Navigating Federal Grant and Contract Funding in 2025
Introduction
This article was created by Arlington Consulting Group (ACG)—an Arlington-based Government Technology and Federal Market Intelligence company helping small and mid-size firms navigate the new administration and identify and capture top opportunities—and GrantExec, a Reston-based technology company that tracks and matches grant funding from federal, state, and private sources to nonprofits, researchers, startups, and local agencies. Since the new administration’s recent executive orders, we’ve been closely monitoring how federal agencies respond and how these changes provide challenges and opportunities in the contracting and grant space. Below are our main takeaways.
Our latest data confirms that over 400 previously open federal grant programs have vanished in the past three weeks—some closed prematurely, others quietly rebranded under new agency priorities. Meanwhile, state and private funding sources fill certain gaps, though many organizations remain vulnerable to sudden terminations. These abrupt changes reflect a broader shift in federal spending priorities, driven by the newly formed Department of Government Efficiency (DOGE)—created with an important mandate to curb a $1.8 trillion deficit and address between $233 billion and $521 billion in annual fraud with $236 billion in “improper payments”across $6.8 trillion in annual outlays.
While we support efforts to cut the significant waste and improve government performance, the ad hoc “chainsaw” approach to workforce and program reductions risks undermining critical missions and displacing dedicated public servants—concerns the President himself shares, having recently announced a plan to use a “scalpel” rather than a “hatchet” for the next phase of workforce cuts. With major policy decisions unfolding, this article provides an urgent warning and a strategic roadmap for stakeholders navigating the rapidly evolving federal marketplace. Drawing on real-time grant market intelligence from GrantExec and early contract-cancellation data from ACG, we detail how the new administration is reshaping everything from USAID missions to contractor roles, while revealing emerging avenues for growth and partnership.
Executive Summary
The new administration’s policy changes have created unprecedented upheaval in federal contracting and grant funding, primarily through the new Department of Government Efficiency (DOGE). Within weeks, over 400 open federal grant programs vanished, and more than 6,294 contracts valued at $11.7 billion have been canceled, upending key agencies like USAID and threatening the stability of thousands of small and mid-size businesses. Although federal spending has soared to $740 billion in contract obligations and $1.21 trillion in grants, these abrupt shifts jeopardize an ecosystem that employs 11.3 million people—including contractors, grant-funded workers, and the military.
While the administration aims to eliminate waste and reduce bureaucracy, such sweeping measures risk collateral damage—curtailing essential services, triggering workforce layoffs, and destabilizing local economies. As more than 200,000 federal employees already face layoffs and additional cuts loom, emergency contracts will inevitably surface to address critical operational gaps. Meanwhile, the FY25 appropriations cycle hints at a potential pivot toward rebuilding and modernization, with a proposed $300 billion boost to Defense and Homeland Security offset by steep reductions elsewhere.
This report offers a strategic roadmap for contractors and grantseekers navigating these transformations. By focusing on solutions that deliver rapid ROI, maintaining agility through partnerships, and identifying resilient niches (like defense, VA, homeland security, and infrastructure), businesses can mitigate disruption and seize emerging opportunities. Ultimately, a balanced approach—targeting genuine inefficiencies without sacrificing core public functions—will be essential to preserving both innovation and economic well-being under the new administration.
Establishing the Scope of Disruption
Over the past decade, the federal market has experienced historic growth, significantly reshaping the economic landscape. Federal contract spending surged dramatically from approximately $440 billion a decade ago to $740 billion in FY24, representing a substantial 68% increase—and notably, a 28% rise since FY19 alone. Concurrently, federal grant obligations have expanded even more significantly, reaching $1.21 trillion in FY24, marking a staggering 101% growth over the last decade and a 58% increase since FY19. Despite the federal civilian workforce remaining relatively stable at around 2.1 million employees in 2023, employment tied to federal contracts has soared from 2.8 million in 2002 to approximately 5.2 million today, with grant-funded positions nearly doubling to 2.3 million in the same timeframe.
These figures reveal the tremendous economic and employment footprint of federal spending, underscoring the critical importance of maintaining thoughtful, strategic, and empathetic approaches to federal budgetary cuts. While addressing inefficiencies is vital, abrupt or indiscriminate reductions could trigger severe economic disruption, job losses, and weakened community stability across the country. Policymakers and business leaders must carefully balance cost-saving objectives with preserving essential public functions and minimizing adverse economic impacts.
