When Government Shrinks, Contracting Expands

1. Context: What’s Happening in the Public Sector Across federal, state, and local agencies, workforce reductions and restructuring are accelerating. In August, Scott Kupor, the Office of Personnel Management director, stated that he expected a reduction of 300,000 federal employees by September 30, 2025. In just one week at the end of September 2025, more than 154,000 federal employees left through buyouts, terminations, or voluntary departures — one of the fastest drawdowns in decades. Additional staff reduction in force statements are still being sent out.
By comparison, the largest historical reduction occurred during the Clinton administration, when about 430,000 positions (20%) were eliminated over eight years through gradual restructuring and modernization. While those cuts were deliberate and phased, today’s reductions are happening rapidly and with little structure, creating widespread disruption.
Even with these Reductions in Force (RIFs), the total federal workforce will remain approximately 15% below pre-COVID levels — the difference is the speed and uncertainty surrounding current actions. These cuts are being executed by executive directive rather than legislative reform, meaning the laws assigning those responsibilities remain unchanged. The work hasn’t gone away; only the federal employees performing it have.
For contractors, that gap represents a significant opportunity.
The current administration is also following a its first term playbook: directing most federal small-business contracting through subcontracting channels and consolidating prime opportunities under Category Management and Best-in-Class (BIC) vehicles. As a result, small businesses will see fewer direct awards, while large and mid-tier primes must expand subcontractor networks to maintain compliance with small-business goals.
Meanwhile, overall federal contracting remains enormous. The government awarded about $755 billion in FY 2024 contracts, only slightly below FY 2023’s $759 billion. Contractors now outnumber federal employees more than two-to-one, and that ratio continues to grow.
Outsourcing isn’t new — but the speed, scope, and scale of this transition are unprecedented, creating a unique opening for agile private-sector firms to step in.

2. Why functions don’t vanish — they shift
When agencies announce staffing cuts, what often happens is:

• Core mission operations remain legally and politically required (e.g. compliance, audits, report generation, program oversight).
• Instead of in-house staff, task orders, bridge contracts, or IDIQ call-offs are deployed to external providers.
• Agencies lean more on outsourcing models for admin / back-office support, data analysis, training, monitoring, and reporting functions.
• Contracting offices must rapidly scale their vendor pools and manage transition risk.

In essence, the workload stays, but the execution shifts.

3. Why this is especially relevant now (versus a normal procurement cycle)

• Short-term, high-velocity solicitations. As staff are cut, agencies often need fast stand-up contracts (bridge, transitional, or rapid task orders).
• Gaps in institutional knowledge. Departing government employees may take domain-specific knowledge; contractors that can onboard quickly and bridge transition risk are at a premium.
• Procurement reforms and consolidation. The Office of Management and Budget (OMB) is pushing agencies toward consolidated category management and centralized buying to reduce duplication. GAO
• Crackdowns on large consulting contracts. Some high-dollar consulting spend is being reexamined, especially in areas like DEIA, legacy IT, or blanket consulting arrangements. Business Insider
• Political and legal pressure. With this scale of staffing cuts, agencies may be challenged to deliver outcomes — which heightens the importance of contracting partners who can ensure continuity and adhere to compliance.

4. Opportunity for Midsize and Large FirmsSmall businesses (and DBEs, WBEs, SBEs, and SDVBEs) remain vital participants in the contracting ecosystem. But for midsize and large firms, this period offers an unmatched opportunity to expand internal contracting capacity and capture reallocated work.
Your organization is uniquely positioned to:

• Build or expand an internal contracting division to take on functions once handled by agency staff.
• Engage in strategic teaming and subcontracting with small and diverse vendors that bring niche capabilities or regional reach.
• Rapidly mobilize capture and proposal teams to pursue bridge and transition contracts.
• Offer transition continuity — reassuring agencies that operations will remain seamless despite internal government workforce reductions.
• Leverage scalability and compliance infrastructure — providing the oversight and governance smaller firms can’t easily replicate.

As federal and state agencies rebalance workloads, the most agile companies will be those prepared to respond quickly, manage compliance confidently, and deliver quality outcomes under tighter budgets.

Opportunities for Small Businesses and Diverse SuppliersWhile many large-scale contracts will flow to established primes, small businesses now have more entry points than ever — especially as subcontractors and specialized service providers.
Here’s why this shift creates opportunity downstream:

• Prime contractors need partners. As large firms ramp up capacity, they must meet small business participation goals and diversify supply chains to remain competitive.
• Subcontracting opportunities expand. Many of the newly outsourced functions — from training and administrative support to compliance, community engagement, and translation — align directly with areas where small and microbusinesses excel.
• Agencies value continuity and inclusion. Prime contractors that bring vetted, ready-to-perform small business partners to the table help agencies meet both performance and equity goals.
• As a Prime. For smaller agencies and government locations, small businesses may be ideally suited for supporting these bite-sized opportunities. Look at agencies such as the Department of the Interior, where many of their contracts are below the small business threshold of $250,000 because they are a smaller agency.
• Technical assistance demand grows. Programs like those RightSource develops for utilities, municipalities, and transportation agencies will play a critical role in preparing small businesses to respond to subcontracts quickly and effectively.

For small and diverse firms, the key is readiness: having compliant registrations, current capability statements, and an understanding of how to integrate into a prime contractor’s workflow.
RightSource’s training and cohort programs are designed to support exactly that — positioning small firms to win subcontracting work as agencies transition to contractor-led models.

5. A Roadmap: How to Build or Scale Your Contracting Team
Here’s a typical strategic sequence:
Phase 1 – Assess & Gap Map
Identify target agencies, functions, and capability overlaps, but keep in mind that because the reductions are haphazard, it will be hard to map the functions that need to be supplemented.
👉 Conduct a landscape scan of agencies undergoing cuts; map functions (admin, reporting, compliance) likely to shift to contractors.
Phase 2 – Recruit & Structure
Develop your internal contracting capacity.
👉 Hire or repurpose staff into capture, proposal, program management, and compliance roles.
Phase 3 – Train & Enable
Strengthen your team’s federal procurement knowledge.
👉 Provide FAR/DFARS, subcontracting, and teaming training; integrate proposal templates and workflow tools.
Phase 4 – Go-to-Market & Positioning
Showcase readiness and value.
👉 Market to agencies and primes, publish thought leadership, and attend industry days.
Phase 5 – Operationalize & Deliver
Execute with reliability.
👉 Win and deliver contracts, manage compliance, measure performance, and retain institutional knowledge.
Throughout this, your value proposition should stress:

• Transition expertise — serving as a bridge when government staff exit
• Continuity assurance — minimal disruption in deliverables
• Scale & oversight — your internal systems and governance
• Teaming potential — you can integrate small and diverse vendors you already support

6. Call to Action
This isn’t just a moment. It’s a strategic inflection point.
Contact RightSource Services to build or expand your contracting team — and position your organization to capture ramping demand.
We offer:

• Capability assessments and gap mapping
• Team design and recruitment
• Proposal and capture coaching
• Training in compliance, small business engagement, and contracting
• Ongoing mentorship and maturation of your internal function

The work isn’t disappearing. It’s changing hands. Let us help you step in confidently.