US DEFENSE GROUP
Sectors

Government Technology

The $357B government technology market is modernizing decades of legacy infrastructure, and the companies that make complexity disappear will capture outsized returns.

U.S. Gov-Tech Market
State & Local IT
Annual Growth
Government Agencies

What these numbers mean: DoD budget, federal contract awards, contract obligations, and DIB supplier counts are separate measures.

$357 Billion in Government Tech Spending and 55-Year-Old Software Still Running: The Modernization Wave Is Here

Total U.S. government technology spending will reach $357 billion in 2026 (Source: U.S. Government Tech Market Forecast, Forrester, February 2026). Somewhere inside that spending, the IRS is still running its Individual Master File, a system over 55 years old, the oldest continuously operating federal software in the United States (Source: GAO-25-107795: Legacy IT Modernization, U.S. Government Accountability Office, January 2025). This is not an anomaly. It is the norm. Eight of the 11 federal legacy systems GAO identified as most in need of modernization still run on COBOL or Assembly (Source: GAO-25-107795, U.S. Government Accountability Office, January 2025). The gap between what government technology should look like and what it actually looks like represents one of the largest, most durable market opportunities in American enterprise technology.

The Market

Government technology spending in the United States operates at a scale that most technology companies dramatically underestimate. State and local IT spending alone reached $160.2 billion in 2026, up from $103 billion in 2018, representing 55% growth in eight years (Source: State and Local IT Spending Report, e.Republic/Government Technology, February 2026; Government IT Market Analysis, TeamDynamix, 2024). Federal IT spending across 26 CFO Act agencies totals $102.31 billion for FY2025 (Source: Federal IT Dashboard, IT Dashboard, 2025). Combined, these figures represent a domestic market larger than the entire global revenue of most enterprise software categories.

This spending is not static. Federal cloud spending reached approximately $17 billion in FY2024 and is projected to grow to $21 billion by FY2028 (Source: Federal Cloud Market Analysis, Deltek/GovWin IQ, 2025). The FedRAMP 20x initiative has compressed the federal cloud authorization timeline from approximately 22 months to roughly 90 days and reduced authorization costs from $2-5 million to $500,000-$1.5 million (Source: FedRAMP 20x Program Announcement, General Services Administration, March 2025). As of June 2026, 506 services hold FedRAMP authorization, with 24 authorized under the new 20x framework (Source: FedRAMP Marketplace, FedRAMP.gov, June 2026). Each of these authorizations represents a vendor that has cleared the compliance barrier and can now sell across the entire federal government. The companies that complete this process early hold a structural advantage over those still in the queue.

The FITARA scorecard process has driven $31.4 billion in documented cost savings across federal agencies by enforcing IT management accountability (Source: FITARA Scorecard Impact Analysis, Federal News Network, September 2024). This is not theoretical savings. It is measured reduction in waste, creating budget capacity that agencies redirect toward modernization. Every dollar saved on legacy maintenance is a dollar available for new technology procurement.

Globally, the GovTech market was valued at $615.59 billion in 2024 and is projected to reach $2.305 trillion by 2033, growing at a 15.80% compound annual growth rate (Source: GovTech Market Size, Share, and Trends, Business Research Insights, 2025). Specific verticals within government technology are growing even faster. Government payments platforms, valued at $12.8 billion in 2024, are projected to reach $38.6 billion by 2033 (Source: Government Payments Platform Market Report, MarketIntelo, 2025). An executive order mandating transition to electronic payments underscores the urgency: paper checks are 16 times more likely to be lost or stolen than electronic transactions (Source: Electronic Payments Transition, U.S. Treasury, 2025). Mobile driver’s license adoption reached 21.73 million U.S. installs in 2025 and is projected to hit 143 million by 2030, with 21 states and Puerto Rico already operating programs (Source: Mobile Driver’s License Market Update, ABI Research, April 2025). DMV modernization contracts across 11 states total approximately $1.49 billion in documented value (Source: State DMV Modernization Contracts, Various State Procurement Records, 2024-2026).

