In mid‑January 2026, Defense Secretary Pete Hegseth released a video announcing an extensive Department of Defense review of sole-source contracts awarded under the Small Business Administration’s 8(a) Business Development Program. His message signals significant oversight shifts affecting thousands of small, disadvantaged businesses.
The 8(a) program is a business development initiative by the Small Business Administration designed to assist socially and economically disadvantaged small business owners in competing within the federal marketplace by establishing set-aside goals and sole-source awards to qualified small businesses. It also provides small businesses with training and technical assistance that allows them to compete in the private marketplace.
Government contractors should prepare for this crackdown, increased audit requirements and possible contract cancellations.
Why Federal Agencies Are Targeting 8(a) Contracts in 2026
Hegseth stated that the 8(a) program has drifted from its original purpose and alleged that many firms act as pass‑throughs, taking fees of 10–50% while subcontracting most work to larger firms. He framed the review as part of a broader plan to redirect defense spending and prioritize military readiness. Hegseth ordered the Pentagon to review every sole-source 8(a) contract over $20 million, line-by-line. It will emphasize the following:
- Examining smaller contracts.
- Examining whether contracts enhance military readiness.
- Assessing whether 8(a) firms perform primary work or are acting as intermediaries.
Impact on Contractors
The SBA, Department of Justice and Treasury Department have launched extended audits and multi-agency investigations into fraud, waste and abuse within the 8(a) contracting ecosystem. This new level of review will include:
- Increased audits and documentation requirements.
- Heightened risk of suspension or criminal penalties for pass-through behavior.
- Possible contract cancellations if work does not contribute to military readiness.
How Firms Can Prepare for 8(a) Review
There are several ways firms can prepare for this enhanced oversight. Government contractors can take the following steps as the review ramps up:
- Strengthen internal documentation.
- Conduct compliance reviews.
- Prepare for more audits.
- Avoid any appearance of pass‑through arrangements.
These guidelines form a strong foundation for 8(a) firms seeking to stay compliant during heightened federal scrutiny. In light of these developments, it is crucial for 8(a) firms to stay vigilant and proactive. By adhering to the outlined guidelines and maintaining robust compliance practices, businesses can continue to thrive in the government contracting landscape.
Contact Us
For more information on this topic, please contact a member of Withum’s Government Contractors Team.
