FED to SLED: Strategies and Considerations
Justin Siken04/06/2025
Strategy
HigherGov
More Federal Contractors Are Diversifying Revenue to SLED
Prompted by contract terminations and reduced federal solicitations, many companies historically focused solely on the federal market are exploring opportunities in the State, Local, and Education ("SLED") sector.
While we expect federal procurement volumes to bounce back in the 2nd half of FY2025 and that overall federal contractor obligations will restart growth next fiscal year after a decline this year, transition or diversification into the SLED market is a prudent strategy for contractors exposed to harder hit federal sectors including consulting, education, social impact, healthcare, and the environment.
The Current Federal Procurement Environment
Reduced Federal Solicitation Volumes
Since the start of the second Trump administration, there have been both large-scale contract terminations and a noticeable decline in the total volume of federal procurement solicitations, particularly impacting opportunities in non-defense civilian sectors.
Evidence of this shift is clear; with overall solicitation volumes posted on SAM.gov broadly down. While total solicitations listed started to rebound in March, in some markets, such as consulting, volumes remain well below prior years.
Solicitations and Sources Sought Posted to SAM by Month
HigherGov Analysis
Consulting (NAICS 541611) Solicitations and Sources Sought Posted to SAM
HigherGov Analysis
Contract Terminations and Funding Uncertainty
Alongside broadly lower solicitation volumes, contractors in several civilian areas have seen their markets be disproportionately impacted—including Diversity, Equity, and Inclusion ("DEI") consultants, international aid through USAID and Department of State, and domestic educational support programs, especially within downsized agencies such as USAID, the Department of Education, the Environmental Protection Agency, and the Consumer Financial Protection Bureau.
Additionally, through Department of Government Efficiency ("DOGE") and agency-driven efforts, there have been $54 billion in prime contracts terminated since the start of the Trump administration.
Responsibility Shift to States
Given cuts at Federal agencies and proposed and ongoing changes such as downsizing or eliminating agencies including the Department of Education, FEMA, and HHS, state and local agencies may expand their activities in areas, especially disaster preparedness, public education research and policy development, and public health administration, to offset Federal cuts.
We are seeing many Federal contractors focused on these areas looking to follow this work from the Federal into the SLED market.
Centralization of Federal Procurement
The recent Executive Order from the Trump administration directing contract procurement to be centralized for many IT and common purchases within the General Services Administration (GSA) may disadvantage companies that have strong agency relationships or contracting vehicle holdings outside of the GSA.
Lessons from Sequestration
The last significant decline in federal contracting obligations was during the Federal sequestration of 2013–2014. During this period, government contracting obligations declined markedly for several years before making a gradual recovery. This period was further impacted by a decrease in spending related to the winddown of the wars in Iraq and Afghanistan and reduced counterterrorism spending.
Federal contractor recovery after sequestration was ultimately driven by loosening of spending caps by Congress, recapitalization of defense spending, and the reversal of policies such as preferences towards Lowest Price Technically Acceptable (LPTA) procurements that reduced government costs but resulted in low quality and counter-productive acquisitions.
Prime Federal Obligations by Year ($ in billions)
HigherGov Analysis
We expect that many of the same dynamics will play out again. In many cases, funding cuts in some areas (foreign aid, education) will eventually be redirected to other priority areas (border control, law enforcement). Moreover, we expect that efforts to reduce the size of the federal workforce may benefit government contractors in the long term, as work historically performed by federal employees will need to be shifted to government contractors to meet legal requirements or due to voter demand as the quality of government services declines.
Considerations in Transitioning from Federal to SLED
Contractors moving into state and local markets must navigate many differences between the Federal and SLED markets. These critical differences include variations in market scope, procurement strategies, political involvement, transparency, and certification.
Fragmented Regulations and Procurement Processes
Federal procurements share common procedural frameworks derived from Federal Acquisition Regulations (FAR), offering contractors standardization and predictable documentation despite some differences between agencies. In contrast, in law and practice, contracting regulations and procedures vary widely between the tens of thousands of agencies in the SLED market.
Key differences between agencies include public procurement thresholds, eligibility requirements, bidding procedures, lobbying rules, socioeconomic set-asides, and payment terms. These differences require extra diligence on each opportunity for contractors in the SLED market, particularly those pursuing a multi-state strategy.
On average, SLED procurements often have faster turnaround times than Federal procurements and are more likely to be awarded in weeks rather than months. Proposal requirements are also often less stringent and allow for more creativity, though again, this varies widely by agency type.
SLED Agency Buying Differences
HigherGov
More Solicitations, Smaller Size
HigherGov estimates the total size of the SLED contracting market to be approximately $1.5 trillion, approximately twice as large as the Federal Market. Excluding minor DoD acquisitions, there were approximately 250% more SLED procurements than Federal in 2024, meaning that the average opportunity size is frequently smaller than in the federal market.
Contractors in the SLED market may thus need to position themselves to pursue more opportunities with greater flexibility to obtain similar revenue.
Fragmented Procurement Sources
Where most federal procurement opportunities are either posted to SAM, eBuy, or distributed via email for smaller contracting vehicles, state and local procurement is highly decentralized, with every jurisdiction responsible for its own acquisitions. While a few states, such as Virginia, Maryland, and Massachusetts, have state-wide bid posting systems, in most states, there are thousands of different methods that agencies will use to distribute opportunities, including posting on their own sites and through third-party bidding sites. This effectively necessitates the purchase of software to effectively find and aggregate opportunities.
