The Greg and Camille Baroni Center for Government Contracting in the Costello College of Business at George Mason University today released the inaugural Government Contracting Trends and Performance Index, a first-of-its-kind analysis of the 200,000 firm industrial base providing nearly $800 billion in products, materials, and services to the whole of the Federal government.
The Baroni Center research team leveraged open-source data, comprehensive surveys of government contracting firms, and exhaustive analysis to examine three specific areas: the current structure of the federal contracting industrial base; the current trends in government contracting; and the financial performance of government contracting firms.
“We are thrilled to share this inaugural Index to fill important gaps in our understanding of the private sector industrial base that provides critical support to the U.S. federal government,” said Dr. Jerry McGinn, Executive Director of the Baroni Center and lead researcher on the Index. “This research can help inform ongoing initiatives designed to improve government contracting processes and execution. We look forward to engaging with industry and government for meaningful discussions to drive better contracting outcomes across government.”
Key top-line findings include:
Measuring innovation outcomes is imperative, but lacking
The use of agile acquisition vehicles like Other Transaction Authorities (OTAs) and Small Business Innovation Research (SBIR) grants have exploded over the last five years. However, because there is no measurement of what is produced by such investment in innovation, the extent to which the nation is reaping benefits from these contract instruments is principally anecdotal. Better measurements of the outcomes of these efforts are critical.
Incentives are the true drivers of innovation
Incentives for innovation, adoption, and integration are necessary to draw and keep cutting-edge firms into the government marketplace. Specifically, when asked how the government can encourage industry, survey respondents resoundingly identified profit, ease of doing business, and steady partnership as their key performance indicators (KPIs). If the federal government is serious about innovation, it must appropriately incentivize companies to deliver and sustain new, effective, and efficient solutions.
Small businesses innovate, but the preponderance of small business work is not in innovation
Small businesses participate in innovation as government contractors through SBIRs and other efforts. However, the preponderance of the work dominated by small businesses includes civil engineering, software installation and programming, facility utilities installation and repair, administrative services, and non-technical manufacturing. Though important to the functioning of government, this work is largely unrelated to innovation. For increased small business contributions to innovation, agencies will need to evolve their respective small business contracting approaches.
A need to put the “non” back in nontraditional defense contractors
The current legal definition for non-traditional firms excludes only 7.5% of firms in the Department of Defense (DoD) market, according to Baroni researchers. If non-traditional contractors are expected or desired to be instrumental in increasing innovation in government, these firms must be both better defined and tracked over time.
Industrial base sentiment was strong across the spectrum of companies in 2024
The Baroni Center’s analysis found the federal market remains competitive, despite a reduction in the number of firms over the past decade. Moreover, our 2024 survey results and financial performance index show that government contracting firms of all sizes and composition remained positive about their recent performance and future prospects. Company sentiments about future performance could be quite different today as a result of DOGE, but the companies’ key performance indicators, however, would likely be unchanged.
Recommendations to Improve Federal Government Contracting
Baroni Center researchers offer specific recommendations to address the key findings.
- The Trump Administration should work with Congress to expand the publicly available data concerning OTA and SBIR/STTR to identify and track the progress of prototypes to production to understand the timeliness of development, adoption, and integration, as well as the length of service for capabilities devised through these funding and contract approaches.
- The Trump Administration should work to create contract structures that better incentivize small business investment in identified priority areas where innovations from small businesses are most greatly desired.
- Along the lines proposed in S. 5618 FoRGED Act introduced in December 2024, Congress should redefine “non-traditional defense contractor” in legislation updating and clarifying 10 U.S.C. §3014 so that the term and corresponding applications are directly useful in identifying, incentivizing, and measuring the performance of corporations developing and delivering new technological capabilities to DoD. For example, the definition can be made to identify corporations whose characteristics match those commonly associated with substantive technological innovation, such as investing meaningfully in non-reimbursable research and development, venture capital or private equity sponsorship, and high rates of annual revenue growth from commercial technology sales.
- DoD should apply the updated statute redefining “non-traditional defense contractor” to the Defense Federal Acquisition Regulation Supplement as well as DoD Policy Directives so that the term and corresponding applications are employed in identifying, incentivizing, and tracking corporations and DoD programs of record in the development and delivery of new technological capabilities.
The 2025 Government Contracting Trends Performance Index was co-authored by Dr. Jerry McGinn, Jeff Kojac, Edward Hyatt, Lloyd Everhart, Olivia Letts, and John Davis. The Baroni Center will publish the Index annually and welcomes comments, questions, and suggestions for improving this publication for the future. Please send comments to govcon@gmu.edu.
To read the full index, visit https://mymasonportal.gmu.edu/bbcswebdav/xid-357406074_1.