May 2025 GovCon Review - Growth, Disruption, and Strategic Shifts

May 2025 delivered the kind of month that reminds you why government contracting keeps everyone on their toes. While the headlines screamed about federal spending cuts and contract reductions, the actual data told a completely different story—one of unexpected growth, strategic realignments, and opportunities hidden within the chaos.

Let's examine what really happened in government contracting this past month, because the trends emerging from May will shape how you approach the rest of 2025.

The Plot Twist No One Saw Coming: Procurement Actually Grew

Here's the headline that should have led every industry publication: Federal procurement activities increased 6.5% in the first 100 days of Trump's second term compared to the same period in 2024. Even more striking? That represents a 13% increase compared to 2023, showing consistent upward momentum that defies every prediction about government belt-tightening.

Michael LeJeune from RSM Federal nailed the reality: "Government cutbacks don't shrink the contracting pie—they shift how it's sliced. Most federal dollars aren't controversial—they're mission-critical. While the headlines scream austerity, what's really happening is a reallocation, not a retreat."

What this means for you: Stop making strategic decisions based on fear of a shrinking market. The federal government still needs your services—they're just being more selective about where those dollars go. The contractors winning right now are those positioning themselves in mission-critical areas while their competitors hunker down waiting for the storm to pass.

The Regulatory Earthquake That's Reshaping Everything

DOD Slams the Brakes on IT Consulting

On May 27, the Department of Defense dropped a memorandum that fundamentally changed the game for IT contractors. Implementing Executive Order 14222, DOD now requires justification that work cannot be performed by existing personnel before executing any new IT consulting, management services, or advisory contracts.

This represents a philosophical shift toward in-house capabilities that affects thousands of contractors who built their business models around DOD IT services.

Strategic response: If you're in IT consulting, you need to clearly articulate why your services exceed in-house capabilities. Generic "we do IT better" pitches won't cut it anymore. Focus on specialized expertise, innovative approaches, or capabilities that would take years for DOD to develop internally.

CLEATUS can help you specialize these IT proposals.

GSA's Power Grab: Centralization Accelerates

GSA's expanding role as a central contracting authority represents one of the most significant structural changes we've seen. This centralization push particularly affects major government-wide acquisition contracts (GWACs) including SEWP, CIO-SP3, CIO-CS, and CIO-SP4.

The efficiency goals make sense, but centralization creates both opportunities and bottlenecks. Contractors who understand GSA's priorities and processes will have advantages, while those stuck in agency-specific approaches may find themselves sidelined.

Small Business Gets Legislative Protection

The introduction of the Protecting Small Business Competitions Act of 2025 signals that policymakers recognize small businesses need additional safeguards during periods of market consolidation. This proactive legislation comes at a crucial time when larger contractors might otherwise dominate due to scale advantages.

Key insight: This is recognition that small business innovation and agility remain essential to government operations. If you're a small contractor, lean into those differentiators rather than trying to compete on scale alone.

Industry Excellence Shines Through the Chaos

The SECAF Awards in May highlighted something important: excellence isn't dependent on market size. Winners spanned revenue ranges from under $7.5 million to over $50 million, proving that strategic focus and operational excellence matter more than raw scale.

Notable winners included firms demonstrating:

Operational modernization through centralized project management
Innovation in resource allocation and cost control
Excellence in specialized service delivery

The lesson: While everyone's focused on surviving regulatory changes, the winners are investing in operational improvements that position them for long-term growth.

The Technology Paradox: Innovation Meets Security

AI Gets the Cold Shoulder

The Department of Homeland Security's decision to cut access to ChatGPT and other commercial AI tools reflects the ongoing tension between innovation and security in government operations. While private sector races ahead with AI adoption, federal agencies face additional considerations about data security and foreign influence.

Opportunity alert: There's a massive gap between AI capabilities and government-approved AI solutions. Contractors who can bridge this gap with secure, compliant AI implementations will find eager customers across federal agencies.

OPM Tries (Again) to Modernize

The Office of Personnel Management launched another attempt to modernize HR systems, reflecting the persistent challenge of updating legacy government infrastructure. This recurring pattern—agencies repeatedly trying to modernize the same systems—reveals both the difficulty of government IT transformation and the ongoing opportunities for contractors who can deliver successful implementations.

The Numbers Behind Operational Excellence

The 2025 GAUGE Report revealed encouraging trends in contractor adaptation:

Nearly 25% of firms described their outlook as "very optimistic"
Over 50% now use centralized project management office models
Significant progress in replacing spreadsheet-based processes with connected tools

However, about one-third of small and medium businesses still reported capacity challenges, indicating that operational improvements aren't happening uniformly across the industry.

Strategic takeaway: The gap between operational leaders and laggards is widening. Investing in modern project management, resource planning, and performance tracking isn't just nice to have—it's becoming the new bare minimum.

Contract Cuts Hit Selective Targets

While overall procurement increased, the administration made strategic cuts that sent clear signals:

$100 million in federal contracts cut from Harvard University
$37 billion minority business program ended citing constitutional concerns
Routine administrative requirements eliminated across DOD

These are targeted policy statements about federal priorities and acceptable versus unacceptable spending.

Legal and Compliance Landscape Evolves

New Civil Rights Fraud Initiative

The Justice Department's Civil Rights Fraud Initiative signals increased scrutiny of diversity-related claims in federal contracting. This proactive enforcement approach affects contractors across all sectors who need to ensure accurate representation of ownership, capabilities, and compliance status.

Federal Workforce Reduction Challenges

A federal judge's injunction against workforce reductions created additional uncertainty about the scope and timeline of planned changes. This legal complexity affects contractors who might see increased demand for services to offset reduced federal employee capacity—but only if they can navigate the changing regulatory environment.

What May 2025 Really Tells Us About the Road Ahead

Looking beyond the monthly headlines, May 2025 established several critical precedents:

The market is growing but becoming more selective. Overall procurement increased, but contractors need stronger value propositions and clearer differentiation from in-house capabilities.

Regulatory changes are accelerating, not slowing down. The pace of policy shifts requires contractors to be more agile in strategic planning and more proactive in compliance management.

Operational excellence separates winners from losers. While everyone focuses on external changes, the most successful contractors are investing in internal capabilities that improve performance and reduce costs.

Innovation opportunities exist within constraints. Technology restrictions create gaps that innovative contractors can fill with compliant solutions.

Your Strategic Positioning for the Rest of 2025

Here's how to position yourself based on what we learned:

Focus on mission-critical capabilities that clearly exceed in-house government capacity. Generic services are becoming harder to justify under new requirements.
Invest in operational modernization now, while your competitors are distracted by regulatory uncertainty. The gap between operational leaders and laggards will only widen.
Build GSA relationships and processes as centralization accelerates. Understanding GSA priorities becomes increasingly important for accessing federal opportunities.
Develop compliant innovation solutions that bridge the gap between cutting-edge technology and government security requirements.
Strengthen compliance programs as enforcement initiatives expand across civil rights, cybersecurity, and financial accountability areas.

The contractors who thrive in this environment will be those who recognize that periods of disruption create the best opportunities for strategic positioning and competitive advantage.

Your next proposal deadline is still coming, but now you know the landscape has shifted in your favor if you're prepared to compete in this new environment. The question isn't whether you can adapt to these changes, it's whether you'll do it before your competitors figure out the same opportunities.

Find, Bid, and Win Government Contracts with AI. Schedule a demo today.