Greater Geographic Distribution
Federal contracting activity historically clusters disproportionately in Washington D.C., Virginia, and Maryland, while SLED contracting spending is much more distributed nationwide, with much more relative activity in high population states, including high population states like California, Texas, and Florida, as well as States with levels of investment by government, such as Massachusetts and Michigan.
Geographic Distribution of Federal Solicitations (2024)
HigherGov Analysis
Geographic Distribution of SLED Solicitations (2024)
HigherGov Analysis
Greater Political and Local Relationship Considerations
Unlike federal contracts, state and local contracting frequently entails direct involvement and oversight from community stakeholders such as city councils, school boards, teachers' unions, advocacy groups, chambers of commerce, and other local leaders. These political dynamics often necessitate careful relationship-building activities, sustained stakeholder engagement, proactive community preparedness, and robust public relations strategies, which are rarely needed for similarly sized contracts at the Federal level.
In some cases, contracts may be limited to vendors with a local physical presence or extra points are awarded to local contractors. Many SLED contract opportunities without local requirements will nonetheless have in-person conference requirements or require local in-person subcontractor outreach that can make remote applications difficult.
Potentially Easier for Smaller Companies to Prime Contracts
For some new contractors, the SLED market can be easier to prime contracts in than the Federal market, which often has a greater requirement for building prior performance through subcontracting first and more arduous proposal requirements. Especially at the city, county, and school district levels, the average smaller size of contracts and lower levels of competition in some jurisdictions can make it easier for first-time contractors to bid and win.
In certain markets, such as IT software and hardware sales, where virtually all contracts in the Federal market go through contracting Vehicles such as SEWP or the Multiple Award Schedule, there are significantly more unrestricted opportunities in the SLED market, though many states still make significant use of blanket purchase agreements.
Increased Transparency and Public Disclosure Risks
Protective confidentiality that contractors typically associate with federal proposals and contracts does not exist within most state and local jurisdictions. Competitor pricing, evaluation criteria, bidder lists, and proposals often become public record, easily accessible via Freedom of Information Act (FOIA) requests.
This can be a double-edged sword for contractors. While it makes it easier to make effective FOIA requests to determine competitor strategies and pricing and adapt accordingly, it also means bidders in the SLED market must also prepare for their proposal strategies and pricing to become public record.
Greater Set-Asides and Certification Variety Across States
While socioeconomic certifications are mostly standardized across the federal government, contractors transitioning into SLED markets should be prepared for widely varying state certifications. For companies used to using socioeconomic certifications such as 8(a) or SDVOSB to help win contracts, it may be necessary to pursue certifications in multiple jurisdictions or compete without the benefit of certifications in other markets.
Strategies to Simplify the Shift to SLED
Below are several market intelligence tools and features we recommend that Federal contractors use to simplify the transition to the SLED market, most of which are available on HigherGov.
Find Comprehensive Market Coverage: Given the breadth of agencies in the SLED market, finding a tool that has broad and timely opportunity coverage is critical to efficiently and effectively identifying relevant opportunities. This is especially critical if you cover large states such as Florida, Texas, or California, each of which has thousands of different agency posting sites. HigherGov provides comprehensive visibility into opportunities across all 50 states, including detailed procurement data from over 40,000 state, county, municipal, education, public utility, and other agencies.
Efficiency Manage Agency Registrations: In addition to finding opportunities, one of the potentially most time-consuming aspects of finding and analyzing opportunities in the SLED market is registering with state and local agencies in order to gather solicitation documents to make bid/no-bid decisions. HigherGov automatically gathers documents for most solicitations and for ones where it does not, offers a document request tool to enable contractors to often avoid registering with agencies until they decide to make a bid, which can save hours of time every week.
AI Analysis of Requirements: While there has been a proliferation of Artificial Intelligence tools in the Federal market, the benefit of AI for opportunity analysis is even greater in the SLED market, where the differences in solicitation requirements are greater. AI tools (such as the integrated HigherGov AI Q&A tool and AI Summaries) allow for quickly parsing complex SLED solicitations, allowing contractors to rapidly gain insights into agency-specific evaluation criteria, proposal requirements, and winning approaches without extensive manual research.
Leverage NAICS Code Matching: Unlike Federal opportunities, which virtually all have NAICS and PSC codes assigned, SLED agencies use no consistent procurement codes. NIGP and UNSPSC codes are used most often in the SLED market; however, many agencies do not use any codes at all, and many SLED agencies with low volumes struggle to correctly assign the codes that they do use.
HigherGov matches state and local contracting opportunities to standard NAICS and PSC codes, enabling federal contractors to use the same search criteria that they use in the Federal market in the SLED marketplace, streamlining opportunity search.
Take Advantage of FOIA: Given the greater power of FOIA requests in the SLED market, FOIA requests can greatly help companies new to the SLED market quickly position themselves to be successful. Most commonly, companies will look to gather proposal submissions for bids that they do not win or proposals previously submitted by competitors in the market. We recommend using a FOIA service to anonymously make requests (the requests themselves being public record) so that you do not flag to your competitors that you are requesting their proposal documents.
Review Award Data: Unlike award reporting in the Federal market, which is automatic and mostly centralized, many SLED agencies do not automatically disclose awards at all. While SLED award data is harder to gather, it can be critical in identifying recompete opportunities and benchmarking pricing against competitors.
Contract Forecasts: Unlike in the federal market, where agencies are legally required to post forecasts of anticipated solicitations, there is no such requirement in the SLED market. However, by analyzing federal grant funding flows to SLED agencies and analyzing documents like town hall meeting minutes, contractors can effectively project likely upcoming solicitations and position themselves to shape and win contracts before their competitors.
