A new forecast projects that defense spending will keep rising through 2035, while civilian agencies face years of flat or shrinking budgets, continued cuts and growing pressure to scale back. 

The Professional Services Council’s latest federal market forecast, compiled with input from more than 400 industry volunteers and subject-matter experts, predicts that in an environment where legislative logjam is likely to persist, defense spending will continue rising at roughly 2% annually after its first $1 trillion budget in fiscal 2026 — a one-time spike driven by reconciliation —  while cuts will “continue to fall disproportionately on civil agencies until elections change the balance of power.”

“What this means in practical terms is that the fiscal environment for the next decade will be tight, competitive, highly dependent on supplemental funding, reconciliation and prone to crisis-driven appropriations. Base budgets alone will struggle to drive new initiatives, especially on the non-defense side. In this environment, as one of our interviewees suggested, it’s best to keep your customers close and your congressional supporters and lobbyists closer,” Mike Riley, a volunteer for PSC’s Vision Federal Market Forecast told reporters last week.

In the defense space, PSC volunteers said their discussions with defense stakeholders revealed a shift, or “strategic realignment,” in the Pentagon’s priorities. While the Indo-Pacific Command remains of “elevated importance,” the Northern Command and Southern Command are gaining new emphasis as the department puts greater focus on homeland, border security and expands its presence in Latin America and the Caribbean. 

“This year was a bit of an interesting year for us. A lot of defense folks acknowledge the growing importance under this administration, but also a lot of consternation about the directions the administration might be going and just kind of the lack of clarity. There’s some continuing trends — deterring China, integrated deterrence, that pivot to the Pacific — that’s an ongoing thing that didn’t change from the previous administration. Of course, border security, the Department finds itself in an uncomfortable position,” Jason Dombrowski, a volunteer for PSC’s Vision Federal Market Forecast, said.

“They are getting a little bit more heavily involved in domestic politics than they would otherwise prefer to. Certainly, they always reiterated their intent to be responsive to the commander in chief. But historically, of course, the American military has tried to avoid a domestic role,” he added.

The department is also placing greater emphasis on the Golden Dome missile defense system, shipbuilding and munitions under this administration.

“I think everyone’s been paying attention to the news that there has been some very notable plus ups and focuses of this administration, most notably around shipbuilding, but also to include things like nuclear modernization, which in previous years we had highlighted as a potential toss up, but this year definitely moved into the winners category,” Dombrowski said.

Acquisition reform

The Defense Department also moves to implement Defense Secretary Pete Hegseth’s sweeping acquisition reforms, which emphasize greater competition, faster delivery and making commercial technology the default option. It’s unclear whether the department has the ability to implement those changes given deep personnel cuts across the contracting workforce.

“The contracting professionals — there seems to be a large reduction. How do we get this done? That fundamental capacity to get things done is really going to make a difference, whether you’re putting out contracts, supply chain, workforce throughput … It’s going to affect how we can actually help out the government. Adaptability is the name of the game,”Jim Kainz, a PSC volunteer, said.

In addition, the department’s new acquisition strategy promises to lower barriers to entry to encourage startups and non-traditional vendors to join the defense industrial base. Dombrowski said that while stakeholders are cautiously optimistic about the reforms, there is also a “healthy cynicism of saying, ‘How is this time any different?’” 

“This administration has made a big priority of trying to attract new people, and we looked at the pros and cons of it. It’s probably worth noting that, aside from a few very notable successes that we can all figure out, there hasn’t really been much movement in this regard,” Dombrowski said. 

“We’re very excited, certainly [Commercial Solutions Opening] and [Other Transaction Authority] and just a variety of things that should provide a lot of flexibility, but let’s see it,” he added.

Winner and losers

Dombrowski and Kainz said several areas emerged as clear “losers” in this year’s defense outlook, including the department’s buying power, which continues to erode as inflation and reshoring efforts drive up costs across programs.

Legacy systems and advisory and assistance services are facing cuts, and U.S. Africa Command and Central Command are being pushed lower on the priority list as resources shift toward European Command.

There is also uncertainty around operations and maintenance funding, which Dombrowski and Kainz said remains a major concern for both think tanks and potential customers. Sustainability initiatives appear to be split — the “green side of sustainability” will most certainly lose ground, while efforts tied to energy resilience may gain momentum. 

Contested logistics, once considered a toss-up, is gaining traction as a priority, and scalability — the ability to rapidly increase production in a crisis — is emerging as a clear winner across the department.

Overall, research and development spending is increasing, but only in areas related to advanced weapon systems, technologies, drones and energy. 

“However, there’s a belief and a growing expectation that the contracting community will bear more of those responsibilities,” Dombrowski said. “It’s really unclear where that line is going to be drawn between things that are really government exclusive where DoD is willing to pick up all costs associated to it. There are things we can all imagine, like fighter jets. But what about things that are more in the gray areas? Avionics, business process systems, back-office systems, things like that — definitely more of a sense that we are going to have to be developing those on our own.”