The Structural Challenge

Agencies spend approximately 80% of their IT budgets on operations and maintenance of existing systems (Source: GAO-25-107795, U.S. Government Accountability Office, January 2025). This is the gravitational pull of legacy infrastructure: the vast majority of technology spending goes to keeping old systems running, leaving a fraction available for modernization. The systems that need replacing are deeply embedded in agency operations, interconnected with other legacy systems, and often running code that no active developer learned in school.

The challenge for technology companies entering this market is not proving that better solutions exist. It is navigating the procurement, compliance, and integration requirements that govern how agencies adopt new technology. Government procurement cycles are long. Compliance requirements are non-negotiable. Integration with existing infrastructure is mandatory, not optional. A company with a superior product that cannot meet these requirements will lose to an inferior product from a vendor that can.

Cybersecurity has added another layer of complexity. CISO confidence in state government has collapsed: the percentage of state CISOs reporting they are “extremely or very confident” in their security posture dropped from 48% in 2022 to just 22% in 2026 (Source: State CISO Survey, Deloitte/NASCIO, 2026). This creates both a barrier and an opportunity. Agencies are increasingly reluctant to adopt new technology without robust security validation, but companies that can demonstrate security credibility gain a significant competitive advantage. Meanwhile, 90% of state CIOs report having active AI pilot projects, and 82% report daily AI use within their agencies (Source: State CIO Survey, NASCIO, December 2025). The demand for modern technology is real. The constraint is not interest. It is trust.

What Separates Companies That Succeed

The companies that win in government technology share a distinctive approach: they do not ask agencies to change how they operate. They build solutions that work within existing constraints while delivering transformative outcomes. They understand that government buyers are not looking for disruption. They are looking for reliability, compliance, and measurable improvement delivered without risk to continuity of operations.

Successful GovTech companies also build for scale across jurisdictions. A platform that works for one state DMV but requires complete re-architecture for the next state is a consulting engagement, not a product business. The companies that achieve durable growth build configurable platforms that accommodate the regulatory and operational differences between jurisdictions without custom development for each one. GovSoft, a USDG affiliate, exemplifies this approach: its statewide government technology platforms process real-time financial transactions across multiple layers of government, demonstrating the kind of jurisdictional scalability that turns a single deployment into a repeatable market position.

The identity of a successful GovTech company is defined by patience married to ambition. These companies understand that a government contract is not a transaction. It is the beginning of a relationship that, if managed well, compounds over years and across agencies. They invest in customer success, in maintaining certifications, and in building the institutional knowledge that makes them indispensable. In a market where switching costs are high and incumbency advantages are real, the company that establishes itself first in a category often holds that position for a decade or more.

Where US Defense Group Operates

US Defense Group brings a combination of direct operating experience in government technology and a platform designed to help companies navigate the market’s structural barriers.

USDG’s affiliate, GovSoft, operates statewide government technology platforms that process real-time financial transactions across multiple layers of government, integrating with over 80% of U.S. banks. This is not advisory knowledge. It is operational experience built through deploying, scaling, and maintaining the kind of mission-critical government infrastructure that defines the GovTech market. USDG understands the compliance requirements, integration challenges, and agency dynamics because it operates inside them every day.

Through GovSeek, USDG provides AI-powered contracting intelligence that gives technology companies visibility into government procurement opportunities across federal, state, and local markets. GovSeek identifies relevant solicitations, maps competitive landscapes, and supports proposal workflows so teams can move earlier and more deliberately. For companies entering the government market for the first time, this visibility is the difference between pursuing opportunities strategically and discovering them after the deadline has passed.

Launcher Station provides the compliance scaffolding, capture strategy, and go-to-market architecture that technology companies need to convert a government-relevant product into government contract revenue. Launcher Station operates on a contingency basis, aligning its compensation with the partner company’s success in winning contracts. For GovTech companies, this means access to the institutional knowledge and operational infrastructure required to compete, without the upfront cost of building it independently.

The Decision in Front of You

The government technology market rewards companies that commit to it early and build the infrastructure to serve it well. Compliance certifications, past performance records, agency relationships, and procurement fluency all take time to develop. The companies that begin building today will hold compounding advantages over those that wait.

If your technology solves a problem that government agencies face, the path from product to procurement is shorter than you think, provided you have the right infrastructure and guidance. The companies that commit to this market now will build the procurement fluency and agency relationships that define long-term success in government technology.

Sources

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