From DOGE’s initial descent to the longest government shutdown in U.S. history, defense contractors are weathering policy changes at different rates during the first leg of the second Trump administration. But while larger companies are thriving, smaller companies—the very ones the White House and Pentagon want to court—have a bumpier ride.
Leidos, which ranks No. 15 in global defense companies, is doing well this year. CEO Thomas Bell touted higher revenue—up about 7 percent to $4.5 billion compared to last year—during the company’s third-quarter earnings call Tuesday.
Bell said most of its programs haven’t been affected by the government shutdown thanks to how central many of the technologies are to government missions, and many that are either already funded or not only tied to “discretionary budgets.”
Leidos’ offerings, particularly in defense, also align with ongoing needs and current administration priorities, such as Golden Dome’s mission defense, air traffic control modernization, border security, and maritime autonomy, he said.
Other big defense contractors—Leonardo DRS, General Dynamics, RTX—also noted positive third-quarter results in the latest rounds of earnings calls. But some executives said the shutdown had put contracting talks on hold,which could become a problem if the shutdown—already the longest ever—stretches into the coming months.
Despite another failed vote earlier this week, lawmakers have signaled an agreement could be reached soon. The Senate is scheduled to vote Friday on a deal that could end the shutdown; but there’s no guarantee. And whenever the government reopens, it’s unlikely defense companies will come out unscathed.
The shutdown has halted security clearance processes, paused military and commercial pilot training, curtailed some intelligence gathering, and slowed maintenance and overhaul work for military platforms, according to the Professional Services Council, a trade group that represents government contractors.
Last week, the National Defense Industrial Association pushed Congressional leaders to end the shutdown and pass a full year’s funding for 2026, warning of schedule delays and supply chain snags as companies miss payments.
“While many larger defense contractors prudently planned to perform at-risk work without pay to manage a shutdown for a short duration, this cannot be sustained indefinitely,” David Norquist, NDIA’s president and former Pentagon deputy defense secretary, wrote in an Oct. 29 letter to congressional leaders.
NDIA represents more than 1,500 companies of various sizes, but mostly small businesses “with limited cash flow availability to sustain operations during a shutdown. This is why impacts on the U.S. [defense industrial base] will likely become even more visible the longer the shutdown persists,” he wrote.
The Aerospace Industries Association, which represents defense and commercial-service companies, also urged an end to the shutdown, because, wrote AIA’s president and CEO Eric Fanning, it “will disrupt new programs, halt innovation, slow the FAA,” among other things.
Fanning also pointed out that the shutdown coincides with authorization lapses in three programs defense companies rely on: the Small Business Innovation Research, Cybersecurity Information Sharing Act, and the Defense Production Act.
Reactions to the immediate effects of the shutdown vary. Some defense tech company founders cast it as an irritation or frustration, while others see it as disruptive to ongoing contract talks or awards that were in progress. There’s also the threat of missed or late payments, which could be critical for a company new and unfamiliar with the fits and starts of government funding.
Even when the government reopens, it’ll be under a continuing resolution unless Congress is able to pass a full year budget. And CRs bring their own brand of worries.
Nathan Mintz, CEO of CX2, a counterdrone tech company based in El Segundo, Calif., told Defense One that things are largely normal, besides slowed communications as a result of barebones contracting staff.
“A lot of the funding and resources that we have was already approved under the One Big Beautiful Bill, and it’s just business as usual. Particularly the counter-UAS stuff; there’s a lot of that that’s going forward,” Mintz said.
But some things are on hold or slowed down, such as Small Business Innovation Research, or SBIR, awards.
“Most of those people are furloughed. A lot of other contract offices or [program executive office are on skeleton crew or lower staff. And there is a slower, not just contracting cycle right now, but just answering questions, for somebody to pick up the phone. So it has slowed things down. But in some areas, it’s business as normal.”
And like some of the big primes, which are looking to international markets as budgets increase, startups may be “hardier” and more nimble with the ability to serve new markets outside of the U.S. go after smaller contracts with shorter acquisition cycles.
“Startups are particularly well suited to that because a lot of our products have been designed to have either minimal ITAR security classification restrictions or to be entirely dual-use,” Mintz said. “And so that makes it much easier for us to proliferate [technologies] to our allies, which means that we’re somewhat uncoupled from the uncertainty in the U.S. budget.”
Western investors are pouring money into Ukraine startups and some defense tech companies, like Anduril, have opened up offices in other countries, like Taiwan, to feed that demand.
Startups, he said, “are able to diversify their customer set a lot faster versus the primes,” which tend to first sell products to the Pentagon and branch out once it’s fully ready.
But in the near-term, there’s concern that companies new to defense haven’t yet built up the knowledge or resilience to weather fickle U.S. government funding.
For example, companies relying on research and development funds will have to wait until the shutdown ends to resume getting those payments.
“Basically, that’s just money getting pushed to the right; things that will affect end-of-year numbers a little bit, but aren’t going to be catastrophic for the business…that money will still be there when the government reopens,” one early stage defense tech company founder, who asked for anonymity, told Defense One. “Because we bootstrapped for so long, we built a shutdown scenario and, like a CR [scenario] into our planning.”
But that’s not always the case—especally with small business-focused contracts. And beyond cash flow needs, government shutdowns prevent companies from developing or improving products because the feedback loop is delayed or closed.
“We’ve had a new award during the shutdown, and that is a Navy SBIR. The award process probably took a little bit longer, but it happened,” the CEO said. “It’s a phase one SBIR, so it’s not so much about the revenue as what that does to validate our roadmap.”
“It can slow down customer feedback cycles, which can be just as important,” as cash flow, the tech founder said. “You want to double down on R&D or product development when you don’t have customer demands on you, but you can’t do that really well if you don’t have customer engagement…you can’t get feedback on those new features.”
Even when the government reopens, Congress still hasn’t passed a budget for 2026. That means defense companies will still have to contend with stopgap funding, or a continuing resolution, which doesn’t allow for new program starts and awards.
“That’s, I think, where things get really, potentially bad for startups—especially ones that are new to the defense space. Because maybe they don’t realize that means no new starts. So contracts that they had projected starting in Q1 of calendar year 2026, might not happen, even though the money is theoretically going to be there and the customer wants to start,” they said.
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