AI, Acquisition Reform, and the Shrinking Space for Small Business
Five months into the new administration, the federal government has undergone a seismic shift in its operational philosophy. While President Trump previously served from 2016 to 2020, the changes implemented during this term are far more sweeping. The White House has taken a hard stance on cutting what it deems “non-essential” spending, placing heavy scrutiny on:
- Consulting contracts
- Executive assistance (EA) support
- Socio-economic set-asides
These areas have seen significant reductions. In their place, the administration has doubled down on artificial intelligence (AI), streamlined acquisition processes, and a leaner, faster federal procurement model.
The Consulting Crunch and EA Support Cuts
The administration’s aggressive cost-cutting measures have hit traditional consulting services hard. Once a staple of federal modernization, EA support is now labeled as bureaucratic overhead. Agencies are being encouraged to rely on internal capabilities and AI-driven tools to replace previously outsourced functions.
Early executive orders and budget guidance deprioritized executive administrative support across agencies, including:
- Program Management Offices (PMOs)
- Strategic communications and executive coordination roles
- Administrative and scheduling support for SES and political appointees
The rationale? These roles are increasingly seen as replaceable by AI tools such as scheduling bots, automated correspondence generators, and workflow platforms.
“Federal agencies have experienced a widening gap in adopting AI and modernizing government technology, largely due to unnecessary bureaucracy and outdated procurement processes.” – Greg Barbaccia, Federal CIO
Case Example: At the Department of Commerce, a $12M contract for EA support was canceled mid-cycle. Instead, the agency piloted an AI-driven virtual assistant platform for calendar management, meeting prep, and document routing. While the pilot reduced costs, internal feedback raised concerns about responsiveness and contextual understanding.
Industry Insight: Firms like Maximus and Booz Allen Hamilton are pivoting toward AI integration and digital transformation. Smaller firms lacking this flexibility are being squeezed out.
AI Ascendant: The New Federal Workhorse
The administration’s AI-forward strategy is codified in memoranda M-25-21 and M-25-22, which aim to:
- Eliminate bureaucratic barriers to AI adoption
- Empower Chief AI Officers to drive innovation
- Streamline AI procurement with fewer reporting requirements
- Promote American-made AI solutions to maintain global competitiveness
“President Trump recognizes that AI is a technology that will define the future. This administration is focused on encouraging and promoting American AI innovation and global leadership.” – Lynne Parker, Principal Deputy Director, White House OSTP
Agencies must now develop AI strategies, conduct maturity assessments, and prioritize use cases that enhance efficiency without compromising civil liberties.
“To unlock AI’s full potential, the public sector must go beyond generic AI solutions and embrace tailored, strategic AI adoption models that directly align with its operational realities.”- Balaji Sreenivasan, Federal Technology Strategist
Case Example: The Department of Veterans Affairs replaced a legacy claims processing system with an AI-powered triage engine, resulting in a 40% reduction in processing time and a 25% drop in backlog. However, over 200 contractor roles were displaced.
Industry Insight: AI-native firms like Palantir, C3.ai, and emerging startups are gaining traction. Traditional integrators are racing to acquire or partner with AI vendors to stay relevant.
Acquisition Reform: OTAs and Simplified Pathways
The administration is pushing for a radical overhaul of federal acquisitions. Other Transaction Authorities (OTAs) and simplified acquisition procedures are being promoted to:
- Reduce procurement timelines
- Eliminate excessive justification requirements
- Foster innovation through faster vendor onboarding
Case Example: The Department of Homeland Security awarded a $50M AI surveillance contract via OTA in under 60 days—bypassing traditional FAR-based competition. While efficient, the move drew criticism from watchdog groups over transparency and fairness.
Industry Insight: Large firms with legal and compliance teams can navigate OTAs easily. Small businesses often lack the resources to respond quickly or understand non-FAR contracting nuances.
Socio-Economic Set-Asides: A Quiet Retraction
Perhaps the most controversial shift is the quiet rollback of socio-economic set-asides. Programs supporting small, disadvantaged, veteran-owned, and women-owned businesses are being deprioritized in favor of open competition and speed.
“We’re seeing a troubling trend where small businesses are being squeezed out of the federal marketplace.” – Spokesperson, National Association of Small Business Contractors
Impacts on Small Businesses:
- Loss of Access: Without set-asides, small firms face steeper competition
- Capability Gaps: Many lack the in-house AI expertise now favored by agencies
- Cash Flow Crunch: Simplified acquisitions favor firms that can deliver quickly and absorb payment delays
Advantages of the New Approach:
- Speed and Efficiency: Faster procurement cycles and reduced administrative burden
- Innovation Incentives: New opportunities for tech-forward firms
- Market Clarity: Clear direction helps vendors align offerings with federal priorities
- Case Example:
- A GSA-wide BPA for cloud services removed all small business set-asides, citing the need for “enterprise scalability.” This excluded dozens of qualified 8(a) and HUBZone firms.
Industry Insight: Organizations like the National 8(a) Association and Women Impacting Public Policy (WIPP) warn that this shift could reverse decades of supplier diversity progress.
Recommendations for Industry Stakeholders
For Small Businesses:
- Invest in AI partnerships to offer hybrid solutions
- Upskill capture and legal teams on OTA frameworks
- Leverage mentor-protégé programs to access larger vehicles and capabilities
For Agencies:
- Balance speed with inclusion through hybrid acquisition models
- Pilot AI solutions with clear ROI validation
- Maintain transparency, even under OTAs, by publishing award rationales
For Policymakers:
- Reevaluate set-aside metrics to reward both innovation and inclusion.
- Fund AI readiness programs for small firms through grants or training
- AI Regulations and Laws: We are hurtling toward a future dominated by AI without ensuring the proper regulatory frameworks are in place. A detailed, enforceable plan is essential to contain and guide AI development responsibly.
Conclusion: A Fork in the Road
The administration’s approach is undeniably bold. By slashing traditional consulting, embracing AI, and reforming acquisitions, it aims to create a leaner, more responsive government. But the cost of this transformation is being borne disproportionately by small businesses and legacy contractors.
The remainder of this first year will be critical. Will the government find a way to balance innovation with inclusion? Or will the new playbook permanently reshape the federal contracting landscape in favor of the few who can keep up?