The Effects of Economic Shifts on Federal Contracting

Economic conditions are shifting more quickly than many contractors can update their opportunity pipelines. Inflation, rising interest rates, and recurring uncertainty around federal budgets are changing how agencies plan, buy, and evaluate risk. For small and mid-sized businesses in the federal space, understanding these dynamics is no longer optional; it is essential to building a resilient contracting strategy. 

How Economic Forces Shape Federal Buying  

Inflation and interest rates affect federal contracting in several ways. While the federal government does not “run out of money” in the same way as a commercial buyer, inflation pressures appropriations, squeezes program budgets, and can lead to more scrutiny on pricing and scope. Contracting officers are under pressure to demonstrate value and defend cost reasonableness, which can lengthen evaluation timelines and increase the emphasis on clear, well-documented pricing.  

Continuing resolutions (CRs) and shutdown risk add another layer of complexity. Under CRs, agencies often limit new program starts, rely on short-term extensions, and shift toward lower-risk, incremental awards. Even when a full shutdown is avoided, the threat alone can slow internal approvals, delay RFP releases, and compress award timelines once funding is finally available. Contractors feel this as slippage in opportunity forecasts and unpredictable proposal workloads.  

Federal Spending as a Stabilizing Revenue Stream  

Despite this volatility, federal spending tends to be countercyclical. When private-sector demand contracts, the federal government often sustains or increases spending in priority areas such as defense, cybersecurity, infrastructure, and public health. For contractors, that means federal work can serve as a stabilizing revenue stream when commercial customers pause or reduce projects.  

The key is not assuming “the government will always buy,” but recognizing that priorities shift. Contractors that align with evolving mission needs and can demonstrate readiness, compliance, and past performance are better positioned to benefit from this countercyclical stability.

Implications for SAM, GSA, Pricing, and Pipelines  

In an environment of heightened budget and risk scrutiny, foundational elements become more important: 

• SAM registration and profiles** must be current, accurate, and optimized. Outdated NAICS codes, incomplete representations, or unresolved entity validation issues can quietly remove you from consideration before a contracting officer ever reads your proposal. 
• GSA Schedules** can become more valuable as agencies seek efficient, pre-competed vehicles to move quickly once funds are unlocked. Contractors with well-structured, competitive GSA pricing and current catalog offerings may see increased task order opportunities. 
• Pricing strategies** need to account for inflation, wage pressures, and subcontractor costs while remaining defensible. Evaluators are looking for pricing that is not only competitive but also consistent with the technical approach and staffing model you describe. 
• Proposal pipelines** should be actively managed, not passively tracked. Economic shifts make “set and forget” opportunity lists dangerous; capture teams must continually reassess probability of win, funding risk, and alignment with agency priorities.  

Practical Steps Contractors Can Take Now  

To navigate economic shifts with confidence, contractors can:

1. **Tighten market focus.** Clarify which agencies, mission areas, and contract vehicles are most aligned with your capabilities. Depth in a defined portfolio is more resilient than a broad but shallow pursuit strategy. 
2. **Update registrations and NAICS.**Review SAM, DSBS, and related profiles for accuracy, current contact information, and alignment with NAICS/PSC codes. ** Small gaps here can create large barriers at evaluation time. 
3. **Strengthen compliance discipline.** Reaffirm your internal checks for FAR compliance, Section L and M alignment, and documentation of key assumptions. In tighter budget environments, deviations and errors are less likely to be overlooked. 
4. **Invest in capture and proposal process.** Formalize capture plans, bid/no-bid criteria, and review cycles. A disciplined process helps you prioritize opportunities that are both fundable and winnable, instead of chasing everything that appears on a forecast.