GovCon Intelligence

Introduction & 8(a) Suspensions Update

Welcome to a GovCon Intelligence live stream. I’m live on Substack, so if anybody has the app, you can put comments into the chat, and I can answer any questions that you have.

I’m going to go through an update on 8(a) suspensions. There’s been a lot going on there. I’ll talk a bit about new cases that have come out. There was a major case about disadvantaged status that came out from a federal court. And then we’ll look at some developments within SBA, SBA news, actions by the Inspector General, as well as some progress on that proposed rule that I’ve been tracking.

So first, on 8(a) suspensions, I was running through the numbers today. Altogether, SBA has suspended over 1,300 businesses over the course of time in 2026. It looks to be almost 1,400, actually. Of those almost 1,400 businesses, 500 of them have gotten back into the program. Specifically, 498 have gotten back into the program. Ninety-seven are now listed as previously certified, so likely that means they withdrew or they have graduated from the program. And then 792 8(a) firms remain suspended. It just dipped down under 800 just a couple of days ago.

The pattern, it seems, is that SBA is pushing a lot of these changes in status on Fridays. The last couple of Fridays, there’s been a big chunk of firms that have either shown up as withdrawn or previously certified, and then another chunk that gets their suspensions lifted.

Now, I’ve had the experience of looking at this list every day and reaching out to firms and saying, “Oh, congratulations on getting off the suspension list”. And I’ve had the experience of the firms coming back and saying, “Oh, I didn’t know I was taken off the suspension list. You’re the first person to have told me this”. So evidently, when SBA lifts the 8(a) suspension—there are still 792 of them—SBA does not necessarily alert the firm that they’re now unsuspended. It just shows up on the SBA search website. You look for that firm one day, and they show up as suspended. The next day, they’re not suspended anymore.

So if you’re one of those 792 firms that is still suspended, I would recommend checking the SBA search website (search.certifications.sba.gov) every day, just in case your status changes. It looks like just today there were four firms taken off the suspension list. Three of them are now listed as previously certified, so likely that means they withdrew from the program. When these almost 1,400 firms altogether received their packages, they had the opportunity to withdraw from the program, and a number have done that.

So we still have 792 firms out there. Five hundred have gotten back. Maybe about 300 to 400 of those were in the first wave where SBA suspended firms for not replying to the data call. So there are maybe about 100 firms that have gone through the full reply process where SBA suspended firms for suspicion that they weren’t economically disadvantaged. The firms responded to that, and now SBA has lifted those suspensions.

All in all, if you look at these numbers, over a third of the firms that have been suspended at some point in 2026 are now back in the program. So there may be this suspicion that firms have done something wrong or that they’re somehow ineligible, but in a third of these cases, SBA has put the firms back in the program.

What that indicates to me, first of all, is that there were a lot of firms that didn’t reply to the data call, and a lot of those firms are back in because they’ve submitted their information. And then there’s also a large group of firms that were misidentified as being ineligible for other reasons, most likely economic disadvantage. SBA has now gone through, it appears, the responses of those firms to the suspicion of not being economically disadvantaged and allowed the compliant firms back into the program.

Just because you see a firm is suspended doesn’t mean they’re actually noncompliant or that they’ve actually done something wrong. Very likely, they’re going through a more manual review process from SBA, whereas before, it appears to have been computer-generated. The graphs tracking these firms are on GovCon Intelligence in the notes section, updated every few days. I try to take a look at the list every day so I can break the good news to people who have been unsuspended.

SBA Terminations and the Data Call

SBA did publish earlier this month that it has now moved to terminate 628 firms specifically for not replying to the data call. There may have been a lot of reasons for firms not to reply to the data call. There are a number of firms that have not even gotten 8(a) contracts. Over half of those firms did not get 8(a) contracts, and it was expensive to get all the documentation together. So they may not have seen the return on investment in replying to the data call and staying in the program.

There’s a suggestion in the press release that these firms have something to hide. Maybe there are cases where a firm has something to hide. I don’t think that’s true for 628 cases. I think a lot of these firms were not getting the value they expected out of the 8(a) program, or they’re seeing the pressure and scrutiny on the 8(a) program and think it’s no longer worthwhile for them to continue. It’s just a matter of, look, it’s a busy time of year. This data call came out around the holidays. You have proposals due, and it was just not something that was at the top of their priority list.

So I think it’s a bit disingenuous for an agency that should understand how small businesses operate—that they get busy, that compliance with these data calls is not necessarily at the top of their list when they’re trying to get proposals done, manage their employees, and find work—to say, “Oh, they must be hiding something”. I don’t think that’s the case for the vast majority of these businesses.

Office of Hearings and Appeals (OHA) Update

The suspensions, now numbering nearly 1,400, allow the firms to appeal to SBA’s Office of Hearings and Appeals (OHA). And OHA has been busy over the last few days. Just the other day, OHA published a large group of cases—27 cases that were decided on March 19th. That’s probably a one-day record for OHA officials publishing cases, 27 at a time. And then there are maybe about 10 cases that came out on March 18th, and a smattering of cases in the days before that.

All of these cases are dismissals. They’re all cases where a firm was suspended, appealed that suspension to OHA, and then OHA found—likely through SBA telling them—that the firm was no longer suspended. Sometimes the firm tells OHA, but more likely it’s SBA. And so OHA dismisses the case because it has become moot. There’s no additional relief that OHA can grant to a firm appealing a suspension if they are no longer suspended. So when we look at these 27 plus 10 plus a smattering of cases, all of those cases are dismissals of OHA suspension appeals.

There’s an important deadline that comes up on Monday for companies to appeal their suspension from that second wave, which was enacted on February 11th. You have 45 days to appeal a suspension. Forty-five days, I think, falls over the weekend, and under OHA rules, you get until the next Monday to file your appeal. So there’s a deadline on Monday for a lot of those firms that had been suspended in the February 11th and 12th timeframe to submit their appeals to OHA.

