Top U.S. States Leading in Federal Contract Awards: Trends and Insights

Federal contract awards represent a significant pillar of the U.S. economy, allocating billions of dollars annually to businesses across various industries. From defense and technology to healthcare and construction, federal agencies rely on private sector companies to fulfill critical needs. In the most recent fiscal year, these contracts amounted to hundreds of billions, reinforcing the government’s role as a top client for American businesses.

• The Scale of Federal Contracting in the U.S.
• Key States Leading in Federal Contract Awards
• Factors Contributing to State Success
• Federal Contract Awards and Small Businesses
• Federal Contract Distribution Across All States
• Regional Insights and Trends
• How to Compete for Federal Contracts
• Conclusion
• FAQ: Understanding Federal Contracting and Top U.S. States

Understanding which states excel in securing these contracts is vital for companies looking to break into or expand within the federal marketplace. Certain states consistently lead the pack, driven by strategic advantages such as proximity to federal agencies, a robust industrial base, and policies that support government contractors. Knowing where these opportunities are concentrated can help businesses position themselves for success.

Beyond corporate profits, federal contracts significantly impact local economies. They create jobs, drive infrastructure investments, and stimulate small business growth. Whether you’re an established contractor or a small business owner exploring federal opportunities, understanding the state-level dynamics of federal contracting can provide valuable insights and help maximize your chances of success.

The Scale of Federal Contracting in the U.S.

In Fiscal Year (FY) 2023, the U.S. federal government awarded a record $765 billion in contracts, marking a 9.5% increase from the previous fiscal year.

This substantial growth underscores the government’s expanding investment across various sectors.

Top-Performing Industries in Federal Contracts

Several industries have emerged as significant beneficiaries of federal contracting:

• Defense: The Department of Defense (DoD) accounted for approximately 61% of total contract awards, with spending rising from $422 billion in FY 2022 to $470 billion in FY 2023. This increase was driven by major procurement programs, including the F-35 aircraft and support related to the conflict in Ukraine.
  Technology: Contracts for software and hardware technology reached over $80 billion, continuing a nine-year growth trend. This reflects the government’s commitment to enhancing cybersecurity and modernizing IT infrastructure.
  Construction: Federal construction awards rebounded strongly, indicating a focus on infrastructure development. However, total spending has not yet fully realized the potential outlined in the Infrastructure Investment and Jobs Act. 

Comparison of Federal Contract Spending Across Fiscal Years

The upward trajectory in federal contract spending is evident when comparing recent fiscal years:

• FY 2021: Approximately $700 billion in contracts were awarded.
• FY 2022: This figure increased to around $705 billion.
  FY 2023: A significant rise to $765 billion, marking the highest level to date.

This consistent growth highlights the federal government’s expanding role in contracting, offering substantial opportunities for businesses across various industries.

Key States Leading in Federal Contract Awards

Federal contracting is not distributed evenly across the United States. A handful of states consistently dominate in terms of total contract awards due to their proximity to federal agencies, industrial capacity, and strategic importance. For FY 2023, the top five states by total federal contract awards were:

• Virginia: $106.2 billion
• Texas: $82 billion
• California: $61.5 billion
• Maryland: $41.6 billion
• District of Columbia: $33.9 billion

These states collectively accounted for over 40% of the total federal contract spending in FY 2023.

Trends and Fluctuations Over the Last Five Years

• Virginia has maintained its top position for the past three fiscal years, driven by its concentration of defense contractors and proximity to Washington, D.C. Spending in Virginia has steadily increased year after year, reaching a peak in FY 2023.
• Texas has shown significant growth, particularly in the energy and defense sectors. Its rise reflects increased investments in aerospace and military infrastructure.
• California, while consistently in the top three, has experienced more fluctuations, with defense and technology contracts being key contributors.
• Maryland continues to benefit from its proximity to federal agencies, especially those involved in cybersecurity and healthcare.
• District of Columbia, though smaller geographically, remains a powerhouse due to the high volume of administrative and consulting contracts tied to federal headquarters.

The rankings highlight the importance of strategic locations and industry specializations in securing federal contracts. Over the past five years, Virginia, Texas, and California have consistently competed for the top spots, while Maryland and D.C. have maintained steady positions.

