Texas Contractors Are Feeling the Heat: $863M in Cuts and What Comes Next
Federal budget politics just got real for small businesses in Texas. In the first half of 2025, more than $860 million in federal contracts and grants across the state have been canceled, and the ripple effects are already hammering local contractors—especially in San Antonio. If you're a small or disadvantaged business in the government procurement space, this is more than just a headline. It’s a wake-up call.
Here’s what’s happening, why it matters for your federal contracting business, and how to adapt before you’re caught off guard.
In plain terms, the Department of Government Efficiency (DOGE) has been aggressively slashing programs it sees as “non-essential.” That includes:
Broadband projects (like a $56M high-speed internet grant)
Healthcare staffing contracts (e.g., a $1.2M rehab services deal at Brooke Army Medical Center)
Education, DEI, and research programs (over 80 university grants yanked in one month)
Migrant and border support services (such as a massive $18M/month contract cancellation for Family Endeavors)
San Antonio alone has lost more than 50 contracts totaling over $400 million. And most of the firms affected? Small, local businesses—many of whom rely on just a few key federal contracts to stay afloat.
Why should small businesses care?
Because these cuts highlight a growing risk: federal over-reliance. Many 8a-certified, women-owned small businesses, and veteran-owned firms build their models around a handful of federal opportunities. When those get pulled—with little warning—the results are devastating.
Here’s how it hits:
Revenue disappears overnight: SMBs like Stability Staffing lost multimillion-dollar contracts and had to make immediate layoffs.
Cash flow crunches: Termination costs, delays in settlement payouts, and the scramble to replace lost work can push thin-margin businesses into the red.
DEI crackdown side effects: Dozens of university and cultural grants were wiped out amid a political shift, disproportionately affecting businesses in education, research, and diversity services.
If you’ve got your eggs in one basket—or even just one agency—these terminations are your signal to diversify.
So how do you protect your business and move forward?
Here are smart, actionable steps federal contractors can take right now:
Diversify your federal portfolio
Look beyond Texas. Bid on opportunities in other states or regions.
Target sectors that are seeing growth—like cybersecurity, infrastructure, and military logistics.
Use tools like SAM.gov and DSBS to explore new agency buyers and contractor NAICS codes.
Reframe and repackage what you offer
Turn DEI curriculum or STEM programs into fee-based consulting or digital training for corporations or state agencies.
Consider commercializing grant-funded solutions—especially if you’ve got past performance you can leverage.
Lean into certifications
If you’re not already certified, get going: SBA 8a certification, women owned small business certification, or disabled veteran small business certification can open doors to set-aside contracts in unaffected areas.
Explore SBIR Grant Assistance or innovation-focused programs that align with national R&D goals.
Audit and protect your current contracts
Review all active and recently canceled agreements. Understand your FAR Part 49 rights. Termination for convenience doesn’t mean you’re helpless—you may be able to recover costs.
Engage your legal or accounting team to file proper claims, especially if you incurred unreimbursed expenses.
Build new relationships
Team up with larger primes through mentor-protégé or subcontractor agreements.
Apply for upcoming government contracting opportunities in high-demand sectors like health IT, telehealth, or AI integration.
Join consortia or alliances funded under CHIPS, DoD tech accelerators, or DOE initiatives.
Here’s the big takeaway: This isn’t just a Texas problem. It’s a preview of what could happen nationwide as the federal budget tightens and political winds shift. Small businesses in government contracting must now operate like investors—diversified, agile, and always scanning for their next best move.
Whether you’re already navigating contract terminations or just want to future-proof your revenue, now’s the time to pivot with purpose. That might mean revisiting your contractor NAICS code, revising your Government Contract Proposal Writing approach, or exploring federal contracting certifications you’ve previously put off.
Need help identifying your next target market or writing winning proposals? You’re not alone. The best-prepared firms are calling in strategic support to weather this storm.
If you’re ready to level up your positioning, check out our post on “The Email You Should Be Sending Every Week to Contracting Officers (But Probably Aren’t)” for a fast, effective BD habit that builds long-term pipeline—no matter what gets cut next.
If you aren't a Squared Compass partner, what are you waiting for? From getting your business set up with specific government set aside programs at both the State and Federal level, to being empowered by a Fractional Capture team to win government contracts, to receiving tailored government contract opportunities Squared Compass delivers immense value which helps propel our partners to success. Schedule a chat with our team today.
