Federal Budget Shifts in FY2024: Where Small Businesses Win—and Where the Work is Drying Up
FY2024 has been a wild ride for federal contractors. Even with overall spending capped by the Fiscal Responsibility Act, agencies shuffled dollars to match their priorities—and that’s created big winners and some serious losers. For small businesses, this means more opportunities in certain high-growth sectors and a sharp pivot away from others. The key to thriving? Knowing where the money’s going, what’s getting cut, and how to position yourself now for FY2025.
The Growth Sectors You Can’t Ignore
Several areas saw funding boosts in FY2024, and small businesses with the right certifications and capabilities can capitalize.
Cybersecurity & IT Modernization
Federal cyber/IT spending kept climbing, with major investments in Zero Trust, cloud migration, and security tools. Agencies like DoD, DHS (CISA), and Treasury are driving solicitations for cyber tools, consulting, and IT system upgrades. NAICS code for government contractors in IT remains one of the best NAICS codes for small business wins. To compete, invest in compliance—especially with DoD’s upcoming CMMC requirements—and consider teaming on large IDIQs like GSA MAS IT.Healthcare & Health Services
The Department of Veterans Affairs is at the center of a healthcare spending surge, thanks to PACT Act funding and a $4.1 billion VA facility modernization push. VA’s “Vets First” law creates prime spots for SDVOSBs and VOSBs, with additional awards in telehealth, staffing, and medical equipment. SBA 8a certification services can help eligible firms grab sole-source awards here.Construction & Infrastructure
Fueled by IIJA and other legislation, construction remains the top small-business-friendly sector. From Army Corps civil works to VA hospital upgrades, agencies are issuing a steady stream of set-asides in NAICS 236, 237, and 238. HUBZone, 8a contracts services, and women owned small business certification are especially valuable in this arena.Clean Energy & Climate Initiatives
DOE, EPA, USDA, and FEMA are rolling out contracts for renewable energy, grid modernization, EV charging infrastructure, and climate resilience projects. SBIR Grant Assistance and 8a certification assistance can open the door for small firms to tap into this expanding market.Defense Modernization & Emerging Tech
The largest defense budget in history is pushing billions into AI, hypersonics, space, and next-gen weapons. Small firms can win through SBIR/STTR awards, OTA consortia, and subcontracting to primes. If your contractor NAICS code aligns with aerospace R&D or advanced manufacturing, now’s the time to get on those opportunity pipelines.
Where the Federal Faucet is Tightening
Not every sector is flush with funds. Some saw sharp cuts or consolidation in FY2024, and small businesses in these spaces need to pivot fast.
Pandemic-Related Services: COVID contracting has all but vanished. PPE, testing, and emergency staffing contracts are gone, pushing many firms back to pre-pandemic service lines.
Legacy Defense Systems & O&M: Support for aging platforms like the A-10 and older Navy ships is being phased out in favor of modernization. Suppliers need to transition to next-gen systems or foreign military sales work.
Civilian R&D: NIH and other science agencies faced cuts, meaning fewer contract and SBIR opportunities outside priority fields like cancer research, AI, or climate tech.
Support Services Consolidation: Administrative, janitorial, and IT support contracts are increasingly bundled into large multi-agency vehicles. If you’re not on a GWAC or BIC contract, you risk getting locked out.
Overseas Ops & Foreign Aid: With OCO funding gone and USAID programs trimmed, opportunities abroad are scarcer, except in targeted priorities like Indo-Pacific engagement or Ukraine support.
Cross-Cutting Trends to Watch
Shift from O&M to Modernization: Agencies are reallocating funds from “keep-the-lights-on” work to new systems, IT, and facilities. Small firms should align skills and certifications to modernization projects.
Contract Consolidation: Category management is here to stay. The government is moving work into big vehicles like OASIS+, Polaris, and SEWP. That means the Government contracting certification process and getting your federal contracting certifications is critical.
Higher Small Business Goals: The SDVOSB goal jumped to 5%, and agencies are aiming for 15% SDB awards by 2025. 8a certification, disabled veteran small business certification, and women business certification holders should see more set-asides.
4 Action Steps for Small Businesses
Get Certified: If you qualify, pursue SBA 8a certification, WOSB, HUBZone, or disabled veteran government contracts status—agency goals are driving more set-asides than ever.
Get on the Vehicles: Target GWACs, MACs, and IDIQs—many have small business pools. Government Contract Proposal Writing support can help you secure spots.
Target High-Growth NAICS Codes: Use your contractor NAICS code to align with growth sectors like IT, construction, and energy.
Diversify: If your sector is shrinking, adapt to adjacent markets or subcontract under larger primes in growth areas.
Final Take
FY2024’s budget shifts prove one thing: small business success in federal contracting comes down to agility. Sectors like cybersecurity, healthcare, construction, clean energy, and defense tech are surging, while pandemic work, legacy systems, and certain support services are fading. With elevated set-aside goals and agency pressure to engage small businesses, now is the time to get your certifications in order, lock in your place on major vehicles, and chase the sectors that are driving the future of government procurement.
Don’t stop with this year’s budget picture—FY2025 is being called the year of contract consolidation. This shift could fundamentally change how small businesses compete for federal work. Learn how to navigate consolidation, leverage teaming strategies, and position your certifications to stand out in our post: FY2025: The Year of Contract Consolidation—and What It Means for Small GovCons.
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