8(a) Client Alert: Secretary Hegseth Directs Line-by-Line Review of All Small Business Sole-Source and Set-Aside Awards Over $20 Million

PDF

This alert is a follow-on to our prior coverage of the SBA's December 2025 announcement that every 8(a) participant (over 4,300 firms) was required to submit detailed financial records covering the last three fiscal years within a month (holidays included) .

Bottom line up front: Secretary of War Pete Hegseth has directed a line-by-line review of every DoD small business sole-source and set-aside award valued over $20 million, with explicit emphasis on 8(a) contracts.

In a January 16, 2026 video posted on X, Secretary Hegseth declared: “We are taking a sledgehammer to the oldest DEI program in the federal government—the 8(a) program.” He announced the review to eliminate waste, fraud, and non-merit-based spending, focusing on pass-through schemes and contracts not essential to warfighting capabilities.

A January 16, 2026 internal DoD memorandum formalizes this directive, ordering a two-stage review of all qualifying awards (sole-source or set-aside to 8(a) firms over $20 million, and set-aside to any small business over $20 million). By January 31, 2026, components must identify these contracts. Leadership will then assess mission criticality—consistent with prior cost-efficiency guidance—and terminate non-essential awards for convenience to redirect funding to warfighting priorities. A secondary review, due by February 28, 2026, will examine performance data (e.g., invoices, COR reports) for subcontracting violations, excessive pass-throughs, or improper practices, with referrals to inspectors general, SBA, or DOJ as warranted.

Current 8(a) Enforcement and Signals of Broader Action

• SBA Actions: The December 2025 data call required all ~4,300 8(a) firms to submit three years of detailed financial records (e.g., general ledgers in CSV, monthly payroll registers in PDF, IRS Forms 4506). Non-compliance led to over 1,000 suspensions, with a 45-day appeal window.
• Political and Agency Rhetoric: SBA Administrator Kelly Loeffler has described the 8(a) program as having become a "pass-through vehicle for rampant abuse." Treasury Secretary Scott Bessent has criticized "DEI-based contracting," tying it to broader preference programs.
• Treasury Audit: Announced November 6, 2025, Treasury's department-wide review explicitly covers all preference-based contracting (estimated $9 billion in value), including HUBZone, SDVOSB, and WOSB—not limited to 8(a).
• Congressional Pressure: Senate Small Business Committee Ranking Member Joni Ernst introduced legislation (November 2025) proposing a moratorium on new 8(a) sole-source awards until the SBA audit is complete—a potential precedent for restrictions on other programs.

These developments indicate 2026 could bring expanded audits and challenges across all socioeconomic set-aside programs.

Implications for Contractors

• Small Business/8(a) Participants: Risk of terminations, investigations, or funding shifts for higher-value awards.
• Prime Contractors: Likely requests to support compliance reviews or validate subcontracts.
• Overall: Potential disruptions to portfolios amid tight timelines and emphasis on lethality over preferences.

Immediate Next Steps

1. Inventory DoD sole-source/set-aside contracts over $20 million.
2. Document mission criticality, work performance, and fair pricing.
3. Prepare for identification requests (due Jan. 31) and secondary reviews.
4. Consult counsel for strategies or responses.

Our Government Contracts team is tracking this rapidly evolving situation and prepared to assist.

_{1 https://www.dvidshub.net/video/993333/sw-hegseth-announces-8a-program-investigation
2 Id.
3 https://www.congress.gov/crs_external_products/R/PDF/R44844/R44844.16.pdf}