Defense Secretary Pete Hegseth has ordered a review of contracts awarded under the Small Business Administration’s 8(a) Business Development Program, saying the decades-old initiative has strayed from its original purpose and allowed fraud and abuse in federal contracting.
The review will cover all 8(a) contracts valued above $20 million, including both sole-source and set-aside awards, and it will also assess smaller contracts.
In a video posted to X, Hegseth said the effort is part of a broader push to redirect defense spending toward core warfighting priorities and strengthen oversight of programs that no longer serve taxpayers or military readiness.
“Providing these small businesses with opportunities is a laudable goal. But over the decades, the 8(a) program has morphed into swamp code words for [diversity, equity, and inclusion] race-based contracting,” Hegseth said. “In many instances, these socially disadvantaged businesses don’t even do work. They take a 10%, 20%, sometimes 50% fee off the top and pass the contract to a giant consulting firm, commonly known as beltway bandits.”
“First, if a big contract doesn’t make us more lethal. It’s gone. Second, we’re doing away with these pass-through schemes. We’ll make sure that every small business getting a contract is the one actually doing the work,” he said.
The Small Business Administration’s (SBA) 8(a) Business Development Program is designed to help socially and economically disadvantaged small business owners gain access to federal contracting opportunities, along with technical assistance and mentoring.
In an accompanying Jan. 16 memo formally directing the review within the Defense Department (DOD) – rebranded as the War Department by the Trump administration – Hegseth wrote that in fiscal year 2024, the department awarded more than $18 billion in contracts to 8(a) program participants and more than $80 billion to small businesses overall.
The memo echoes Hegseth’s comments on X and outlines a two-stage review process that first examines whether contracts align with the department’s warfighting priorities and then assesses whether awardees are performing the work themselves.
Under the directive, DOD components must identify by Jan. 31, 2026, any awarded contracts that meet certain thresholds, including sole-source or set-aside 8(a) awards over $20 million and set-aside awards to small businesses exceeding that amount.
Senior civilian and military officials are required to review those contracts to determine whether they are necessary for the department’s mission and consistent with broader cost-efficiency and oversight initiatives.
Contracts deemed not critical to warfighting capabilities, including research and development, industrial base investments, and supporting services, may be terminated.
Officials must also conduct a secondary review by Feb. 28, 2026, to assess current contract performance, compliance with subcontracting limits, and pricing relative to market rates.
Any evidence of improper subcontracting, including excessive pass-through charges, is to be referred to the DOD inspectors general, SBA, and, if necessary, the Justice Department (DOJ). Officials are also directed to provide updated budget information reflecting reductions in spending tied to eliminated contracts.
Other federal agencies are also reviewing 8(a)
The DOD is not the only agency scrutinizing 8(a) contracts.
Last year, SBA Administrator Kelly Loeffler launched a government-wide audit of the 8(a) program after the DOJ uncovered more than $550 million in fraud tied to improperly awarded contracts. The SBA required thousands of contractors to submit detailed financial information to demonstrate compliance.
Following allegations of more than $250 million in 8(a) pass-through fraud at the Treasury Department, Treasury Secretary Scott Bessent ordered a department-wide audit of preference-based contracting, reviewing roughly $9 billion in preference-based contracting and citing concerns over pass-through arrangements and limited competition.