It looks like the appeals are being heard not necessarily by the longtime SBA judge, Christopher Holleman, but by a number of other judges who have been leased by SBA from other agencies. There’s one named Brian Haring; I wrote about him a few weeks ago. And then there’s another one named James Plott that appears on a number of these cases. Judge Holleman is still doing a number of the cases, but as these dozens and dozens—maybe even hundreds—of appeals come in, OHA has leased judges through an interagency agreement with another agency, such as HHS. It appears at least one of these judges is from CMS.

Understanding Economic Disadvantage: The ACC International Case

Speaking of OHA cases, there was a substantive decision that came out on this very issue of 8(a) eligibility earlier this month. It’s called the Matter of ACC International Incorporated, and it came out on March 9th. This is a really good case for companies that have economic disadvantage issues to read. Economic disadvantage is coming up in a lot of these letters of intent to terminate and these suspensions. Even companies that are going in for their annual review need to be aware of the economic disadvantage criteria for SBA.

Just to backtrack a bit, to be in the 8(a) program, as well as in the EDWOSB program, you need to be economically disadvantaged. There are three objective criteria for economic disadvantage. I think at one point SBA used percentiles, but they don’t use percentiles anymore. Now it’s numbers. You have to be below $400,000 in three-year average income. You have to be below $850,000 in net worth. And you have to be below $6.5 million in total assets. So those are the three objective criteria that firms have to comply with.

This ACC International case involved the income threshold, which is $400,000. SBA found that the individual in this case, Mr. Lopez, had a three-year average income of $493,475.50. So it was a very exact calculation by SBA. He was about $93,000 above the limit.

To address that, Mr. Lopez used an exception in the income rule at SBA. The income rule says that SBA will not consider income that the individual reinvested into the firm. Mr. Lopez was about $100,000 over the three-year average limit, so he reinvested $100,000 into the firm, trying to bring down that average so that it gets below $400,000.

There are two interesting things about this case. One is that SBA accepted that process. These three years have come and gone a long time ago—in this case, it was 2021, 2022, and 2023. The cutoff point for this three-year average was 2023, and Mr. Lopez came in in 2025 to reinvest this $100,000. And SBA said, “We will accept that. We will allow you to reinvest this and reapply the calculation of your income”. So that’s the first interesting thing, that SBA accepted that and recalculated the income.

The second interesting thing is that SBA recalculated the income to be $460,000. How do you get to $460,000? This is my absolute favorite thing, which is the combination of simple math and law. The reason you get from $493,000 to $460,000 is because it’s a three-year average. So if Mr. Lopez reinvests $100,000, he doesn’t get $100,000 off of a three-year average. He gets about $33,000 off of a three-year average because you have to divide it by three. So his three-year average goes from $493,000 to $460,000.

This case might have turned out differently if he had reinvested $300,000, where you bring down that average by $300,000 divided by three, which is $100,000. Maybe then he gets below $400,000, SBA recalculates it to be $390,000-something, and he wins the case. So it involves really interesting circumstances, and potentially, there could have been a way for this individual who was identified as not economically disadvantaged to get out of that situation by reinvesting money into the firm. That’s the ACC International case.

SBIR Phase III Bridge Contracts and the ThreatTec Case

Moving on with some relevant cases that have come out recently, there is a good case out of the Court of Federal Claims in a decision called ThreatTec about the SBIR program, specifically SBIR Phase III. This was a case where the agency (the Army) awarded an SBIR Phase III bridge contract to a company called Chitra Productions. ThreatTec protested that bridge contract at GAO. At GAO, there is usually a stay while they decide the case, but the Army overrode that stay so that they could go ahead with the bridge contract.

Then ThreatTec protested to the Court of Federal Claims, and the Court of Federal Claims threw out the case. The reason the Court threw out the case is that it said ThreatTech did not show that it was eligible for an SBIR Phase III award. To be eligible for an SBIR Phase III award, you have to have had a Phase I or Phase II contract previously, and it has to derive from, extend, or complete the SBIR Phase I or Phase II contract. ThreatTec could not show that. Probably they had never had an SBIR contract before; the case isn’t clear.

ThreatTec argued that the Army could have used something other than SBIR Phase III. Nothing forces an agency to use SBIR Phase III. Maybe the Army could have gone out and used a competition or a socioeconomic set-aside. But the court came back and said that’s not the issue right now. The issue is whether you have standing under SBIR Phase III and under the Percipient.ai case, which is a very important case that came out from the Federal Circuit and potentially could have been heard by the Supreme Court (though the Supreme Court did not grant cert). You no longer have standing because you are not capable of winning the vehicle that the Army chose, which is SBIR Phase III.

So you see now the application of Percipient.ai. When the case first came out, my biggest worry was about the Rule of Two application on orders—the Tolliver issue, if you’re familiar with that. Maybe that’s off the table now because of the FAR overhaul. I always thought no one’s ever going to bring a Tolliver case again because of Percipient.ai, and maybe now because of the FAR overhaul, nobody really is going to try to bring a Rule of Two order case. But now you see another application of Percipient.ai, which is this ability for agencies to award bridge contracts through SBIR Phase III and have protesters be unable to challenge a stay at GAO. Now, it will be interesting to see what this GAO protest comes up with. I don’t have any information about the GAO protest, but at least the Army was able to go ahead with performance and override the GAO stay.

Mentor-Protégé Past Performance and the iAdaptive Technologies Case

Speaking of GAO, I really recommend everybody look at Steve Bacon’s summary of iAdeptive Technologies, the GAO case that came out about the Mentor-Protégé Program. The case makes the point that SBA issued new mentor-protégé rules in January 2025. They address this issue that had been litigated over and over: how much past performance is required from the protégé in a mentor-protégé joint venture.

