One key driver of the Trump administration’s overhaul of the Federal Acquisition Regulations is to make it easier for companies to do business with the government. One primary, long-held belief among federal contracting experts: Companies routinely leave the industrial base, specifically the Defense Department market, because of the burdensome regulations required to do business with agencies.
While most would agree reducing these barriers is a good thing, new information shows the defense industrial base (DIB) is healthy. Competition remains strong and companies are in fact not “exiting” the market, but shifting their approaches to ensure success.
“A comprehensive survey of 45,000 ‘exited’ firms found that the reported decline is significantly overstated because many of these firms were still pursuing work with DoD or working solely as a subcontractor,” according to a new report released today by researchers at the Greg and Camille Baroni Center for Government Contracting in the Costello College of Business at George Mason University in Fairfax, Va. “Despite the popular narrative that industry consolidation has reduced competition in the government contracting industrial base, separate Baroni analysis demonstrates that there are meaningful levels of competition in both DoD and Other Federal markets that have been very stable over time.”
In its inaugural Government Contracting Trends and Performance Index, Baroni Center researchers found not only is the DIB healthy and competition strong, the percentage of new entrants in both DoD and other federal industrial bases has remains relatively stable over the past decade.
Source: Government Contracting Trends and Performance Index, July 2025.
To be clear, the researchers aren’t saying there hasn’t been consolidation or a significant decrease in the DIB over the last decade-plus, but the so-called mass exodus of contractors needs more context.
For example, researchers say the most frequent reason given by companies for exiting was an unfavorable working condition with DoD. But the second and third most frequent reasons were the companies hadn’t won any contracts recently or were performing work as a subcontractor, and therefore only appeared to have exited.
At the same time, the push for new entrants ticked up again between 2022 and 2023, but newcomer stats are still down from previous years. Center researchers say the average number of new entrants into both the DoD and civilian market places ranged from 11% to 12% per year.
Source: Government Contracting Trends and Performance Index, July 2025.
Concerns over the health of the industrial base and trying to attract new entrants has been a particular focus for DoD leaders for some time. In October, for example, the Pentagon detailed how it plans to spend tens of billions of dollars each year to shore up its industrial base over the near and long terms.
Earlier in 2024, DoD awarded a defense industrial base consortium agreement that will let industry partners, including small businesses and non-traditional contractors, work with them on defense supply chain technologies projects and potential research through prototype development initiatives.
Beyond new initiatives to attract new companies or keep current vendors engaged, the Trump administration is leading an overhaul of the Federal Acquisition Regulations (FAR) to further reduce regulatory burdens.
FAR Overhaul deadline approaching
Larry Allen, the associate administrator in the Office of Governmentwide Policy at the General Services Administration, said this first revamp of the FAR in nearly 40 years is long overdue. He said it’s more than just stripping down the regulations — it’s about culture change.
“Even if we rewrite the rules, we’re not going to be ultimately successful unless we reform the culture. The culture, not just of the acquisition workforce, although that’s important, but also the industry culture as well,” Allen said during a Wednesday webinar sponsored by the Baroni Center. “One of the major focus areas of the FAR overhaul is to look at how we change that structure. How do we change the zeitgeist of the acquisition community, if you will? And I’m very happy to say that we’re already doing that and integrating these changes into the Federal Acquisition Institute. I know that our colleagues in the Department of Defense are doing the same thing with the Defense Acquisition University, and that’s really going to be something that pays dividends down the road.”
So far, the Office of Federal Procurement Policy and the FAR Council, which includes GSA, DoD and NASA, have revised nine sections of the regulations and are actively accepting comments on the changes.
Most recently, the council updated FAR Part 6 on competition requirements. Among the changes are simplifying the language in the section, specifically around small business and set-aside requirements, and streamlining competition requirements. The council is accepting comments on changes to Part 6 through Aug. 11.
Allen said some of the more prominent FAR sections are on tap for revision later this summer and into the fall.
“We’ve come out with a number of deviations to existing rules, and the idea there is to have an immediate, upfront impact on the way the government buys things. You’re going to see deviations continue to roll out through the summer and into the fall, as we get into bigger areas like commercial item acquisition, small business and services contracting,” he said. “These are the things we’re working on right now, and you’ll see the results of that in just a month or so, starting to roll out. The idea is to have an immediate impact and then go through the formal rule-making process to make these changes permanent.”
Allen said OFPP’s goal is to complete the first draft, as it were, of the FAR overhaul by Sept. 30. At the same time, however, Allen said if the timeline slips a bit to make sure they get it right, that’s acceptable.
“One of the things that’s impressed me coming in here is to see just how quickly we are making the changes that we’re making. That’s no easy task, and it is also reflective of the dedication of some really smart people in and out of government that are working on this project and the results that we’re already seeing,” he said. “We’ve got a team of seven or eight people here at GSA that are working on this more or less full time, and that’s all just one part of it. There’s teams at DoD, teams at NASA, and a couple of people at OFPP that are overseeing all of this work. It’s very coordinated. When you get in those weekly meetings that we have, there are key focus areas, there are key discussions, and sometimes they do get very tactical with the practitioners. But we also want to keep in mind where we want to be at the end of this process.”
Better definition of non-traditional needed
One thing the Baroni Center researchers say is needed, whether in the FAR or through legislation, is a better definition of non-traditional vendors.
The report found the legal definition for non-traditional firms excludes only 7.5% of companies in the DoD market. “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,” the report stated.
Jerry McGinn, the outgoing executive director of the center, said if the legal definition of non-traditional covers 92.5% of all companies, then the definition is meaningless.
“If you want really to measure non-traditionals [in the market], you have to define it better. And that’s between Congress and the administration to figure out how they want to define, if they want to,” said McGinn, who announced today he will be leaving the center and moving on to become an adjunct professor at GMU beginning in January 2026.
The report said Congress has that opportunity as the House and Senate work on two major acquisition reform bills, the Forged Act in the Senate and the Speed Act in the House.
“This [definition] significantly undermines the value of the term ‘non-traditional’ as a proxy for identifying technology firms bringing innovation to the government. If non-traditional contractors are the focus for increasing innovation in government contracting, these firms must be both better defined and assessed,” the report stated. “Along the lines proposed in S. 5618 FORGED Act introduced in December 2024, Congress redefines ‘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.”
The definition of non-traditional companies becomes even more important as DoD and other agencies use more other transaction agreements (OTAs).
The Baroni Center found OTA use in the DoD increased more than 220%, to $16 billion, from 2018 to 2023, growing to 10% of research, development, test and evaluation (RDT&E) spending.
Source: Government Contracting Trends and Performance Index, July 2025.
McGinn said between OTAs and the increased use of small business innovation research and small business technology transfer (SBIR/STTR) programs, DoD and civilian agencies need to improve how they measure innovation.
“There’s been a big focus for the past decade on innovation, whether it’s other transactions authorities, commercial solutions openings or Small Business Innovation Research. But the fact that matter is those efforts are having a big impact. SBIR has almost tripled in the past 10 years. OTA use more than doubled in the past five years. However, they’re still a small percent overall of spend. The most important thing is, we have no way to really track what happens with these investments,” McGinn said. “We can track who starts the prototyping efforts in OTAs and who does the phase one or phase two innovation grant, but what happens next? What transitions to production? What transitions to a program of record? It has to be done individually. So if we want to measure those results, we have to figure out better ways to do that.”
McGinn added agencies have to offer the right incentives to drive more innovation. The survey found the government can encourage industry by identifying profit, ease of doing business and having a steady partnership.
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