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As the Defense Department moves to implement Defense Secretary Pete Hegseth’s sweeping acquisition reforms, Space Force leaders warn that the depth of workforce cuts is threatening to cripple the service’s ability to execute them.

“You have to have a strong, vibrant workforce to do the work and we’re in a really interesting time and a troubling time. There is a strong, motivated force but there have been an incredible amount of pressures on them this past year,” Maj. Gen. Stephen Purdy, acting assistant secretary for space acquisition and integration at the Department of the Air Force, said Nov. 20 during a Center for Strategic and International Studies event. 

“We have a looming increase in acquisitions coming down the pike, and so that presents us with a really difficult situation of where we need to double down on our acquisition workforce, our acquisition training. We are in a situation where we barely have enough acquirers to do all of the work that we have now,” he added.

Purdy said the service has spent the last few years implementing the acquisition tenets set by Frank Calvelli, who stepped down as assistant secretary of the Air Force for space acquisition and integration in January. Calvelli pushed the service to “build smaller satellites and smaller ground systems and minimize non-recurring engineering or new design.” He also preferred to use fixed-price contracts when possible. Calvelli’s “tenets” were a back-to-basics formula meant to fix chronic problems in space programs.

“We’ve built upon that this last year. We haven’t let grass grow under our feet as we’ve kind of taken over in January. And we’ve built upon that foundation and moved on out and really done a lot this year that kind of foreshadowed [Hegseth’s] acquisition reforms. But the workforce question is really the key piece,” Purdy said.

The Trump administration push to reduce the size of the federal workforce through initiatives such as the deferred resignation program and voluntary early retirement has had an “outsized impact” on the Space Force. In May, Chief of Space Operations Gen. Chance Saltzman told Congress the service had lost nearly 14% of its civilian workforce — much of it coming from Space Systems Command, the Space Force’s acquisition hub.

“I’m worried about replacing that level of expertise in the near term as we try to resolve it and make sure we have a good workforce doing that acquisition,” Saltzman told the Senate Armed Services Committee at the time. 

When asked about the acquisition workforce, Saltzman told reporters that these workforce reduction efforts have taken civilian experts “out of play,” leaving gaps in the institutional knowledge and technical skills.

As the Space Force begins implementing Defense Secretary Pete Hegseth’s acquisition overhaul, which calls for using commercial technology as the default option, great competition and faster delivery, Purdy warned the service may not have the workforce needed to shift to the new way of doing business. 

“If you look at [Hegseth’s] acquisition reforms that he’s laid out, a bunch of great initiatives and things we need to get after. But … you need the numbers of people, and you need the quality to understand. If you say ‘go commercial,’ and if you say, go after ‘new manufacturing mechanisms’ and take advantage of all of the new space companies that are out there, you need a larger number of people just to even track that activity. You need to be able to understand all that’s going on. You need to understand the incentive structure,” Purdy said.

The strain is particularly acute in contracting since the service simply doesn’t have enough contracting officers to handle a much larger workload created by recent acquisition reforms.

“In the past, if we had an acquisition program and we would go 20 years and it would be with one prime, we would maybe have one or two contracts, an R&D contract and a production contract. Pretty simple. One prime, a couple contracts. Now, with some of our programs there’ll be a five-year program, but we’ll probably have 20 contracts because I’m dealing with 10 or 15 different contractors in industry, which is literally what acquisition reform is telling us to do,” Purdy said.

“We have a serious issue here at a federal level on contracting and it’s just the numbers of folks. We do not have the numbers of contractors that we need at a federal level. Every federal agency has problems, and so we do not have the right numbers that we need,” he added.

Saltzman said the service is trying to ease the strain by requesting waivers to the hiring freeze that has been in place since the start of the Trump administration, as well as hiring authorities to fill essential acquisition and contracting roles.

The service also recently launched its first acquisition training course.

Kay Sears, vice president and general manager of space, intelligence and weapon systems development at Boeing, said that while the Space Force acquisition community is more open and collaborative than ever, it is also apparent that the service’s workforce is stretched thin.

“You can tell that they’re stressed. You can tell that they’re overworked. And then when you get into that contracting element that’s really where I see the slowdown, the, ‘Hey, I’ve only got one playbook — I’m going to go follow the playbook,’ and we really start to lose sight of the mission objective,” Sears said.

Acquisition experts have said that while the proposed acquisition changes could meaningfully reshape how the Pentagon buys capabilities, the success of Hegseth’s reforms will hinge on whether the department can equip the workforce with the skills needed to operate differently. 

“Scores of case studies have shown, there has to also be an aggressive, intentional and holistic approach to change management, prominently including how the relevant workforces are developed. Absent re-aligning those processes, real change will remain elusive,” Stan Soloway, president and CEO of Celero Strategies and federal acquisition expert, told Federal News Network.

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