This was the issue that sank some really big GWACs, and they had to go back to the drawing board to figure out how to balance the past performance from the mentor and past performance from the protégé. SBA came out in January 2025 to basically say the agency has discretion. You decide, agency, do you want to take past performance from the protégé or do you not? Nothing requires you to take past performance from the protégé. Also, you have to make sure that the protégé is not subject to the same criteria as a non-joint venture offeror. Protégés are in the program because they’re trying to get business development; they probably don’t have as much past performance. So you’re not allowed to put the protégé under the same level of scrutiny as a company that’s coming in outside of a joint venture.

Those were not the facts here. The agency was upheld, even though it was accused of not considering the protégé’s past performance. Under SBA’s regulation, that’s okay. SBA says you do not necessarily have to take into account the past performance of the protégé.

Now, agencies reasonably could say, “Hey, the protégé is going to do 40% of the work of the joint venture; maybe the protégé should have some past performance”. For example, if there are five past performance examples required, it would be reasonable to have 40% of those come from the protégé since they’re doing 40% of the work. So that would be two out of five examples. But take a look at iAdeptive and take a look at Bacon’s summary of it on LinkedIn, which I’ll link to.

Corporate Transactions and SDVOSB Status: The Crosstown Courier Service Case

Let’s see. There is also a good case that came out of OHA. It’s a series of cases about corporate transactions under the title of Crosstown Courier Service. They deal with a two-step ownership transfer transaction.

Essentially, the veteran initially had ownership. Then he transferred the ownership to the company—that was step one. And then the ownership went to a service-disabled veteran—that’s step two. At the beginning, you have a service-disabled veteran owning the firm. At the end, you have a service-disabled veteran owning it. But in the middle, the company owns it. It seems like there might have been some issues about getting paperwork signed, but it was a two-step transaction.

OHA said that at the end, the company is still eligible as an SDVOSB. There was a 12- or 13-day gap between those two steps, and the protester argued that the company was ineligible because of that gap. They argued it did not keep its SDVOSB status during the whole process. I think this was a VA case because the VA has that special rule now that you have to be in the database both at offer and at award.

Regardless, I think OHA was looking at this at the time of offer. At the time of offer, this firm had already gone through the two steps, so it was eligible under the SDVOSB criteria. It was important in the second case—the petition for reconsideration—that these two steps were linked. OHA said there was a clear intent for the firm to be owned by a service-disabled veteran at the end of the process, and you can see the steps leading to that outcome across the 13-day window. Because of that intent and the fact that the changes were really part of one big transaction, OHA said this firm still qualifies as an SDVOSB for the contract.

That’s a good practice tip for companies that are looking at mergers and acquisitions. If you don’t have that intent between the two stages, or if you have a gap much longer than 13 days, you may not be able to work under the criteria set in this case. But if you need to have multiple steps to your transaction for whatever reason, I think it is important to take a look at this Crosstown Courier Service decision to see how the parties were able to connect the dots to end up with the SBA certification at the end of the day. I’ll link to those as well.

SBA Office Relocation

Some news out of SBA headquarters: SBA announced this week that it is relocating its Washington metro area district office to Herndon, Virginia. Herndon is in Fairfax County, where I live, so I know a little bit about Herndon. I don’t go there all that often. Parking in D.C., where the Washington District Office is currently located, costs as much as $25. Because of that, the office in D.C. didn’t host as many in-office events as other district offices might have. Herndon is far from Washington, D.C.; it is where Dulles Airport is located. It is right outside of Dulles Airport, so you are talking about a 25 to 30-mile distance. You are also talking about paying tolls each way—I think $3 tolls each way—to get to Herndon and back.

The Washington, D.C. District Office is not just responsible for D.C. firms; it also handles Virginia firms. There may be some firms that are actually closer to this Herndon office, particularly those out in the tech corridor around Chantilly and Dulles Airport. However, there are also firms in Maryland, such as those in Montgomery County and Prince George’s County, for whom it is going to be much farther to get out to Herndon. I think there is a Metro stop a few miles away, or perhaps less than a mile away, where you then take a bus to the SBA office. But it is not the same as taking the Metro straight into the Washington, D.C. headquarters.

I think the significant effect of this change is not necessarily on the firms. Firms are probably going to be willing to drive if they need to have a meeting or an in-person event. There are already many in-person events held there because of the proximity to the airport. The bigger effect is going to be on the employees who work for the D.C. District Office. The D.C. District Office has the largest number of 8(a) firms that it services; it represents probably about 10% of the portfolio. We are talking about maybe 200 to 300 firms, perhaps a little more or less. It is a lot of firms—all the firms in D.C., Northern Virginia, and Metropolitan Maryland.

Maryland also has a Baltimore office, and Virginia has a Richmond office, so they split the workload between those two states. But D.C. has the largest number of firms and does not have a commensurate number of Business Opportunity Specialists (BOSs) to conduct annual reviews and provide servicing to that large number of firms. If you are moving the office almost 30 miles away, you are going to experience some employee attrition. There are likely employees who live in Maryland or far away from the new office, particularly those who do not want to pay that toll each way. You are going to lose some BOSs, and that will put even more pressure on the remaining BOSs to service hundreds of 8(a) firms within the metropolitan D.C. area.

Challenges in 8(a) Program Servicing and Application Approvals

We are already seeing a decline in the amount of service for 8(a) firms. We have seen that with the application numbers. I’ll say it again: I just checked today, and there has not been an application approved by the SBA in the 8(a) program since August 15th. On August 15th, the SBA approved the application of a firm out of Vienna, Virginia, and they have not approved one since.

You are already seeing a decline in service regarding applications, and I fear that because of this move, you will see a decline in service on the participation side. This affects firms getting their annual reviews completed and getting their contracts approved, because the BOSs have a role in approving new contracts coming in from agencies. That is the offer and acceptance process, as well as the process of approving the specific company that receives the contract. While this relocation may be a good thing for some firms who can drive out there for in-person events, I do think it will have a negative impact on the employees working there.

The Mid-America Milling Decision and DBE Program Presumptions

Speaking of the 8(a) program, a related decision recently came out regarding the DBE program. Remember, at one point we had cases proceeding regarding both the 8(a) and DBE programs and entity-owned participation. We now have the final decision in the DBE case, the Mid-America Milling case, which originated in the Eastern District of Kentucky.