Key Data Points
Grant Funding Opportunity Disruptions:
$5.87 billion in congressionally-approved funding opportunities suspended across 432 federal grant solicitations since January 20, 2025
8% of affected funding opportunities have been restored (33 opportunities worth $596 million)
399 funding opportunities totaling $5.28 billion remain under review, preventing organizations from even applying
February 2025 grant obligations plummeted to $12.2 billion — a staggering 96% drop from January's $292 billion and 47% below February 2024 levels
Contract Cancellations:
G2X has confirmed 6,294 contracts worth $11.7 billion have been terminated since January 20, averaging $1.9 million per cancellation
Federal contract obligations collapsed to $11.8 billion in February 2025 — down 54% from January 2025 ($25.6 billion)
DOGE claims responsibility for 10,372 terminations: 4,083 contracts ($15B) and 6,289 grant actions ($15B)
Agency Disruptions:
USAID contractors were hit hardest, with 230 terminations totaling $7.5 billion and a workforce reduction from 10,000 to just 300 employees
NIH commercial research was effectively halted when more than 1,200 Phase II SBIR grants were delayed after peer review panels were halted
The DOT’s National Electric Vehicle Infrastructure program was frozen, locking $3.3 billion in unspent funds and leaving 51 operational stations nationwide without any plans for expansion
EPA's Environmental Justice Small Grants Program and USDA's bioenergy initiatives were indefinitely paused
Economic Impact:
Federal ecosystem supports 11.3 million jobs (2.1M federal employees, 5.2M contractors, 2.3M grant-funded positions, 1.7M military and postal)
200,000+ federal employees in probationary roles targeted for immediate layoffs
Virginia is particularly vulnerable: federal spending comprises 8.9% of state GDP (double the national average)
A 10% federal workforce reduction in Virginia could trigger a statewide recession, eliminating all projected 2025 job growth
Emergency Contracts Looming:
Critical operational gaps already emerging in IT systems, public health programs, and safety measures
The FY25 budget proposes a $300 billion increase for Defense and Homeland Security while slashing $2 trillion from mandatory spending
These developments underscore how swiftly the federal landscape is shifting under the new Trump Administration. While a push to eliminate fraud, waste, and abuse is warranted, the cumulative effect of these changes places a significant strain on agencies, contractors, and local economies.
The Central Theme: New Administration & DOGE’s Mandate
Under the second Trump Administration, the Department of Government Efficiency (DOGE) has been empowered to slash what it considers wasteful federal programs. The approach includes:
Freezing or Halting Expenditures: Delaying or rescoping pending programs to align with evolving political objectives.
Terminating Grants and Contracts: Open and awarded agreements related to foreign assistance, climate resilience, environmental justice, abortion, gender, diversity, equity, inclusion, and accessibility face broad cancellation under DOGE’s directive to purge perceived inefficiencies.
Auditing Contractor Roles: Hundreds of thousands of contractor positions could be eliminated, particularly those deemed nonessential.
Canceling Non-Essential Consulting: A Government-wide initiative now targets any contract that “merely generates a report, research, coaching, or an artifact.”
While these measures aim to curb unnecessary spending, the ripple effects can be far-reaching, destabilizing programs central to public health, foreign aid, and other core missions. The recent surge in USAID contract terminations, for instance, illustrates how swiftly entire agencies can be upended.
Source: Paul Light Opcit, Governance Studies at Brookings
Virginia’s Economic Vulnerabilities
Virginia’s economy is uniquely exposed to federal spending cuts under the new administration due to its substantial reliance on federal employment and funding.
⚠️ With nearly 450,000 civilian federal employees in Virginia, Maryland, and D.C., and indirect employment through contractors and grant-funded positions estimated at two to three times that figure, even modest cuts could have outsized economic impacts (Urban Institute).
A 10% reduction in Virginia’s federal civilian workforce (~18,000 jobs) could result in nearly 40,000 total statewide job losses, erasing all projected employment growth for 2025 and potentially triggering a recession—an especially severe risk given President Trump’s pledge to cut up to 100,000 federal positions from the DMV area (VPM). Economist João Ferreira highlights likely consequences, including reduced consumer spending, real estate market instability, and significant layoffs in sectors heavily dependent on federal contracts (VPM). Given that federal civilian and military spending comprised 8.9% of Virginia’s GDP in 2023—more than double the national average—Virginia’s economic resilience hinges on swift, proactive responses from policymakers and businesses to mitigate potential severe economic disruptions (The Commonwealth Institute).
What Comes Next: “Bureaucracy Destruction” & Beyond
Over the next few months, DOGE is expected to remain in a “bureaucracy destruction” phase, aggressively pushing downsizing across agencies. More than 200,000 federal employees in probationary roles are being targeted for layoffs — not counting simultaneous sweeping contractor reductions. As critical functions become understaffed, essential government services may falter, creating crises DOGE itself is unable to resolve. In such scenarios, agencies will likely turn to emergency contracts for urgent gaps in IT systems, public health programs, and safety measures.
