Government Contractors

The 205,500 government contractors in the US sell a wide range of goods and services to agencies of the federal government, state governments, and local governments. Goods range from advanced military jets and weapon systems to office supplies. Services range from complex information systems design to janitorial services and food contracting services. Contract types vary from firm fixed price contracts to cost reimbursement or time and materials contracts.

Qualifying For Procurement Preferences

Contractors will be at a competitive disadvantage in winning federal government business if they do not qualify as a preferred vendor.

Cost Overruns Hurt Profits

Government contractors must possess strong project management skills to successfully manage large, complex projects and avoid cost overruns.

Aug 24, 2026 - Anthropic Litigation Creates Uncertain Compliance Landscape

• The federal government’s dispute with AI firm and government contractor Anthropic is affecting other contractors as it shifts from a negotiation over the permissible use of the AI tool Claude to litigation over the government’s ability to designate a domestic artificial intelligence company to be a supply chain risk, according to the National Law Review (NLR). Heads of federal executive agencies have the authority to exclude sources or products designated as supply chain risks from federal procurements to mitigate national security risks. Other government contractors are receiving requests seeking certifications regarding their use of Anthropic products in contract performance, according to the NLR. The Air Force Research Laboratory, for example, has directed contractors to identify, report, and remove Anthropic products on an accelerated schedule. These requests have generated uncertainty because they appear to apply supply chain risk concepts traditionally associated with foreign adversaries or prohibited technologies to a US-based artificial intelligence company, according to the NLR. The dispute began after the Department of Defense demanded unrestricted use of Claude for all lawful purposes. Anthropic refused, leading the Pentagon to designate the company a national security supply-chain risk.
• An Executive Order (EO) issued by President Trump directs agencies to make fixed-price contracting the default and preferred approach for federal procurement. The EO is not a ban on other contract types, such as cost-reimbursement or time-and-material vehicles, according to the Mayer Brown law firm. It is part of the government’s effort to procure on faster timelines and to behave more like a commercial buyer. Contractors that want to use other contract types must justify their reasoning in writing and obtain senior-level approval above specified thresholds, according to the EO. Contractors must also review large existing non-fixed-price contracts for possible conversion toward fixed prices and performance-based incentives. Many government contracts operate on a cost-reimbursement model that guarantees reimbursement for incurred costs plus a profit margin, which provides little incentive to control overspending, according to the EO.
• Several companies are now marketing their products directly to federal government agencies as a way to survive the US Department of Government Efficiency's (DOGE) cost-cutting demands, according to the Axios news service. DOGE is expected to lean more heavily on third-party security vendors to help dismantle longstanding information silos, according to Axios. Axonius, an Israeli cybersecurity startup, told Axios that it has started pitching its product to agencies as a tool that can help them avoid the most severe DOGE audits. Many vendors have increased their lobbying activity in recent months, particularly with Trump-aligned lobbying firms. At least nine security and consulting firms, including Zscaler, Accenture, and Booz Allen Hamilton, have registered with Ballard Partners into 2025, according to congressional lobbying disclosures.
• US government contractor industry sales are forecast to grow at a 3.1% compounded annual rate from 2026 to 2030, slower than the growth of the overall economy.

Industry size & Structure

The average government contractor generates about $5-6 million in annual revenue.

• The government contractor industry consists of about 205,500 firms that generate $1.1 trillion in annual revenue.
• The federal government is contracted to spend $1.1 trillion in FY 2026 on contracts, or 13.1% of the total federal budget. State, local, and education entities (state agencies, cities, counties, special districts, K-12 school districts, and public colleges and universities) spend about $1.5 trillion annually.
• There are over 41,600 defense contractors in the US.
• The largest government contractors are Lockheed-Martin, Northrup Grumman, Boeing, SAIC, Raytheon, General Dynamics, Hewlett-Packard, and Booz, Allen & Hamilton.