reduction of 97,000 jobs in the U.S. federal workforce since January 2025, according to the U.S. Bureau of Labor Statistics.

As agencies lose experienced staff, they are increasingly reliant on contractors to fill skill gaps, manage projects, and maintain operations. This presents a clear opportunity for firms with the right expertise and capacity.

However, employee shortages and the loss of institutional knowledge can also slow down procurement processes, contract management, and oversight. Contractors must be prepared to invest in client education, clarify project scopes, and proactively manage risks related to miscommunication and shifting requirements.

In this dynamic environment, having a partner who understands the changing landscape is critical to staying ahead. At JPMorganChase, our Center for Geopolitics helps clients navigate global challenges, identify new opportunities, and manage emerging risks. As government contracting continues to evolve, we remain committed to supporting our clients with the insights, resources, and strategic guidance they need to succeed.

To learn more about how J.P. Morgan Commercial Banking’s Aerospace, Defense and Government Services group can help drive new possibilities for your business, click here.

Phil Poliquin is the market executive for J.P. Morgan Commercial Banking’s Aerospace, Defense and Government Services team based in McLean, Virginia. He leads a national team of banking professionals who partner with middle-market government contractors to support their overall strategic objectives by advising and executing on various capital-raising approaches; merger and acquisition initiatives; treasury management solutions; various risk management strategies; and workplace financial benefits. Prior to joining the private sector, Phil had a distinguished 24-year career in the US Navy as a pilot, primarily flying F/A-18 Hornets and Super Hornets. He supported combat operations and training exercises throughout the world flying from 7 different aircraft carriers, including during the opening days of Operation Iraqi Freedom, and served as Commanding Officer of VFA-14.