Factors Contributing to State Success

The dominance of certain states in federal contract awards is not coincidental but rooted in a combination of strategic advantages, industry presence, and supportive policies. Below are the key factors contributing to the success of the top-performing states:

Proximity to Federal Agencies

States like Virginia and Maryland benefit greatly from their geographic closeness to Washington, D.C., the hub of federal decision-making. Proximity allows for:

• Easier access to federal agencies: Contractors can build relationships and maintain regular communication with key decision-makers.
• Streamlined logistics: Reduced costs and time for delivering goods and services.
• Collaborative opportunities: Being near clusters of federal agencies fosters partnerships and quick responses to contract needs.

Virginia’s proximity to the Pentagon, for example, has made it a hotspot for defense contracting, while Maryland’s access to agencies like the National Institutes of Health (NIH) supports its strength in healthcare-related contracts.

Strong Presence of Defense Contractors and Key Industries

States with a concentration of industries aligned with federal priorities naturally excel in securing contracts.

• Virginia and Texas: Home to major defense contractors like Lockheed Martin and Raytheon, these states dominate military-related contracts.
• California: Known for its technology and aerospace industries, it continues to win contracts in software development, cybersecurity, and space exploration.
• Maryland: A leader in cybersecurity and biotechnology due to agencies like the NSA and FDA.
• Texas: Its energy infrastructure and military installations contribute significantly to its success in defense and energy contracts.

These industries align with federal spending priorities, ensuring a steady flow of contracts.

Policies and Infrastructure Supporting Federal Contracting Businesses

Supportive state policies and infrastructure play a critical role in fostering federal contracting success:

• Business-friendly environments: States like Texas and Florida offer tax incentives and streamlined regulatory processes that attract federal contractors.
• Workforce readiness: Investments in education and training ensure a steady pipeline of skilled workers. For instance, California’s focus on STEM education supports its thriving technology sector.
• Advanced infrastructure: Reliable transportation, communication networks, and access to research facilities are essential for fulfilling federal contracts efficiently.
• Small business support: States like Montana and Rhode Island, though smaller players overall, excel in promoting small business participation, offering targeted programs and resources to help them compete for contracts.

The synergy of these factors not only explains the consistent success of states like Virginia, Texas, and California but also underscores the importance of strategic planning for businesses aiming to enter the federal marketplace. By understanding and leveraging these advantages, companies can better position themselves for federal contracting opportunities.

Federal Contract Awards and Small Businesses

Small businesses consistently secure a significant portion of federal contracts, demonstrating their vital role in the government’s procurement ecosystem. In FY 2023, small businesses were awarded approximately 21.7% of total federal spending, amounting to $133 billion. States like Virginia, Texas, and California lead in absolute figures, with Virginia alone awarding $29.4 billion to small businesses. California and Maryland follow closely, with small businesses securing 24.3% and 38.2% of their respective federal contract awards. These numbers highlight the essential role small businesses play in delivering specialized services and fostering innovation in critical sectors like defense and technology.

High Small Business Participation States

While the largest states dominate in contract value, smaller states often shine in terms of percentage awards to small businesses. States such as Montana and Delaware saw over 70% of their federal contracts awarded to small businesses in FY 2023. Rhode Island and West Virginia also reported substantial small business participation, demonstrating the effectiveness of federal set-aside programs and local policies aimed at nurturing smaller enterprises. These states exemplify how even regions with lower overall contract volumes can foster vibrant small business ecosystems through targeted support.

Impact on Small Business Growth

Federal contracts provide small businesses with a reliable revenue stream, enabling them to invest in growth and innovation. Long-term contracts, often spanning multiple years, offer economic stability and open doors to new market opportunities. For many small businesses, federal contracting serves as a launchpad to expand their capabilities and diversify their client base. Programs like the Small Business Administration’s 8(a) Business Development initiative ensure a level playing field, helping businesses owned by minorities, veterans, and women gain a foothold in government procurement.

By fostering small business participation, federal contracts contribute not only to the success of individual businesses but also to the economic health of local communities. These awards create jobs, support innovation, and build a more diverse and resilient supply chain, underscoring the importance of small businesses in the federal marketplace.

Federal Contract Distribution Across All States

The distribution of federal contracts across the United States reveals notable disparities in terms of total awards, small business participation, and emerging opportunities in less prominent states. While a few states dominate in overall federal spending, others are making significant strides, particularly in fostering small business engagement and entering niche federal markets.

Overview of Federal Contract Awards Across States

A detailed analysis of federal contract distribution showcases key metrics for each state, including total federal awards, awards to small businesses, and the percentage of small business participation. States like Virginia, Texas, and California predictably lead in absolute values, driven by their proximity to federal hubs and strong industry presence. However, smaller or emerging states such as Montana, Rhode Island, and Delaware exhibit exceptional percentages of awards going to small businesses, highlighting opportunities for targeted growth and engagement.