The litigant, Mid-America Milling, challenged the Department of Transportation (DOT) Disadvantaged Business Enterprise (DBE) program for using race and gender-based presumptions. At the time, this was a significant matter because it was the first case to focus specifically on Women-Owned Small Businesses (WOSBs), as women-owned businesses were presumed to be disadvantaged in the DBE program. That was not the case in the 8(a) program, nor is it the case for the Small Disadvantaged Business (SDB) definition.

This firm sued the DOT in Kentucky, arguing that these presumptions violated the Constitution. About ten months later, the court granted a request for a preliminary injunction. It was a limited injunction, geographically restricted to not allow the use of the presumption in the states covered by the plaintiffs.

This recent decision moots the case, and the judge dismissed it as moot. The reason is that at the beginning of this fiscal year, October 1, 2025, the Department of Transportation administratively removed the presumption from the DBE program. The DOT issued an interim final rule stating that the presumption would no longer apply to the DBE program. Consequently, there is no longer a presumption based on race or gender. As a result, tens of thousands of DBE participants across the country were required to submit narratives to their state certifiers to determine whether they are disadvantaged under that state’s review for the DOT DBE program.

For the purposes of this case, the narrative is not as important as the administrative action to remove the presumption. There is no longer a presumption because of this decision from the DOT, not from a judge. The court dismissed the case because it stated this was essentially what Mid-America Milling wanted. The government has removed the presumption, and the court noted that even if the litigation continued, it could not grant the plaintiffs any additional relief beyond what they have already received via the regulatory change.

There were arguments regarding what might happen if a future administration changes it back or if the new interim final rule is challenged in court. The court’s response was that those issues are not currently before them. There is a good metaphor in the ruling: “To salvage jurisdiction under such speculative bases would be akin to declaring a yet unborn racehorse as the betting favorite to win the 2029 Kentucky Derby.” It is a great line coming from a court in Kentucky. Essentially, they are saying they cannot rule based on what a future administration might do. So, the bottom line is that Mid-America Milling is off the table. The interim final rule is the document that governs the presumption; it says no presumption in the DBE program, and as a result, DBE firms are submitting their narratives.

New Legal Challenges to Private Sector Diversity Programs

Additionally, these lawsuits are coming in “hot and heavy” regarding preference programs. There is now a lawsuit in Kansas against the National Minority Supplier Development Council. This was filed by the American Alliance for Equal Rights, led by Edward Blum, who also filed the Students for Fair Admissions case.

This lawsuit challenges a program that certifies companies for private contracting—not for government contracting, but for corporate supplier diversity programs. It was filed in the District of Kansas about two weeks ago. It alleges that the program violates the Civil Rights Act, 42 U.S.C. § 1981, by denying businesses the opportunity to contract on equal terms based solely on the race or ethnicity of their owners. I will keep an eye on that.

Updates on the Ultima Services Case and SBA Regulations

I also wanted to check on the Ultima Services case. Remember, Ultima Services is what struck down the SBA presumption back in 2023. It was released just a month after the Supreme Court issued its affirmative action case. Essentially, nothing has happened in the Ultima Services case since 2023. There have been a few filings, but there has been no final decision. I know people were waiting to see if a final decision was forthcoming, but literally nothing has happened since August 20, 2025. If you check PACER, that is the date of the last filing.

I do not know if the court is still going to issue a decision. They may look at the Mid-America Milling case and say this is moot because the SBA is not using the presumption. The interesting distinction there, however, is that the SBA has not actually removed the presumption from its regulations. It is not quite the same as what the DOT did. The DOT issued an interim final rule, whereas the SBA has only issued guidance and messages to firms and the workforce. The SBA has not yet removed the presumption from its regulations, but that could be happening soon.

Status of SBIR/STTR Program Reauthorization

I have also been tracking the progress of the SBIR legislation. SBIR has been suspended—at least Phase I and Phase II—since the start of the fiscal year because it is a limited-term program and the last term ended. There is a bill, S.3971, that has passed the Senate and the House. It passed the Senate on March 3rd and the House on March 17th.

However, it does not show as having been presented to the President yet. It seems to be taking a long time. I am not well-versed enough in the legislative process to know exactly when something is presented for signing. There is some thought that because the President said he would not sign anything until the Save America Act is enacted, he may not be open to signing this SBIR reauthorization. We could be waiting a long time to get SBIR back, even though it has already passed both chambers.

The SBA OIG 2026 Oversight Plan: Audit Priorities

Another item from the SBA: the Office of Inspector General (OIG) published its 2026 oversight plan. In the past few years, there have not been many government contracting audits from the SBA OIG, as they have been focusing on COVID-era loans, disaster assistance, and Economic Injury Disaster Loans (EIDL).

However, there is a significant amount of government contracting in this 2026 oversight plan. There will be an audit of the VetCert program. There is going to be an audit of entity-owned 8(a) firms, specifically regarding community benefits reporting. That is a new audit; I don’t believe they have looked at community benefits reporting before. There is also going to be an audit on the process for certifying firms’ initial 8(a) program eligibility. This may be an opportunity to look at the social disadvantage criteria and the narratives created by the Ultima Services case.

Additionally, there will be a follow-up audit on the Women-Owned Small Business (WOSB) program. Their last report was in September 2022. I am also looking forward to the results of the evaluation of the Mentor-Protégé Program. It has been a while since the OIG looked at it; their last report was in 2019. That report found concerns regarding lack of controls to prevent unqualified mentors and stated the program was not effective in ensuring small businesses developed as intended. It also noted that the SBA did not adequately measure the benefits of what was then called the All Small Mentor-Protégé Program. The OIG is going to look back at it now that it is simply called the SBA Mentor-Protégé Program.

