Key points covered in this article:

  • The One Big Beautiful Bill Act (OBBBA) makes permanent 100% bonus depreciation and restores immediate full expensing of domestic R&D activities.
  • New legislation will affect the federal contracting landscape with reforms to acquisition policies, bidding strategies, and compliance requirements.
  • Cybersecurity practices are now part of the bid score and will be verified to ensure security readiness.

 

Several new provisions issued under the One Big Beautiful Bill Act (OBBBA) are bringing a host of changes to government contractors and the way they do business. Changes to tax policy, contracting regulations, and cybersecurity compliance will impact most, if not all, contracts. While effective dates vary, many requirements have already been implemented as of this year or retroactively applied, making contractor readiness a top priority.

To tap into new federal funding opportunities, small and mid-sized government contractors will need to prepare for these changes by strengthening financial planning, bidding strategies, and security infrastructure to stay competitive. By reviewing the bill’s impact on tax provisions, including bonus depreciation, R&D and new amortization rules, planning strategies related to procurement changes, and cyber enforcement, contractors will be better positioned to secure their spot at the table before the bids go out.

Navigating the OBBBA Tax Impacts on Government Contractors

The OBBBA includes a number of favorable tax provisions designed to help businesses reduce their taxable income. Many of these have been extended or permanently reinstated from the Tax Cuts and Jobs Act (TCJA) as a way to solidify incentives that support capital-intensive growth strategies.

Qualifying businesses are eligible for immediate expensing of capital assets, full cost deduction on domestic R&D activities, and continued benefits for pass-through structures.

The following shows what provisions apply to contractors, how they work, and when they should be applied.

  • 100% Bonus Depreciation Made Permanent
    Contractors may now fully deduct the cost of qualified assets acquired and placed in service after Jan. 19, 2025. Rather than writing off the cost over multiple years, contractors can recoup the tax benefit in the first year, creating immediate cash flow benefits and making it less expensive to invest in new technology, heavy equipment, vehicles, and machinery.
  • Higher Caps on Section 179 Expensing
    Made permanent as of Jan. 1, 2025, Section 179 expensing cap is increased to $2.5M, with a phase-out beginning at $4M and phasing out completely at $6.5M.
  • R&D Advantages for Domestic Activities
    Contractors in pursuit of innovation are not only well positioned for where new funding opportunities lie, but they’re being incentivized with fully deductible domestic expensing in the year occurred. Businesses with less than $31M in gross receipts can amend and apply this change retroactively to years beginning Jan. 1, 2022. All other businesses can elect to accelerate the remaining deductions over a one-to-two year period beginning in 2025 via a change in accounting method.

Foreign expenses must still be capitalized and amortized over 15 years.

  • QBI Deduction Made Permanent for Pass-Through Businesses
    The OBBBA extends the 20% QBI deduction indefinitely for certain pass-through businesses, such as partnerships, S corporations, and LLCs. This creates parity with the 21% C corporation tax rate, potentially lowering the effective tax rate on business income, and allows contractors to better implement long-term tax planning opportunities, now that the deduction is no longer set to expire.

Preparing for the New Government Contracting Landscape

Beyond tax, the OBBBA and recent Executive Orders have reshaped the federal contracting space. New legislation introduced a series of changes that affect acquisition policies, oversight requirements, and tech obligations. In some cases, that could be a door opener for contractors, but in other cases, it might mean making some updates to internal systems and in the bidding process. Agencies are fundamentally shifting how they buy, which means contractors selling to the federal government will, in effect, need to change the way they sell.

Here is a breakdown on how the agency is doing things differently and a few recommendations on how to position your business for opportunities that lead to wins.

Procurement Speed Revolution

Agencies are pulling the red tape from procurement in a push toward faster, leaner acquisitions and less FAR-based contracting. They are looking toward alternative contract vehicles that are more flexible, such as Other Transaction Authorities (OTAs) and Commercial Solutions Openings (CSOs), with increased preferences for commercial off-the-shelf (COTS) solutions and proven, scalable technologies.

This means contractors should focus on streamlining operations to meet tighter timelines and aligning their offerings with agency priorities.

Strategic Bidding Under OBBBA

One of their main priorities is cost-centricity in source selection. Agencies are now under pressure to deliver more with less, so winning contracts will not be built on expertise alone. Contractors will need to trim excess costs off bids in order to stay in the running. Leveraging bonus depreciation and Section 179 provisions may help to improve bid competitiveness.

Contractors should weave into bids a value-for-money narrative, as it will be just important as technical excellence in today’s acquisition reform. Consider including the following:

  • Demonstrate measurable cost savings: How do you reduce expenditures?
  • Highlight efficiency improvements: Do you shorten timelines or optimize resources?
  • Present ROI metrics: How can you quantify long-term value?
  • Show mission alignment with budget constraints: How are you relevant and responsible?

Compliance & DEI Recalibration

Under Executive Order 14173, certain DEI requirements in contracting are being rolled back. This shift means less emphasis will be placed on DEI in proposal scoring, and focus will return to performance and capability. Ethical sourcing, transparency, and performance history still matter, along with strong governance frameworks, to endure compliance requirements.

Contractors should adapt to new requirements without abandoning best practices and ensure ethical business practices remain central.

Where are the Opportunities?

The OBBBA appropriates significant resources toward targeted, high-priority initiatives. These include offensive cyber operations, supply chain security, infrastructure modernization, energy, and critical systems.

Increases in federal funding across these areas present business development opportunities for contractors, especially those that are small and non-traditional and are prepared to embrace faster procurement methods and align with new mission-driven and outcome-based buying requirements.

The New Cybersecurity Reality

Cybersecurity is rising to the top of federal priorities as the OBBBA channels over $150M in funding into AI and cyber modernization. With this new investment and focus on security infrastructure, cybersecurity is now part of the bid score. Agencies will verify a vendor’s cyber practices before awarding work to ensure security readiness, and more thorough background checks will be performed on tech supply chains in an effort to enhance security clearance requirements.

90-Day Action Plan to Prepare for 2026 and Beyond

To prepare for the abovementioned changes, we recommend the following:

Strategic Positioning

  • Review pricing strategy for cost efficiency and competitiveness while factoring in OBBBA tax benefits into cost models.
  • Identify or develop commercial off-the-shelf (COTS) solutions to emphasize scalability and proven performance.
  • Explore OTA/CSO opportunities in your NAICS codes.
  • Update capture strategy for faster procurement cycles.
  • Align business development focus to high-funding mission areas.
  • Ensure compliance posture remains strong despite DEI rollback.

Cybersecurity Readiness

  • Review how you currently protect systems and data, identify any security gaps, and document current capabilities.
  • Plan for stronger encryption by 2026 and develop internal security expertise.
  • Keep a list of software ready to share.
  • Build cyber costs into your pricing models to avoid absorbing security expenses after the contract is awarded and showcase security ROI in bid.
  • Conduct mock inspections and test compliance procedures to spot gaps before the official review.

Next Steps

With immediate tax relief in effect, faster acquisitions, open doors to smaller firms, and minimized bureaucratic hurdles, OBBBA changes are redefining how contractors compete for federal work. Those who adapt quickly to the new landscape will be better equipped to succeed. For more information on these new rules and how they apply to your business, contact Neena Shukla, Partner at PBMares.