Beyond immediate upheaval, the FY25 appropriations cycle may herald a shift toward rebuilding. The latest House budget resolution calls for a $300 billion boost to the Department of Defense (DoD) and Department of Homeland Security (DHS), offset by $2 trillion in cuts to mandatory spending (primarily Medicaid and SNAP) and $4.5 trillion in tax reductions over a decade. While these large-scale changes could further reorganize federal agencies, they also highlight the growing demand for solutions to modernize processes and achieve cost efficiencies—especially in areas where budget cuts have left operational voids.
Emerging Opportunities Amid the Shake-Up
Despite many program reductions, there are still sectors with sustained or growing potential:
Defense & Security-Related Spending Surge: With the House proposing $300 billion in new defense, border security, and immigration funding over the next decade (likely front-loaded in the next two years), the DoD and DHS are poised for substantial budget increases. Priorities range from AI/ML, cybersecurity, AI-enabled defense systems, and missile defense to submarines, drones, and counter-opioid initiatives. Contractors balancing cost reform with mission-critical needs stand to benefit.
Workforce Gaps & Process Improvement: Extensive federal workforce reductions—including RIFs and layoffs for over 200,000 probationary employees—will drive agencies to rely on contract support for essential services and crisis response. Vendors offering strategic consulting, workflow automation, or specialized technical expertise can maintain service continuity.
Digital Transformation & Enhanced Tech: Large-scale modernization efforts (e.g., VA and DHA) are creating robust demand for CX, cyber, AI, cloud services, data analytics, and secure interoperability.
Strategic Planning & Operational Overhauls: Efforts to eliminate duplicative programs and achieve cost efficiency call for line-by-line budget reviews, AI-driven process improvement, and workforce modernization. Contractors must tailor their solutions to each agency’s unique challenges—including payment integrity and shared service adoption.
Multi-Year Infrastructure & Industrial Policy: Despite broad cuts elsewhere, Bipartisan Infrastructure Law (BIL) projects—covering roads, broadband, and key industrial areas—remain politically supported. Flexible firms that can pivot as priorities shift can secure multi-year contracts and help states navigate large, complex awards.
AI-Driven Fraud Prevention & Program Integrity: With the federal government losing hundreds of billions annually to improper payments and fraud, there is strong interest in AI-powered tools offering immediate ROI. Machine learning, predictive analytics, and real-time data solutions are in high demand to reduce waste and strengthen oversight.
Implementation Partnerships for Agency Reforms: Agencies need partners to comply with DOGE mandates and reorganizations—whether consolidating back-office functions, modernizing IT, or transforming the civil service workforce. Contractors combining strategic insight with technical delivery will gain from reforms like DoD cost-saving initiatives, bureaucratic streamlining, and broader workforce restructuring.
Striking the Right Balance: Eliminating Waste While Preserving Core Functions
Federal spending has soared from $3.5 trillion to $6.8 trillion over the past decade—a 93% increase—fueled partly by $32.5 trillion in pandemic-related expenditures between FY20 and FY24. Congress enacted $6.32 trillion in major packages (CARES, ARP, IRA, BIL, CHIPS) over this period. Meanwhile, discretionary budgets rose from $1.2 trillion in FY17 to $1.8 trillion in FY24, split nearly evenly between DoD ($850B) and civilian agencies ($860B).
While curtailing unnecessary spending is a valid goal, these rapid cuts threaten thousands of small and mid-size businesses and hundreds of thousands of good-paying jobs. The quest for cost reduction must be tempered with a thoughtful, empathetic approach—one that targets genuine fraud or inefficiencies with a scalpel rather than a chainsaw, preserving truly essential programs. Failing to adopt such nuance risks undermining innovation, vital public services, and local economic stability.
Recommended Strategies for Contractors
Flexibility & Adaptability Through Partnerships: In a shrinking budget environment, teaming with larger primes or specialized partners can improve your competitive edge.
Proactive Strategic Scenario Planning: Monitor regulatory and budget signals weekly. Anticipate possible funding disruptions and pivot quickly.
Emphasize ROI and Cost-Efficiency: Agencies facing intense scrutiny need solutions that demonstrate immediate or near-term returns, particularly in fraud prevention, data analytics, and strategic cost containment.
Explore Stable & Growth Areas: Even as civilian programs face cuts, defense, homeland security, and select infrastructure projects remain comparatively robust.
Diversification & Resilience: Small and mid-sized firms should explore alternative markets and state/private funding sources, especially as more than 200 federal grant programs have vanished.
Plan for Rebuilding: Position solutions to address the eventual pivot from downsizing to modernization—helping agencies fill skill gaps and update legacy systems.
