Federal, SLED and Canadian Government Contracting Trends for 2026

Government contractors entered 2026 at a time of significant transformation, with government policies and preferences evolving at a rapid pace. At the same time, they may be looking to optimize their business development strategies and safeguard their business plans in an uncertain environment.

To combat this uncertainty and help contractors control what they can, the Deltek research team providing government intelligence has sorted through the data to come to an understanding of what is expected to make the greatest impact on the U.S. Federal, Canadian and SLED (state, local and education) government contracting markets in 2026.

Below are summaries of the top-level trends that Deltek’s research has identified across the levels of government for businesses to watch in 2026.

U.S. Federal Government Trends

In 2026, federal contractors are navigating one of the most unsettled market environments in over a decade. The lingering effects of DOGE-driven contract terminations, major acquisition policy shifts, the recent government shutdown, and widespread workforce reductions across agencies have already forced contractors to rethink capture pipelines and portfolio balance. Those pressures continue, but the year ahead brings additional complexities. Budget dynamics are especially volatile, with uncertainty brought on by multiple continuing resolutions, and an increasingly stark divide between robust defense spending and tightening civilian budgets. When the final FY 2026 discretionary budget lands, it will be a better signal of the administration’s priorities. Contractors who can quickly align to that spending agenda will be best positioned to stabilize growth.

At the same time, macroeconomic and regulatory forces are reshaping how work is pursued and delivered. Tariff-driven inflationary pressures are straining margins, particularly for firms locked into fixed-price contracts that cannot absorb rising labor and input costs. Meanwhile, acquisition reform is accelerating on two powerful fronts: GSA’s consolidation push is shifting more procurement into centralized channels, while the FAR overhaul is redefining fundamentals by stripping rules to statutory essentials, expanding contracting officers’ discretion, and elevating “commercial-first” sourcing. Although agencies can begin incorporating elements of the RFO now, 2026 marks the start of formal rulemaking, meaning contractors must be prepared for rapid, structural change.

Taken together, these trends signal a market where trusted partners who can operate efficiently, deliver commercially aligned solutions, and demonstrate adaptability, will gain a competitive edge as federal acquisition enters a new era.

SLED (State, Local and Education) Government Trends

The SLED market is entering 2026 with a clearer sense of direction as state, local, and education agencies shift away from heavy dependence on federal injections and toward more sustainable, locally driven strategies. Cooperative purchasing continues to gain traction as procurement teams seek speed, cost efficiency, and risk reduction—an important trend as they evaluate emerging technologies like artificial intelligence. AI is shaping not only what governments procure but also how procurement itself operates, from automated service delivery to AIassisted proposal evaluation. With strong demand projected well into 2027 and beyond, GovCons should view AI as both a highgrowth market and a catalyst that could alter the competitive landscape.

Infrastructure and public safety will also remain pillars of SLED spending in 2026, even as federal funding cycles shift. IIJA allocations wrap up this year, but states and municipalities are expected to keep projects moving through their own budget commitments, resulting in a slowdown rather than a contraction in AEC (architecture, engineering and construction) spending. Meanwhile, public safety stands out as one of the most resilient sectors, supported by recent federal initiatives and growing societal expectations around crime prevention, emergency response, and community resilience. Layered on top is a renewed focus on financial stewardship: governors are calling for “affordable government,” and agencies are responding with increased demand for financial, consulting, and forecasting services to navigate changing federal grants and revenue pressures.

These trends point to a 2026 SLED market defined by modernization, operational efficiency, and strategic prioritization, favoring partners who can deliver value, clarity, and longterm stability.

Canadian Government Contracting Trends

Canada enters 2026 with a more assertive and strategically focused publicsector agenda, one that mirrors several themes emerging in the U.S. SLED market, but with distinctly Canadian priorities shaped by defence commitments and responses to tariffrelated economic pressures. As the federal government accelerates defense spending to reach 2% of GDP by 2026 (and 5% by 2035), agencies are modernizing procurement processes and expanding their NATOaligned capabilities. This renewed emphasis on national defense is driving demand for advanced technologies, secure infrastructure, and modernization programs that cascade down to provincial and municipal governments. At the same time, largescale “nationbuilding” investments—like housing, transportation, and critical infrastructure—are reshaping the competitive landscape.

Technology and trade dynamics will also strongly influence SLED priorities in the year ahead. Strategic investments in artificial intelligence are continuing at pace, enabling Canadian governments to rethink service delivery, policy development, and operational efficiency. This momentum carries forward from 2025 and is poised to accelerate, creating opportunities for solution providers in automation, data management, and ethical AI governance. Yet Canada’s public sector must navigate global uncertainty at the same time. Ongoing trade negotiations and the broader repercussions of the U.S. tariff environment are prompting governments to reassess supply chains, procurement strategies, and international partnerships, particularly in areas that intersect with defense and critical infrastructure.

For contractors selling into the Canadian public sector, 2026 will reward those who show an ability to deliver secure, resilient, and futureready solutions while helping agencies adapt to a rapidly shifting geopolitical and economic environment.