
Diversify with Intention: What the 2026 Budget Means for Services Contractors
If your company provides IT, engineering, cybersecurity, logistics, staffing, acquisition support, professional training, research, health informatics, or administrative services, the 2026 federal budget is more than just a financial roadmap; it’s a strategic signal. While the Baroni Center’s 2025 Trends and Performance Index shows that firms with a high concentration of revenue from one or two customers often report higher new win rates and revenue, it also exposes a fragile dynamic: these companies submitted significantly fewer proposals overall and had fewer in-progress opportunities in the pipeline. Yet their win rates were high, highlighting that past familiarity doesn’t always translate to future resilience. The same report cautions that high-performing firms were often the least diversified, suggesting that even top contractors may be vulnerable to shifting agency priorities—something the 2026 budget climate brings into sharp focus.
Baroni’s findings offer more than caution—they point to clear patterns directly tied to diversification. Their analysis of end market alignment shows that firms with stronger financial stability are those that serve multiple segments—such as civilian, defense, and international customers—rather than specializing in just one. This has direct implications for customer base diversification. Contractors who recognize the crossover potential of their offerings—such as training, IT, or compliance support—can apply these capabilities across multiple mission sets. BidExecs interprets this as a call for contractors to expand laterally into adjacent agencies or sectors without diluting their core services. For instance, a firm providing digital services to the Department of Labor could find a natural adjacency in supporting health data modernization efforts at HHS or telework infrastructure at OPM. Recognizing those connections allows contractors to reposition, rebrand, and diversify their customer base without overhauling their service model.
Another notable trend emerging from Baroni’s analysis is how firms limit their reach by sticking to perceived core agency identities. The report calls attention to the small percentage of firms that engage across both civilian and defense markets, yet those that do tend to demonstrate greater revenue stability and agility. This mirrors the very shifts we see playing out in the FY26 budget. For example, a company that previously supported only civil agencies may already have the qualifications and project references to serve the defense sector—they simply haven’t explored the adjacency. That ability to step sideways, rather than starting over, is the core of strategic diversification. Contractors who leverage that insight are more likely to withstand market contractions and policy shifts.
According to current projections:
- OPM is facing workforce reductions, meaning greater reliance on cost-effective outsourcing—but only from firms that can demonstrate measurable performance.
- HHS is trimming administrative functions, putting pressure on contractors to pivot toward mission-enabling IT, public health data analytics, or compliance-heavy services.
- DOI is restructuring internal operations with less focus on administrative contract support.
- DOJ remains stable but is narrowing focus to enforcement, immigration, and criminal justice priorities.
- DHS and DoD are expanding, with strong demand for secure IT, program support, logistics, and cybersecurity services.
If your offerings aren’t positioned to follow the dollars, your growth may stagnate—even with strong past performance. As the Baroni report also notes, high-performing firms are more likely to invest in business development activities before an opportunity hits SAM.gov. That proactive posture is exactly what’s needed to identify and capture opportunities in adjacent agencies or mission areas. That’s where diversification becomes essential.
Take the recent dismantling of USAID as a cautionary example. Once a dependable source of large-scale contracts in health, humanitarian aid, and development, USAID ceased operating as an independent agency in June 2025. Programs were either canceled outright or consolidated under the State Department. Contractors that had built their entire business models around USAID found themselves with pipelines erased almost overnight. It’s a clear case of what happens when a contractor’s entire strategy rests on a single agency.
But the bigger lesson is this: many firms thought USAID was their customer, when in fact they were delivering programs that directly supported other agencies—like the Department of Defense—in overseas environments. The contract may have been funded by one agency, but the operational beneficiaries were often different. At BidExecs, we help clients rethink their entire approach to customer identity. Diversification isn’t just about shifting offerings; it’s about shifting mindsets.
Instead of looking narrowly at the funding agency, we encourage clients to examine the full chain of impact—the end users, mission beneficiaries, and interagency collaborators. This aligns with Baroni’s insight in Figure 4, which shows that only 7.5% of DoD vendors are considered “non-traditional,” indicating that the federal landscape is still dominated by mature firms – and you just have to recognize that you are it. Diversification isn’t just about broadening your customer base across agencies; it’s also about entering the right channels as the definition of innovation evolves. A program supporting maternal health in a conflict zone may, upon closer examination, be part of a broader stabilization initiative tied to military or diplomatic objectives. Recognizing these linkages can reposition a contractor to pursue work with a completely different buying agency, or even in a different sector. Understanding this distinction enables firms to reposition themselves in entirely new sectors without having to reinvent their service model.
At BidExecs, we guide services contractors to diversify intelligently, not by chasing every RFP, but by:
• Repackaging core capabilities to align with higher-growth agencies
• Helping firms move across customer sets without stretching their bandwidth
• Pursuing subcontracting and JV opportunities to access new buyers
But diversification doesn’t stop with the government. In fact, the same skills that help you win and perform federal contracts—process rigor, regulatory compliance, and mission understanding—are increasingly sought after by commercial buyers, especially those navigating highly regulated industries. Companies that have historically focused solely on the public sector now have the opportunity to enter adjacent commercial markets where their credentials carry significant weight. At BidExecs, we help our clients translate their federal value proposition into language that resonates with corporate procurement teams, without losing the discipline that made them competitive in the first place.
For contractors tired of feast-or-famine cycles tied to a single agency, this is the time to act. Our team at BidExecs combines opportunity intelligence with hands-on business development to get you in front of the right decision-makers, whether they’re in a federal program office or a commercial procurement team.
The 2026 budget has made one thing clear: agencies are tightening their budgets in some areas and expanding them in others. The same may be true in your pipeline.
If you’re ready to broaden your reach without losing focus, we’re ready to help.
Download our Cracking the Code reports for sector-specific insight, or contact us directly to start building your dual-sector strategy.