Embracing the 2025 Continuing Resolution: A Strategic Perspective for the Defense Industry

With Senate Democrats unlikely to prevent passage of a full-year continuing resolution (CR), the federal government is expected to be funded at FY2024 levels through September 30, 2025. While traditionally viewed as a negative outcome for defense planning and execution, this CR may present some unexpected advantages. Rather than lamenting the inefficiencies of the process and painful delays in new program starts, defense industry leaders should consider how to adapt and leverage this situation strategically.

The traditional downsides of CRs

CRs are generally regarded unfavorably in defense circles due to their impact on military readiness and planning. The primary challenges include:

• No new program starts: CRs typically prohibit funding for new initiatives, delaying the launch of critical defense programs and modernization efforts.
• Limited production increases: The inability to adjust production quantities may affect supply chains and workforce stability.
• Misalignment with Administration priorities: Each new administration seeks to adjust defense spending to reflect its strategic objectives. A CR locks funding at previous levels, limiting flexibility for realignment.
• Budgetary uncertainty: Reliance on short-term funding mechanisms creates inefficiencies, forcing defense agencies and contractors into a cycle of uncertainty that hinders long-term investment and planning.

While these issues remain significant, the current political and budgetary landscape suggests that a full-year CR may not be as damaging as it might seem at first glance.

Why this CR might not be the worst outcome

Despite the well-documented drawbacks, there are practical reasons why the defense industry might find a full-year CR preferable to other alternatives:

• Avoiding a prolonged budget fight
• • The reality is that we are already halfway through FY2025. Given historical precedent, finalizing the National Defense Authorization Act (NDAA) and enacting a new appropriations bill would take significant time, likely pushing much further into the fiscal year.
  • By operating under a full-year CR, the administration and Congress can avoid a protracted and potentially contentious budget negotiation that would drain resources and delay decision-making.
• Preserving operational continuity
• • While CRs limit new spending flexibility, they do provide predictability. With a full-year CR, funding levels will remain stable rather than fluctuating with multiple short-term extensions. Knowing this, agencies and contractors can make plans with certainty.
  • This stability allows for better workforce management, supply chain coordination, and contract execution.
• Focusing on the FY2026 Budget Process and the Program Objective Memorandum (POM) Cycle
• • Instead of expending effort on a budget process for FY2025, that will only have limited impact if enacted, shifting attention to FY2026 may prove more beneficial.
  • The Trump administration is expected to submit its FY2026 budget proposal in April, and if Congress can begin work on that process without being mired in debates over FY2025 adjustments, it increases the likelihood of a timely defense appropriation ready for the new year on October 1.
  • At the same time, the next Program Objective Memorandum (POM) cycle is already moving. With FY2025 set, defense firms can shift their focus toward long-term strategic planning and aligning with future defense priorities.

The risks of an outdated budget

There are risks, however, with not having an FY2025 budget. If FY2026 begins under yet another CR, industry will be constrained by an increasingly outdated FY2024 budget. This will limit the ability to scale production, modernize programs, and align with evolving defense priorities. That said, defense companies have long adapted to CR-driven constraints. Responsible firms factor in the likelihood of budget delays and adjust their forecasting models accordingly. CRs have become a routine part of government operations. As a result, the Services and many in the defense sector build resilience into their planning, mitigating some of the usual disruptions. While not ideal, this adaptability helps ensure continuity in critical defense operations.

Conclusion: finding stability in an imperfect process

No one in the defense industry prefers to operate under a continuing resolution. Although, given the realities of federal budgeting, this CR offers a degree of certainty that can be strategically leveraged. Instead of dwelling on the constraints, industry leaders should use this period to refine priorities, enhance operational efficiency, and engage with both the FY2026 budget process and the next Program Objective Memorandum (POM) cycle. With a clear understanding of funding levels for the remainder of the fiscal year, defense firms can focus on long-term strategy rather than short-term disruptions. In an environment where unpredictability is increasingly the norm, this stability—however imperfect—can still be an asset.

John Prior is Vice President of Strategy, Competitiveness, and Growth at SMA: The Program Lifecycle Company. He specializes in market analysis, growth strategy and strategic planning. As a strategist, John has broad in-house and management consulting experience, and is a Lieutenant Colonel with the US Army Reserves.

In this changing environment, we stay committed to delivering up-to-date intelligence and strategic advice. As always, our over-arching goal is empowering clients to adapt to emerging defense priorities.

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