It looks like the only major program not being audited is the HUBZone program. You have VetCert, 8(a) twice (entity-owned community benefits and initial eligibility), WOSB, and the Mentor-Protégé Program. Perhaps HUBZone will be on next year’s list; they get off easy on this one, though likely not forever.

SBA COVID Relief Loans and EIDL Collections

I mentioned the OIG has been looking at loans. I don’t do much with loans, but I was interested in an article from the New York Times regarding SBA COVID relief loans. It states there is $378 billion in Economic Injury Disaster Loans (EIDL) awaiting payment. Many of those are being referred to the Treasury for collections, and some borrowers are receiving notices that they must pay back their full loan amount at once.

There are some very sad stories in the article, along with quotes from lawyers who are helping borrowers negotiate with the SBA. The SBA is quoted saying the agency has accepted “offers in compromise,” which are deals for the debtor to make a partial lump payment while the creditor forgives the remainder. However, the lawyers in the article say they have had little success negotiating these on behalf of their clients. It appears many businesses are being targeted by the SBA and the Treasury Department for repayment of these disaster loans.

Upcoming SBA Regulatory Reforms: Fraud, Waste, and Abuse

Finally, I’ve been tracking a potential proposed rule from the SBA on fraud, waste, and abuse reforms. This rule was already presented to the Office of Information and Regulatory Affairs (OIRA). OIRA usually has 90 days to review a rule, and they can hold meetings about it.

There was a meeting regarding this rule just two days ago, on March 24th. A group called the Capitol Hill Policy Group met with OIRA on behalf of Calista, an Alaska Native firm, to discuss these fraud, waste, and abuse reforms. This suggests there may be something in the rule regarding tribally-owned firms. Also, the community benefits audit from the OIG may indicate that the SBA is looking closely at tribally-owned firms.

Given the focus on economic disadvantage in recent suspensions, I think the SBA may make changes to clarify exactly how they calculate compliance with economic disadvantage thresholds. The SBA has the ability to change those thresholds; at one time they were percentile-based, and now they are specific numbers.

The SBA is almost certainly going to look at the racial presumption, especially after the Mid-America Milling case. The racial presumption in the 8(a) program hasn’t been used for three years, so it doesn’t make sense to keep it in the regulations.

Finally, whenever you discuss fraud, waste, and abuse in contracting programs, limitations on subcontracting always come up. That has been a target in recent videos from James O’Keefe. I hope to dive into that on my podcast at some point, but I imagine the SBA is looking to clarify the application of limitations on subcontracting within these reforms.

All right, that is all I have for today. I don’t see any messages in the chat. As a quick summary, we still have 792 8(a) firms suspended. Please visit my website, GovCon Intelligence, where you can see the progress of these suspensions under the notes tab. It is updated every few days. If you know a suspended firm, keep looking them up; the SBA doesn’t necessarily notify you directly, so you have to go online to find the information. Keep tracking me on GovCon Intelligence. Thanks very much for joining, everyone. Have a good afternoon.

With 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. Sam obtained his law degree from the University of Virginia and formerly served as SBA’s director of procurement policy. His website is www.samlelaw.com.

This video is for informational purposes only and does not constitute legal advice.

How the Supreme Court changed GovCon (with Jayna Rust)

Sam Le — Thu, 19 Mar 2026 23:10:38 GMT

Today on GovCon Intelligence, I’m joined by Jayna Rust, a partner at Thompson Coburn and an adjunct professor at The George Washington University Law School. We break down the long-term impact of the 2023 Supreme Court affirmative action ruling on government contracting, including a look at whether there is a flood of DEI-driven discrimination claims. Because she also works on wills and trusts, we rounded out the conversation by covering what GovCon owners need to think about when preparing their estate plans.

Links

Jayna Rust bio at Thompson Coburn

Students for Fair Admissions decision

Ultima Services v. USDA

The Democratic Brand Is Toxic in Too Many States by Matthew Yglesias (The New York Times)

Should Moving to the Middle Win Candidates Votes? It Depends Where Voters Are by David Broockman and Joshua Kalla

VSBC Appeal of American Defense Builders Trust, SBA No. VSBC-395-A (2024)

VSBC Appeal of Vialytix, LLC, SBA No. VSBC-462-A (2026)

A transcript follows.

Introduction and Guest Background

Sam: Welcome to GovCon Intelligence. My guest today is Jayna Rust. Jayna, thanks so much for joining us.

Jayna: Yeah, thanks for having me. It’s great to be out here.

Sam: Terrific. Jayna is a partner at Thompson Coburn in Washington, DC. She advises recipients and awardees of federal contracts, grants, loans, and other financial assistance, and represents them in litigation involving claims and bid protests. She’s a graduate of the George Washington University Law School, and she’s also an adjunct professor there.

The Impact of Students for Fair Admissions on Government Contracting

Sam: I wanted to get started with how we got to know each other. You organized a panel, it seems three years ago at this point, for the American Bar Association at their public procurement conference. It was about the Supreme Court’s Students for Fair Admissions case. We’re about three years out from that. That was in 2023. It’s 2026, and it’s had a huge impact, I think, across the whole country, but particularly in our industry of government contracting. Could you take us back to that case? What did the case say? What were your first impressions of it when it first came out?

Jayna: It’s funny that you mentioned that case because when I’ve been dealing with a number of things this year with anti-DEI issues, that panel comes to my mind a lot. Our panel was in November of that year, but we were planning it as early as the spring of that year, getting ideas for what we would do for that conference. When we first started planning, the Supreme Court had not issued the decision yet, but we knew it would come out sometime before the conference and we thought there might be something to that. Part of why I was pushing the conference to think about it was because I remember my third year of law school. By that point, I already knew I wanted to do government contracts. Because I was a nerd—who else knows by the third year of law school they want to do government contracts law?

Sam: You did go to GW, and they have a great program.

Jayna: That is true. That was what led me down that path. But I remember being in my constitutional law course, reading the affirmative action decisions about Michigan, and thinking, “All of the cases they’re citing are government contracts cases.”

Sam: Adarand?