Key Metrics Table for FY 2023

Source: sam.gov

Highlights of Emerging States in Federal Contracting

While states like Virginia and California dominate the landscape, smaller and less established players are also carving their niches in specific areas. Montana, for instance, leads the nation with 72% of its federal contracts awarded to small businesses, driven by local industries in construction and environmental services. Rhode Island and Delaware also demonstrate high small business participation rates, suggesting a concerted effort to engage smaller enterprises and promote economic inclusivity.

Additionally, states in the Midwest and Southeast, traditionally considered underrepresented, are beginning to see growth in federal contracting. Investments in infrastructure, renewable energy, and technology are helping these regions attract federal contracts and support small business growth.

Takeaways

This distribution of federal contracts reflects both entrenched advantages in leading states and emerging opportunities for others. By analyzing the data, businesses can better target their federal contracting strategies, identifying regions where competition may be less intense or where specific industries are gaining traction.

Regional Insights and Trends

The distribution of federal contracts across the U.S. reflects not only the federal government’s strategic priorities but also the growing economic potential of specific regions. While traditional leaders like the Mid-Atlantic and West Coast maintain their dominance, other regions such as the Southeast and Midwest are witnessing significant growth, reshaping the federal contracting landscape.

Growth Trends in Specific Regions

The Southeast and Midwest have emerged as key areas of growth in federal contracting. States in these regions are capitalizing on increased investments in infrastructure, renewable energy, and technology. For example, Georgia and Alabama have seen a rise in defense-related contracts, fueled by their proximity to major military installations and the expansion of aerospace industries. Meanwhile, states like Michigan and Ohio in the Midwest are leveraging their manufacturing expertise to secure contracts in defense and automotive technologies, aligning with federal priorities for domestic production and innovation.

The Southeast, in particular, benefits from a business-friendly environment, offering lower costs of operation and state-level incentives that attract federal contractors. This trend is bolstered by growing partnerships between local governments, educational institutions, and private companies to meet the needs of federal agencies.

States with the Highest Percentage Growth in Federal Contracts

Several states have recorded impressive growth rates in federal contract awards, even if they do not lead in absolute spending. Montana and Alaska, for instance, have seen double-digit growth, driven by targeted investments in environmental restoration and defense logistics. Similarly, Oklahoma has become a hub for energy-related contracts, reflecting the federal government’s increasing focus on energy security and sustainability. These growth rates indicate a shift in federal spending patterns, opening doors for businesses in regions previously underrepresented in federal contracting.

Socio-Economic Impact of Federal Contracts on State Economies

The infusion of federal dollars into state economies has far-reaching effects beyond the immediate benefits to contractors. In states like Virginia and Texas, federal contracts sustain large segments of the workforce, with thousands of jobs directly tied to defense, technology, and infrastructure projects. This stability fosters long-term economic growth, supporting secondary industries such as housing, retail, and education.

For smaller states like Rhode Island or Montana, federal contracts often serve as a lifeline for local businesses, driving innovation and enabling small enterprises to scale. The ripple effects include increased tax revenues, better infrastructure, and enhanced workforce development programs tailored to federal contracting needs.

The socio-economic benefits are particularly evident in rural or economically challenged areas, where federal contracts bring new opportunities for growth. Programs aimed at small business participation ensure that these benefits are distributed more equitably, helping to reduce economic disparities across regions.

Conclusion of Regional Trends

The evolving regional dynamics of federal contracting highlight the growing importance of states outside traditional hubs. By identifying and adapting to these trends, businesses can position themselves strategically to capitalize on emerging opportunities. The continued diversification of federal spending not only benefits contractors but also strengthens regional economies, driving innovation and prosperity nationwide.

How to Compete for Federal Contracts

Securing federal contracts can be a transformative opportunity for businesses, but competition is fierce, and the process requires strategic preparation. By understanding the nuances of federal procurement and leveraging available resources, businesses can position themselves for success in this lucrative market.

Tips for Capturing Federal Contracts

To compete effectively, businesses should focus on building strong capabilities and aligning their offerings with federal priorities. Start by thoroughly researching the contracting needs of federal agencies within your industry. Understanding their goals and procurement strategies allows you to tailor proposals that address specific challenges. Establishing a solid track record with smaller or subcontracted projects can also help you build credibility and experience, making your business more competitive for larger contracts.

Networking is another key component. Participating in industry events, engaging with procurement officers, and joining federal contractor associations can provide valuable insights and human-level connections. Additionally, maintaining an updated and compelling profile in government databases ensures your business is visible to agencies seeking contractors.

