Contractors face mounting uncertainty as shutdown aftermath lingers

Government contractors faced a year of compounding disruptions in 2025, which started with a slew of executive orders companies and agencies had to respond to.

More than 300,000 federal employees were fired this year and there were waves of budget impoundments.

To top things off, the market was hit with the longest government shutdown in history at 43 days.

“You’ve had just such a flurry of activity,” said David Wennergren, president and CEO of ACT-IAC. He was speaking on a panel on Thursday at Washington Technology’s event, called "Navigating Disruption and Redefining Opportunity in 2026."

The first several months of the Trump administration saw agencies hunker down so they could deal with cuts by the Department of Government Efficiency and massive layoffs, all of which have a big impact on government contractors.

“There wasn’t a lot of talking going on between government and industry,” Wennergren said. “And just when things started to normalize a bit and we started having a dialogue about what the government wanted to do next, we had this protracted shutdown.”

Wennergren described it as “cascading impacts that has created a culture of uncertainty that continues with us to this day.”

That uncertainty includes what happens at the end of January when the current continuing resolution ends.

“What’s scary is we’re losing our levers to open the government back up,” said Tim Brennan, vice president for technology policy and government relations at the Professional Services Council, and a second panelist.

The budget reconciliation bill allowed the shutdown to continue for so long because there was an influx of money for the Defense and Homeland Security departments, but nothing for other civilian agencies. Negotiating a tradeoff between defense and civilian priorities is often how shutdowns end or are averted.

“It’s why we are having issues getting this second tranche of appropriations bills across,” Brennan said. “We are losing a lot of the negotiating power.”

A second factor making the budget negotiations difficult has been the Trump administration’s use of impoundments to stop appropriated money from being spent. Congress had budgeted money for a wide range of items for fiscal year 2025.

But the Trump administration used impoundments to cut spending on activities that did not align with its priorities. While Congress did little to oppose the administration, there is still a trust issue at play.

“If appropriators don’t feel like you are dealing in good faith, you can’t come to an agreement,” Brennan said.

The continuing resolution that ended the shutdown lapses on Jan. 31. It is possible that some appropriations may pass, but significant portions of the government may operate under a continuing resolution for all of fiscal year 2026. That’s not a great situation for industry or government.

“It means more uncertainty for anyone working in a civilian agency,” Brennan said.

Continuing resolutions are a way of life, but it is still a challenge to plan and launch new projects, Wennergren said. That is made even harder with the cuts to government personnel.

“It’s a cascading effect of workforce challenges,” Wennergren said.

One of the Trump initiatives that is generally seen as a positive has been the reform of the Federal Acquisition Regulations and the consolidation of procurement efforts at the General Services Administration. But there are concerns about its effectiveness because of the cuts to the workforce.

“GSA is supposed to take on all of this work without anybody to do it,” Brennan said.

“You have some great career executives at GSA, but you need a lot more people if you are going to be taking on additional stuff,” Wennergren said.

But despite the challenges, Brennan and Wennergren have some optimism.

“Times of change are times of opportunity,” Wennergren said. "But you have to be willing to question the assumptions that you have, question the continued relevancy of the way you deliver, the way you talk about things, the way you offer things."

Brennan’s advice to industry is to not get too down.

“Figure out a way to win,” he said. “I like to win.”

More than ever, industry needs to look to the mission. That means contractors need to position themselves as essential to mission delivery.

“If there's less intellectual capacity to help shape that on the government side, then there will have to be greater reliance on the private sector," Wennergren said.