Jayna: Yep, and Croson. And those decisions about how federal money should be spent. That’s what the Supreme Court was thinking about when they permitted the Michigan schools to do certain things. Once the challenges came up for Students for Fair Admissions, I remember pinging that in the back of my head: “This is a case I need to watch.” Because however this decision comes out, it’s going to affect government contracts. I had that case on my radar, waiting to see how that would play out. We started to get a pretty good idea of how that case was going to come out even before the decision was issued in June. I remember that was right around the time when I contacted you and a few others to see if you’d be interested to be on the panel. We wanted a broad swath of folks because we weren’t sure how quickly the decision would roll down to government contracts. The decision was focused on college admissions, right? Specifically on the admissions programs for Harvard and the University of North Carolina, and whether or not their admissions programs violated the equal protection provisions of the 14th Amendment of the Constitution. I think a lot of folks viewed that case as, “Oh, this only applies to affirmative action in college admissions.” But when I was thinking back to my constitutional law class from law school, I thought, “Okay, yes, that’s all the Supreme Court said, but when we look at what was behind all of those earlier decisions, we know it’s going to come out in government contracts.” Sure enough, we had just started planning when the district court in Tennessee issued a decision involving the 8(a) program.

Sam: It’s the Ultima Services case.

Jayna: Exactly. That was less than a month after the Supreme Court’s decision in Students for Fair Admissions. The judge in that case basically said that there can’t be the rebuttable presumption based on race that the 8(a) program had been built around for quite a while. So by the time we had our panel, it was rolling very quickly.

Sam: It was a very well-attended panel from what I remember.

Jayna: Yeah. It was great because you were able to speak about the federal small business side of things and how it may impact that side. We had another speaker that was able to talk about how state and local governments had implemented various Supreme Court cases that had been cited throughout the Michigan cases, and how those may be impacted by the decision. We had a labor and employment attorney to talk about affirmative action from the hiring and employment standpoint, and someone to talk about it from a finance standpoint. To me, it was just a great way to talk about all of these things that were going to impact government contractors—from state and local government contractors to people who employ persons as government contractors to the federal side. I really liked that panel.

Labor, Employment, and DOJ Enforcement

Sam: I don’t do labor and employment. That’s not an area that I practice in, so I was really interested in what the labor and employment lawyer said on that panel. I remember this dramatic moment where he said companies need to stop giving preferences for race or for gender because that’s illegal. I guess he’s right, that probably is illegal. It turns out that has been a very big focus of this administration and the Justice Department—not just looking at programs like the 8(a) program, but also at individual companies and their previously called DEI programs, diversity programs, or HR hiring practices. Have you seen that in your practice as well?

Jayna: Definitely. Part of that is my practice does cross over into the government contracts labor and employment side of things. Because of Executive Order 11246 requirements, a lot of contractors would have affirmative action programs related to minorities and women. After the president’s executive order last year in 2025 revoking Executive Order 11246, I was brought in by a number of companies and universities to look at their affirmative action programs and see what they had done. It was a bit surprising how many programs had policies that I think would not withstand true scrutiny and challenges.

Sam: That’s so interesting. Another contemporaneous thought about that case was the footnote, which was a big deal. It was about the military academies, saying this is improper for universities like Harvard and UNC, but maybe military academies—like the Naval Academy or West Point—might be able to make a case for continuing affirmative action practices because of either the diversity of the military or the diversity of their student bodies. Has anything happened with that footnote? Does that come up anymore?

Jayna: I’ll be honest, I haven’t seen that, but that doesn’t mean it hasn’t come up.

Sam: Yeah, I just wonder if anybody’s tried to take advantage of that footnote, but I haven’t seen it either.

Reverberations in Grants and Financial Assistance

Sam: Okay, let’s turn to you. We mentioned in your bio that you work on grant programs, financial assistance, and contracts. What have the reverberations of the Supreme Court’s decision been in all of the areas that you work, including grants and financial assistance?

Jayna: After that decision came out, contractors and federal grant recipients started to question whether or not they may have litigation liability for some of their preferential programs, whether it be hiring, vendors, or just any of their programs. They started to reach out slowly after Students for Fair Admissions. A number of those entities made changes during that time period. But when President Trump issued the executive order that revoked 11246, to me, that’s what really hit the accelerator.

Sam: Yeah, they’re really paying attention to it now.

Jayna: Yeah. A lot of people like to say that executive order was a sea change and completely changed the landscape. I think it did, but I think it was already moving that way. Companies were already starting to review things in light of Students for Fair Admissions and the other cases coming up, taking a closer look at programs. There was already that litigation liability they might have from class actions from students, depending if they were universities. The executive order just increased the potential for liability and increased the focus on it. But I’ll be honest, I don’t know that the executive order changed things that dramatically given what I think we were already going to see from Students for Fair Admissions. It would’ve come out just through case law decisions and been a slower point of where we were going to get.

Sam: Has that prep after the case been worthwhile? Have you seen actions from, say, the Civil Rights Division at the DOJ against private companies or contractors for things that maybe were in their programs before and they haven’t taken out?

Jayna: The Department of Justice has said they’ve started those investigations, and there are rumors out there about which companies have gotten those notices. So I do think there are companies getting hit, and they’re certainly getting questions from their contracting agencies or funding agencies at the very least. I think that is the first step toward potential enforcement down the line from the Department of Justice as well.

The 8(a) Program Under Scrutiny

Sam: There’s probably no bigger issue in government contracting—at least in small business government contracting—than this anti-DEI push that’s been very impactful and probably detrimental to the 8(a) program. You have the sledgehammer memo from the Hill, these 8(a) investigations, and there will probably be some sort of rule that comes out from the SBA soon. What are your thoughts about that? Based on what you know about the case and what has happened at the Justice Department, do you think what’s happening in 8(a) was expected as a natural consequence of that case, or is there something else going on there?

