Digging Deeper: DoD Initiates Wide-Ranging Examination of SBA 8(a) Contracting Program for Disadvantaged Businesses

Takeaways

• Secretary of Defense Pete Hegseth announced a comprehensive review of contracts awarded under the Small Business Administration’s 8(a) Business Development program.
• The Department of the Treasury and other federal agencies are conducting similar reviews of the program, which is designed to support small businesses owned by socially disadvantaged individuals or tribes.
• Contractors with contracts or subcontracts under the 8(a) program should review compliance with statutory and contractual requirements.

Related links

• Small Business Administration 8(a) Business Development program
• SBA Suspends Over 1,000 8(a) Firms from Program Following December Document Request (press release)
• Lawsuit Challenges Racial + Ethnic ‘Social Disadvantage’ Presumption in SBA and Other Federal Supplier Diversity Programs

Article

On Jan. 16, 2026, Secretary Pete Hegseth announced that the Department of Defense will initiate a comprehensive review of contracts awarded under the Small Business Administration’s (SBA) 8(a) Business Development Program (“8(a) Program”). In a video posted on X (formerly Twitter), Secretary Hegseth framed the initiative as an effort to redirect defense spending while curbing waste, abuse, and fraud.

The 8(a) Program is a federal initiative, created under Section 8(a) of the Small Business Act (15 U.S.C. §637(a)). It provides training, technical assistance, and procurement assistance to help eligible small disadvantaged business concerns compete in the American economy through business development.

Generally, a concern meets the basic requirements for admission to the 8(a) Program if it is a small business that is unconditionally owned and controlled by at least one socially and economically disadvantaged individual who is of good character, citizen of and residing in the United States, and demonstrates potential for success. (13 C.F.R. 124.101.)

Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities. The social disadvantage must stem from circumstances beyond their control. (13 C.F.R. 124.103.) Although the regulation references race and ethnicity, eligibility is not limited by race.

Economically disadvantaged individuals are socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged. (13 C.F.R. 124.104.)

Secretary Hegseth’s Perspective, Next Steps

Secretary Hegseth characterized the SBA’s 8(a) Program as a relatively obscure federal initiative originally designed to support small businesses owned by socially disadvantaged individuals or tribes. He acknowledged the importance of providing small businesses with opportunities, but Secretary Hegseth stated that the 8(a) Program “has morphed into swamp code words for DEI, race-based contracting” and has become a “breeding ground for fraud.”

He stated, “Here’s the worst part, in many, many instances, these socially disadvantaged businesses, they don’t even do work. They take a 10%, 20%, sometimes 50% fee off the top, and then pass the contract off to a giant consulting firm, commonly known as beltway bandits.”

According to Secretary Hegseth, the Department of Defense awards approximately $100 billion annually in small business contracts and is the single largest user of the 8(a) Program across the federal government. As part of the probe, Secretary Hegseth ordered a line by line review of all sole source 8(a) contracts exceeding $20 million. Smaller awards also will be subject to examination.

He described this examination as part of a two-stage process:

1. Evaluate whether each contract meaningfully supports military readiness and lethality 
2. Eliminate pass-through schemes to ensure 8(a) firms are performing the vital contract work, rather than acting as intermediaries to larger firms

Department of Treasury, Other Agencies Launched Parallel Investigations

Separately, the Department of Treasury, in coordination with the SBA and the Department of Justice, also has launched several 8(a)-related investigations in recent months.

Takeaways for Government Contractors

The Department of Defense and other federal agencies have broad authority to investigate contract performance, enforce limitations on subcontracting, and terminate contracts for noncompliance.

Contractors in the 8(a) Program should expect more rigorous documentation requests, performance audits, and potential contract terminations where compliance cannot be demonstrated.

Contractors should review their contract compliance processes, ensure that the 8(a) entity performs the primary and vital requirements of the contract, maintain records, and reduce overreliance on subcontractors.

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Jackson Lewis attorneys are closely monitoring these developments and are available to assist employers to comply with the requirements. Please contact us with any questions.

(Law Graduate Nina Bundy contributed to this article.)