Alternative Funding Landscapes: State, Local, and Private Sector Response
As federal priorities shift, organizations must pivot toward alternative funding streams that remain robust despite the changing landscape.
Current State, Local, and Private Grant Market
GrantExec’s real-time grant market tracking finds substantial funding opportunities actively accepting applications today, state and local grantors will likely face pressure as federal pass-through dollars decrease:
Currently Open State Programs: 1,438 grant opportunities accepting applications today, totaling $22.47 billion across diverse priority areas
Currently Open Local Programs: 1,014 grant opportunities currently accepting applications, providing $381.54 million in targeted community funding
Currently Open Private Funding: 2,453 grant opportunities currently accepting applications, totaling $1.09 billion from foundations and corporate giving programs
Organizations previously dependent on federal funding should immediately assess alignment with state and local grant priorities. Several states have indicated they may strategically allocate resources to address critical gaps left by federal reductions, though the sustainability of these efforts remains uncertain as pass-through funding diminishes.
Private Sector Mobilization
The private philanthropic sector has responded rapidly to federal funding reductions. In just five weeks following the announcement of cuts to international development, global health, and social services, major foundations have launched targeted initiatives:
MacArthur Foundation has increased its annual payout from 5% to at least 6% of its endowment over the next two years, directing an additional $150 million toward areas facing federal cuts.
Pivotal Ventures has established a $250 million fund specifically focused on improving women's health and rights globally, with emphasis on organizations losing USAID support.
Elton John AIDS Foundation has created an emergency fund directly targeted at countering the 90% reduction in USAID contracts, implementing expedited review processes for organizations facing immediate funding gaps.
Bloomberg Philanthropies has pledged to cover the U.S. share of the UN climate budget, demonstrating how private philanthropy is stepping in to maintain international commitments.
Freedom Together Foundation has doubled its grantmaking to 10% of its $4.2 billion endowment while simultaneously streamlining its application process—reducing decision timelines from months to weeks to address urgent needs.
Founders Pledge has expanded its Global Health & Development Fund to specifically address critical funding gaps left by federal cuts, focusing on evidence-based interventions.
GlobalGiving has initiated emergency fundraising campaigns to support grassroots international organizations directly impacted by the federal aid freeze, creating rapid-response mechanisms for affected communities.
Recommended Strategies for Grantseekers
Organizations seeking to capture these alternative funding sources should:
Reframe value propositions to emphasize efficiency, accountability, and measurable outcomes that align with foundation priorities
Develop multi-funder strategies that blend smaller grants from diverse sources to replace larger federal awards
Build collaborative consortia with complementary organizations to present more comprehensive solutions to funders
Invest in relationship development with program officers at key foundations aligned with your mission area
Demonstrate adaptability by showing how your core mission can be maintained and enhanced through more diverse funding models
While these alternative funding streams cannot fully replace federal support at scale, organizations that act swiftly to diversify their funding base—emphasizing efficiency and measurable outcomes—will be better positioned to weather the current transitions and sustain critical programs. The private philanthropic response, while substantial, remains targeted primarily toward international development, global health, and climate initiatives where federal cuts have been most severe.
The Imperative for Strategic Alignment
The federal landscape is undergoing unprecedented change. Contractors, grant seekers, and state/local governments can no longer rely on previously stable pipelines of federal dollars. With DOGE actively reshaping agency budgets and priorities, disruption is inevitable. Yet, amid this turbulence, opportunities for innovation, cost savings, and transformation abound—particularly in infrastructure, defense, homeland security, AI-driven modernization, and emergency response. Key technology priorities including AI, cloud, cybersecurity, analytics, and CX will also remain key priorities.
Organizations that act swiftly—refining their value propositions around efficiency and measurable outcomes—stand the best chance of securing new business and withstanding the waves of reform. Those who hesitate risk being left behind in a market that increasingly rewards agile, data-backed, and mission-focused solutions. Ultimately, a thoughtful administration strategy must combine aggressive waste reduction with a commitment to preserving core government functions, ensuring that cuts do not inadvertently undermine the nation’s long-term economic and societal well-being.
If you have any questions or need further guidance, reach out to us at GrantExec or Arlington Consulting Group. We remain committed to helping you navigate the shifting currents of the new administration, preserving mission-critical work while seizing the next wave of federal market opportunities.
Contact us for more information
Andrea Avendano | Arlington Consulting Group, Co-Founder & CEO | andrea.avendano@arlingtonconsulting.io
Ryan Alcorn | GrantExec, Co-Founder & CEO | ryan@grantexec.com
Together, our mission is to support small and mid-size organizations in successfully adapting to—and thriving under—the new federal reality of the new administration.