Jayna: I think it’s a little bit of both. I say that because I do think we were going to see challenges to the 8(a) program after Students for Fair Admissions. I would’ve been floored if we had gotten a decade in and there had been no challenges to the program. The Ultima case is a perfect example of something that had been a challenge even before Students for Fair Admissions had been decided, and that case started to have ripple effects. Obviously, the SBA had to start conducting some kind of review at that point. To me, it seemed somewhat inevitable that there would be changes to the program. I don’t know that people thought there would be the scale of the sledgehammer kind of review. I think people thought it was going to be more of a change in regulation and how small business concerns may be eligible to be 8(a) entities, but not a mass attempt to terminate 8(a) contractors within a month.

Sam: Yeah, they seem to be moving quickly against 8(a). It’s a good point about 8(a) and Ultima. Two thoughts on that: One is, in some ways, I think the 8(a) program was lucky they had the Ultima case, that they made these changes before the administration changed. Many of the things that the administration would have done, the SBA already did in terms of reviewing everybody’s social disadvantage and clearing them based on the removal of the presumption. The second is I’ve been surprised that it’s bled outside of 8(a). The sledgehammer video was just about 8(a), but when the memo comes out, it’s about all small business set-asides. You have SDVOSBs getting these notices from defense agencies to show their limitations on subcontracting. There’s a hearing in the Senate where the witness says we should just end set-asides altogether, that there’s no reason to have these at all. What’s your reaction to that? Is that something you anticipated, and what’s really behind that?

Jayna: I think part of it, maybe I wouldn’t have anticipated back in January 2025, but maybe if you had asked me in October 2025, I think it was more foreseeable. The administration has made a lot of changes to government contracts and grants with a hammer rather than a scalpel. They are looking at things as broadly as possible to trim down and forcing the industry to come back and say, “These are the parts we really need to keep,” as opposed to somebody in the administration going through and figuring out what parts to keep.

Sam: So what do you think is going to happen in the end with the 8(a) program? I’ll just bring up before you answer: I saw an interesting research article this week, discussed somewhat in The New York Times, about the biggest issues the political parties could shift on in order to win more voters. On the Republican side, I think it was gay rights. On the Democratic side, the second most important issue to voters where the Democratic Party is farthest away is small business preferences for minority-owned businesses. Which is a strange issue to be the second most important to median voters. If Democrats are reading that, they’re going to say that seems to be an area we should shift away from. So now you have Republicans who are running the government saying we want to diminish the 8(a) program, and you have Democrats reading surveys showing there’s not really a whole lot of support for preferences for minority-owned or disadvantaged businesses. Where do we go from here with 8(a) in light of that and Students for Fair Admissions?

Jayna: I think one of the things we might see—and it came up on the panel you were on in 2023—is messaging. If Democrats want to keep some of those programs, they can, but they just haven’t provided the public the information about why these programs are good. They just assume everybody is going to believe in them without confirming that. I remember on the panels, you all talked about the fact that this phrase “affirmative action” is used to encompass a number of different things. It was used in the Students for Fair Admissions case to describe what was happening in college admissions. Affirmative action is very different in the labor and employment context, where it was really intended to mean non-discrimination in employment practices. I think it is also different in the government contracts space from the perspective of the 8(a) program and how things were awarded. Most lawyers don’t understand preference programs. If we were to go pick out any lawyer from any other practice area to describe how the government has preferences for socially and economically disadvantaged individuals, they’re probably not going to be able to provide a good explanation for that. If they can’t explain it, how is somebody in rural Missouri, where I’m from, going to understand the value and the lack of harm to them? I just don’t think they are unless there’s better messaging around it.

Sam: That’s a really good point. If people aren’t understanding it—or even if they do understand it, maybe it’s not something they support—what’s the point of understanding all of it? One item I wanted to get clarity on: the SBA issued this memo saying we’re going to try to open up the 8(a) program to job creators. They said white men specifically have been discriminated against, potentially victims of DEI, and were going to review their social disadvantage. Just to be clear, you can’t also create a presumption for white men, right? If you had a presumption for Black Americans, Asian Americans, Hispanic Americans, and that’s unconstitutional, you can’t have a presumption on the other side, right?

Jayna: Yes. What’s interesting is we’ve seen, even in the labor and employment context, a move away from certain types of bias in what cases the labor and employment world is concerned about. Some of the changes from the administration are going to make those claims harder to bring. But also, folks thought there might be a flood of cases from white males alleging discrimination, and there has not been. We are more than a year into this administration with these significant executive orders attempting to lead white men into bringing certain types of discrimination claims, and we have not seen a flood of them by any means. It’ll be interesting to see how all of that plays out.

Updates on University Admissions Post-Decision

Sam: That is interesting. Just on the university side, going back to the original point of the case in college admissions, what’s happened there in the last three years?

Jayna: I think it depends on the university. Some universities have seen a decrease in the diversity of their incoming students, and other universities have seen an increase. What is it that you’ve been seeing from your side of things?

Sam: I just saw something that in the really selective universities, as expected, minority enrollment has decreased. I think there’s a challenge against Duke because that has not happened at Duke for whatever reason, but in the next tier of state universities, it has actually increased. Maybe the thought is that those students are just moving down a tier, so they’ve seen more diversity at the state colleges, for example.

Jayna: Yeah, and what’s going to be interesting is to see how people interpret the impact of Students for Fair Admissions when universities have been struggling with enrollment for a while. Universities wholesale have been having struggles with enrollment and looking at ways to increase recruitment generally. Even if there are impacts that seem chronologically tied to Students for Fair Admissions, I don’t know that we’d be able to say this is a cause and effect, given the changing landscape of who’s applying to college generally, and who’s taking the route of more trade and technical schools. Even with the advent of AI now, that’s going to impact who’s choosing certain colleges and career paths right now. Who’s to say that’s not the impact on college admissions, versus Students for Fair Admissions? People are going to consistently look at the statistics to say this is happening or has not happened, but I think it’s going to be so hard to look at it in a black box.

