Because I, and the rest of the Strategic Partnerships team, spend every day working at a unique vantage point – the intersection of public and private sector connections – we see trends, issues, risks, and problems arising often before anything is obvious to most others. I write today to point out some issues I feel we must solve within the world of government contracting and public sector procurement. These issues are now pretty evident to everyone, but we’ve watched them escalate for several years. I wish we could have done more to mitigate some of the damage and frustration.
Private sector investors, entrepreneurs, and contractors are increasingly entering and encountering a marketplace that is unfamiliar to them. They know the incredible size of the U.S. government marketplace and that it is extremely competitive, but they often mistakenly expect it to be very similar to the commercial marketplace. That misconception can be very costly.
The government marketplace is governed by public accountability, statutory processes, transparency, political reality and community consent. Public officials are rewarded when they are careful and thoughtful, and they are required to move slowly. Many checkpoints are in place and moving through all of them often takes a great deal of time. Capital alone cannot accelerate systems designed to protect continuity, fairness, and public trust.
Private equity (PE) companies now own or control many hundreds of companies that sell to government. These financial firms are heavily invested in government-focused technology, professional services, defense, and infrastructure companies.
Government contracting is attractive to them because public-sector spending is abundant, recurring, and often supported by multiyear contracts. Contract backlogs and recompete opportunities can provide greater revenue visibility than many commercial markets. Firms with specialized clearances, contracting vehicles, reference accounts, and agency relationships are attractive to PE investors because they are especially difficult to replicate.
Chesapeake Corporate Advisors, a firm that specializes in government contracting mergers and acquisitions, says that in the first quarter of 2026 private equity capital continued to flow aggressively into government contracting. Several large PE funds have recently raised billions of dollars, specifically targeting middle-market acquisitions of government contracting firms. Competition among these financial buyers is very strong. The government-contracting universe itself is enormous.
The critical issue frustrating private sector investors is that government sales cannot be managed like commercial sales. A company may identify an opportunity and establish strong relationships but still wait through budget authorizations, funding appropriations, development, a formal procurement, and negotiations that are more complicated than commercial sector closings.
PE investors often measure performance in quarters. Government opportunities normally mature over budget cycles, legislative sessions, and multiyear procurement schedules.
There is no credible data documenting how many government-sales executives have been dismissed by PE-backed companies because contracts are closing too slowly. But that number is high and it happens regularly. Across the government-contracting market, experienced sales and business-development executives increasingly report pressure to produce commercial-style growth within investment timelines that do not reflect the realities of public procurement. In some companies, capable executives are being replaced before the opportunities they have cultivated can move through budgeting and procurement.
The essential point is that investors may confuse pipeline maturation with poor sales performance. A government salesperson can do everything right and still be unable to shorten the sales cycle. The flip side of that problem is that once contracts begin to close, if the service is executed well, the next contracts come quicker and often have contract extensions.
Investors would be wise to evaluate more than booked revenue. Appropriate interim indicators include qualified pipeline growth, agency and stakeholder access, contract-vehicle positioning, teaming arrangements, budget alignment, and movement toward formal procurements.
Private investors are becoming increasingly important to the delivery of physical public infrastructure. That is understandable since the United States faces a $3.7 trillion infrastructure investment gap over the coming decade. Industry contracting leaders are beginning to realize that they must look for alternative sources of funding and financing for large projects. Federal funding programs cannot be counted on to be as accessible as in the past.
However, infrastructure investment involves more for success. Again, it comes back to understanding the public environment. Investors must understand that public officials are legally and politically responsible for uninterrupted public services, affordability for residents and ratepayers, environmental and land-use impacts, transparency, competitive selection, public ownership, and control. Negotiations and contracting move much quicker when private sector partners remember the responsibilities that public officials are mandated to carry out.
A private investor may see delays as indecision. A public official may see the same delay as necessary diligence. Private capital is designed to move toward opportunity. Government is designed to move carefully toward obligations with public funding.
The problems that data centers have encountered offer sad evidence of what happens when private investment initiatives try to move faster than community acceptance. Electricity demand from data centers is now reshaping national and state energy planning. The most recent 2026 long-term outlook describes data-center load as the dominant driver of long-term U.S. electricity demand growth. Because of that, as well as an outcry from citizens who were never advised of any data center benefits, data centers are facing delays throughout the country.
Texas illustrates an example of the problem data centers face. In April 2026, ERCOT released a preliminary power forecast that stated approximately 367,790 megawatts of demand would be reached by 2032. The message was that the demand for power would be an extraordinarily high volume. The new large-load requests from data centers would be responsible for some of that increase that would confront the Texas grid. By June 2026, at least 248 data centers were reported as planned in Texas. Now, however, data centers are now being blocked or significantly delayed in Texas not only because of the power demand the state would expect but also because community support was overlooked. Not all factors were considered, and operators tried to move too quickly. Strategic planning was overlooked and data centers, which offer great future benefits, are now stalled.
These same types of political consequences have emerged throughout the country. A one-year moratorium on new hyperscale data centers was recently issued by the governor of New York. The state will develop standards addressing ratepayer protection, infrastructure costs, environmental impacts and benefits for host communities. The governor also announced plans for a community-investment framework and proposed repealing certain data-center sales-tax exemptions. New York is not rejecting digital infrastructure. Instead, officials point out that the public-policy framework is not equipped to keep pace with the speed and scale of private investment.
Data-center developers initially approached communities with promises of investment, tax revenue and technological leadership. But they failed to begin by answering the questions residents cared about most. Who will pay for the electricity infrastructure? How much water will be required? What happens during shortages? How many permanent jobs will result? What protections will be offered to existing ratepayers?
The industry is beginning to adapt. Public-power organizations report that developers are exploring lower-water cooling technologies, power options, and other alternative operating strategies.
Too often, failure with private sector investment is not a lack of capital or talent, it is the assumption that financial and commercial expertise automatically translates into public-market expertise. The problem can be unrealistic expectations and the uniqueness of the government environment. It can also be a lack of understanding about the importance of gaining citizen and community support. These are issues that must be solved.
Private sector capital is destined to play a transformative role in government over the next decade. It will be a critical component of America’s ongoing prosperity. But capital will perform best when investors understand that government is not simply another customer or a transaction partner. Governmental entities are part of a system that demands public accountability in which political acceptance, procedural integrity, and community trust are as important as financing.
If both public and private sector agencies and organizations realize how crucial it is for them to know, appreciate, and respect each other, America will bridge this gap. That will ensure a stronger, safer, and more prosperous country for us all.
Photo by Simon Gagner from Pexels
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