Compliance with Federal Regulations

Navigating federal regulations is essential for businesses aiming to compete in this space. Ensure your company is registered in the System for Award Management (SAM.gov), as it is a prerequisite for federal contracting. Complying with the correct NAICS (North American Industry Classification System) codes and accurately representing your business size and capabilities are critical to meeting eligibility requirements.

Businesses should also familiarize themselves with set-aside programs for small businesses, women-owned enterprises, and veteran-owned firms. These programs offer unique opportunities to compete for contracts, provided all regulatory requirements are met. Compliance is not just about eligibility—it demonstrates professionalism and builds trust with contracting officers.

Resources for Federal Contractors

Numerous tools and programs exist to support businesses in entering the federal contracting market. SAM.gov is the primary platform for finding contract opportunities and registering your business. Additionally, the Small Business Administration (SBA) offers tailored resources, including training programs, financial assistance, and mentorship initiatives like the 8(a) Business Development Program.

Other resources include local Procurement Technical Assistance Centers (PTACs), which provide free or low-cost consulting services to businesses pursuing government contracts. These centers can guide you through the registration process, help identify suitable opportunities, and assist with proposal preparation.

Positioning Your Business for Success

Winning federal contracts requires more than just competitive pricing—it demands a strategic approach, compliance with federal standards, and effective use of available resources. By investing in preparation and building relationships with key stakeholders, businesses can unlock significant opportunities in the federal marketplace. Whether you’re a small business aiming for your first contract or an established firm looking to expand, understanding how to compete in this sector is the first step toward long-term success.

Conclusion

Federal contracts represent a vital driver of economic growth and innovation across the United States. States like Virginia, Texas, and California maintain their leadership due to strategic advantages such as proximity to federal agencies, robust industrial bases, and established defense contractors. Meanwhile, emerging states like Montana and Rhode Island are carving niches in federal contracting, particularly through high small business participation. This dynamic distribution highlights the opportunities available for businesses of all sizes, regardless of location.

For companies seeking to thrive in the competitive federal marketplace, leveraging expert guidance can make all the difference. At Price Reporter, we have been empowering businesses since 2006 by helping them secure and manage GSA contracts effectively. With over 1,500 contracts under management, our experienced team provides the resources and expertise needed to navigate the complexities of federal procurement. Let us help you unlock your business’s potential and build lasting success in the government sector.

FAQ: Understanding Federal Contracting and Top U.S. States

Which states receive the most federal contracts?

The top states for federal contract awards are Virginia, Texas, California, Maryland, and the District of Columbia. These states dominate due to their proximity to federal agencies, robust defense and technology industries, and well-established contractor networks. Virginia leads consistently, particularly in defense-related contracts, thanks to its close ties to the Pentagon and major military installations. Businesses operating in these states often benefit from the concentrated federal presence and targeted state support.

How can small businesses compete for federal contracts?

Small businesses can compete by registering with SAM.gov, ensuring compliance with federal regulations, and focusing on programs designed for small enterprises, such as the SBA’s 8(a) Business Development Program. Building a strong track record through subcontracting or smaller federal opportunities can also enhance credibility. Networking with procurement officers and leveraging resources like PTACs (Procurement Technical Assistance Centers) provide invaluable guidance for navigating the federal marketplace.

Why is Virginia consistently the top state for federal contracts?

Virginia’s success stems from its strategic location near Washington, D.C., home to numerous federal agencies, including the Department of Defense. The state hosts a high concentration of defense contractors and military facilities, making it a hub for federal contracting. Additionally, Virginia’s infrastructure, skilled workforce, and business-friendly policies contribute to its consistent top-ranking status in federal awards.

Are there opportunities for businesses in less dominant states?

Absolutely, businesses in smaller or emerging states can tap into niche markets and take advantage of high small business participation rates. States like Montana, Rhode Island, and Alaska offer unique opportunities through federal programs aimed at small and disadvantaged businesses. Targeting these regions can also mean less competition compared to dominant states, allowing businesses to establish a foothold in the federal marketplace.

How can Price Reporter help businesses secure federal contracts?

Price Reporter offers expert GSA consulting services to help businesses navigate the complexities of federal contracting. With over 1,500 contracts under management and nearly two decades of experience, our team provides tailored solutions for contract acquisition, compliance, and management. We assist clients in streamlining their interactions with federal agencies, optimizing their GSA Advantage catalogs, and ensuring their long-term success in the government sector.