DoD Modernization in 2026
Aging infrastructure, outdated hardware and overall modernization needs have been a mission-critical challenge for the DoD. It’s not just about IT headaches; there are real obstacles to modernization for the Department. Let’s look at what’s driving the urgency to update in multiple ways and how IT companies can position themselves to help modernize the nation’s defense backbone.
Outdated hardware and software not only slow things down; they present real security risks, from compliance needs for NIST, FedRAMP and FISMA to an uptick in costs associated with staying current. To that end, there are plenty of opportunities for vendors and partners across the following areas and approaches to the DoD this year:
Incremental Modernization: Instead of dismantling and replacing everything at once, the Department is at times prioritizing step-by-step upgrades. This means ongoing opportunities to pitch targeted solutions for the most critical pain points.
Total System Overhaul: In some cases, a full replacement is necessary, such as a major data center or network refresh. These are high-cost projects, although not as frequent they’re high-impact wins for companies that can deliver end-to-end solutions.
Cloud Adoption and Hybrid Cloud: Cloud migration remains a DoD priority. The DoD is moving workloads to the cloud for flexibility and cost savings, using hybrid models to keep sensitive data on-premises. If you offer FedRAMP-authorized cloud services or hybrid integration expertise this is your time.
Virtualization and Containerization: Consolidating workloads onto fewer physical servers means easier management, rapid provisioning and improved resilience. Virtualization is a sweet spot for vendors and partners with proven solutions in this space, while containerization and orchestration are also of keen focus for the future of the DoD.
Policy and Funding Reform: The DoD is redirecting operations and maintenance (O&M) funding toward modernization. This shift opens the door for innovative projects that directly support mission objectives.
Budgets and Policy
The topline requested DoD budget for FY26 is approximately $961B, with nearly $66.1B for IT. The FY26 IT/Cyber budget request includes major investments in cloud, cybersecurity and digital modernization. The 2024–2025 DoD Software Modernization Implementation Plan and the Fulcrum IT Advancement Strategy also both focus on agile infrastructure, user experience and a premier digital workforce. These strategies are further driving investments in cloud adoption, AI and scaling software factories. And lastly but arguably most importantly the DoD’s shift toward their acquisition overhaul notes that speed is now a key evaluation metric in all evaluations. Commercial-first solutions (COTS, cloud-native, interoperable) will be prioritized, and open architectures and open APIs are expected, not optional. PAEs are also the new focal point for BD activity, with software factories and DevSecOps central to modernization priorities.
Opportunities for IT Companies
Align with DoD Strategic Priorities: Reference the Fulcrum Strategy, Software Modernization Plan and understanding of the acquisition overhaul in your proposals. Show how your solutions support cloud adoption, agile infrastructure and digital workforce enablement.
Demonstrate Compliance & Security: Highlight your FedRAMP, NIST and DoD-specific compliance credentials. Address supply chain security, zero trust alignment and risk management head-on.
Focus on Mission Impact: Demonstrate how your solutions improve readiness, efficiency and resilience. Bring case studies or metrics from similar federal modernization projects.
Monitor Funding & Policy Developments: Keep track of funding cycles and stay updated on NDAA provisions and DoD reports to Congress; these signal where the next big opportunities will be. The 2026 NDAA was just signed into law, giving more room for vendors and partners in commercial service offerings (CSOs) and an increased cyber budget for R&D, AI, emerging tech and heightened security needs. The latest NDAA also includes language regarding consumption-based SaaS pricing and an overall broader adoption approach for commercial technologies.
Build Relationships: Engage with DoD Program Acquisition Executives (PAEs) and digital workforce initiatives, participate in industry days and collaborate on pilot programs. Relationships matter, especially in the federal space.
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About the Author:
Toan Le is a Senior Market Insights Analyst on the DLT Market Insights team covering DOD and IC domain-centric trends across the Public Sector.
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