Space firms see government contracting shakeup in second Trump term

WASHINGTON — The incoming Trump administration’s close ties to Elon Musk and other tech billionaires could upend traditional Pentagon procurement practices, space and defense industry executives said at last week’s Baird Defense & Government Conference in McLean, Virginia.

One theme that emerged from the conference is that the established defense contractor ecosystem might face disruption from newer, tech-focused players.

“Cost minus” is a new buzzword circulating among Trump transition team insiders, according to Gabe Dominocielo, co-founder and president of Umbra Space, an Earth observation satellite operator. What this means is “whatever the opposite of what we’re doing now,” he said. This would pose a direct challenge to the traditional “cost plus” model where the contractor is compensated for all direct costs incurred during a project along with an additional fee that serves as profit and is typically a percentage of the total project costs.

Direct line to power

A new guard of tech-driven defense contractors sees opportunity in the transition. Vice President-elect JD Vance’s background as a venture capitalist, including investments in defense and space tech company Anduril Industries through his firm Narya Ventures, exemplifies these connections. Vance’s close relationships with influential tech figures like the co-founder of Palantir Technologies Peter Thiel and Anduril co-founder Palmer Luckey suggest a potential realignment in defense procurement.

“These entrepreneurs are in their ear,” Dominocielo noted, which was not the case during Trump’s first term. “I think we’re going to see a big difference.”

Elon Musk’s influential role as the administration’s government reform czar cuts both ways for space startups: his success proved commercial viability, but his company’s market dominance gives pause.

Frank Backes, CEO of the space radar imaging company Capella Space, expects the administration won’t “drive all business to SpaceX,” but rather use it as a model for disrupting traditional programs.

“We’re going to see more budgets moving from traditional, legacy, decades-old programs of record into the newer space community,” he said.

SpaceX’s rise over the past two decades has opened doors for many startups, Backes observed. He emphasized the importance of export market access for commercial space firms, noting that national security customers extend beyond the Pentagon to include foreign governments using synthetic aperture radar (SAR) technology for border protection.

Cultural divide remains

Despite the optimistic outlook, significant challenges remain in bridging the gap between commercial innovation and military procurement. Retired Space Force Gen. John “Jay” Raymond, now senior managing director at Cerberus Capital Management, reflected on this disconnect from his unique perspective spanning both worlds.

“We speak a different language,” Raymond acknowledged, noting that his current private sector role has revealed blind spots from his government service. The military’s tendency to develop extensive requirements lists can clash with commercial solutions that might not check every box but still offer innovative capabilities.

Executives emphasize that government contracts remain crucial for space technology firms. Dominocielo cautioned against overestimating commercial applications for remote sensing: “There is a bit of a fantasy about commercial remote sensing … it’s not anywhere close to the government market.”

Peter Platzer, CEO of the space data and analytics firm Spire Global, pointed out that while SpaceX has commercialized launch and satellite communications, other space industry markets — such as space-based remote sensing and weather data — remain dominated by government systems and traditional contractors. “These are very large programs that should be 65% to 70% commercial,” he argued. Outside of a handful of firms like SpaceX, broader commercialization of space activities still lags. 

Integrating commercial systems

Beyond procurement reform, industry leaders stress the need for modernized integration of commercial capabilities. “Many of us interface with the U.S. government through very archaic interface mechanisms,” Backes noted, adding that AI-driven software services remain underutilized. “The U.S. government is still consuming our capability the way that it was in the 80s and 90s.”

The Trump administration’s track record from its first term has set a precedent for supporting commercial space ventures, said Platzer.  However, shifting toward a commercial model could face resistance, as Congress has the final say on spending and often favors established programs tied to local jobs.