Sam: As my teenagers say, “Dad, is college a scam? You pay a lot of money. Is it actually worth it?” We’ll see.

Estate Planning and Ownership Issues for Government Contractors

Sam: Just switching gears entirely: I know Thompson Coburn is an active law firm for estate planning. I took a couple of estate planning courses in law school, but I’ve only written a handful of wills, mostly just from books. What kind of clients do you have in estate planning? Outside of government contracting, what is the typical advice a lawyer would give to someone coming in for a will or a trust and estate?

Jayna: I did not even take any estate planning classes. The only trust and estate coursework I did was studying for the bar, because I think trusts and estates decisions are closely tied to taxation and an individual’s tax situation. I also did not take federal income tax and only learned that for the bar. I say that because there are a lot of trusts and estates decisions made based on understandings that don’t necessarily tie in with the rest of a person’s life. Sometimes, you go to a trusts and estates lawyer, tell them what you want, and that person isn’t somebody you call up every single day for problems. Whereas, Sam, you have small business clients who call you pretty consistently when they run into issues with the operation of their business. My husband and I use an attorney ourselves for our estate planning, and it’s fairly common for people to reach out to estate planning attorneys to get advice on what’s best for their situation. We could go online, pull down some kind of will, sign it, and say, “Okay, we’ve got a document that says what we want to happen to our assets and our child, we’re done.” A trusts and estates attorney is going to walk you through what’s best for your situation, what you truly want, and how you can get there in a way that gives you and anyone receiving your assets the least tax impact. That’s usually where that advice is looking.

Sam: Okay, so you’re looking at it to try to lessen taxation. You want the assets to go to your heirs without them getting a big tax hit. What happens for government contractors? How do you get involved, and what are the big pitfalls there?

Jayna: I’ve become involved through early-stage planning for government contractor owners when they are working with their trusts and estates planners or an accountant. Sometimes they’ll bring me in to help with corporate documents, and these issues come up. Unfortunately, we’ve also seen situations where an owner of a small business passes away during the time period when they have active contracts. That’s another situation where we become involved and help them address these issues because the SBA has regulations on what happens to contracts and certifications when someone dies. Or how much ownership somebody must have for the entity to be deemed a WOSB, an 8(a), an SDVOSB, or any of the other similar types of programs.

Sam: We have a lot of cases in the veteran-owned space on these sort of issues, trusts in particular. There’s a case about tenants by the entirety that came out recently. I want to clarify that the reason they’re in the veteran-owned program is that you can appeal a decline straight to the Office of Hearings and Appeals. You can’t do that for WOSB or HUBZone. You can do it for 8(a), but that happens less often because people spend a lot more time on their 8(a) applications, whereas with veteran-owned, it’s hard to do that. What have you been seeing in these cases on the veteran-owned side?

Jayna: It’s interesting you point that out, because oftentimes we’ll look at what decisions are out there when counseling clients on ownership questions, regardless of the program type, to see how the SBA is going to look at things. Because the SBA regulations require contractors to be owned directly by an individual, how ownership is set up becomes really relevant. What we see is how the SBA has interpreted whether or not a trust is an acceptable way to have direct ownership, because a trust is not direct ownership. If a trust owns Small Biz Co., it’s not directly owned by Jayna Rust; it’s owned by my trust. The SBA has said they will accept a trust, but there are really three essential requirements for it to meet that element of direct ownership. The grantor, the trustee, and the beneficiary all have to be the same individual, and it needs to be a revocable trust. That is something a lot of trusts and estates planners can’t wrap their head around because it doesn’t make as much sense from an estate planning perspective.

Sam: That probably has tax consequences as well.

The Complexities of Government Contract Claims

Sam: Before we wrap up, I wanted to ask you about your course at GW. You teach a course on claims. What are your biggest practice points for students in the course, and what’s the difference between getting into government contracting on the claims side versus, say, bid protests or small business? What makes a good claims lawyer?

Jayna: I think one of the things that makes a good claims lawyer is someone who loves digging into the facts and really digging into the documents. Something that surprises students—even though the class I teach has a lot of JD students, it also has a lot of LLM students who are practicing lawyers getting a degree in government contracts—is how fact-heavy claims are compared to protests. Protests are very document-heavy, mostly based on what the solicitation or evaluation documents said, and whether there is support for the agency’s decision. On the claims side, it’s a lot of what people really knew, what was happening on the ground, and having to maybe even go out and take a look at the hole on the ground to see if that was truly a differing site condition. The students who really dig into the facts, enjoy them, and enjoy getting to know what’s happening tend to do really well. But there’s also the need to have a broader ability to issue-spot on the claims side, because the client is coming to you with all these problems. There’s a bigger pool of arguments about whether things are right, but also knowing what you get even if you are right. Okay, I win on this argument legally, but do I get more money? Do I get more time? If all I get is more time, is that really going to be enough for my goals?

Sam: That sounds more like being a real lawyer instead of what we do. Jayna, how do people find you?

Jayna: They can find me online. I’m on LinkedIn if they want to reach out—just let me know how you found me. They can also find my information on the firm’s bio.

Sam: Wonderful. Jayna, thanks so much for joining us. Thanks everybody.

This video is for informational purposes only and does not constitute legal advice.

When the numbers don't add up

Sam Le — Tue, 10 Mar 2026 12:03:30 GMT

Photo by Aaron Lefler on Unsplash

Posted on LinkedIn by the former State Department OSDBU Director, George Price, SBA has a new Scorecard methodology. SBA reportedly shared the methodology with other agencies to show how the new Scorecard will assign grades, starting with FY26:

High Level FY26 Scorecard Factors
• Prime Contract awards to Small Businesses – 50%
• Subcontracts Awards to Small Businesses – 25%
• Serving our Veterans – 15%
• Providing Competitive Value to the Taxpayer – 10%
• Partners with SBA to reduce fraud – 10%

Take a second look at those numbers. They don’t add to 100. Maybe SBA is echoing Don Zimmer and telling agencies to “give 110%” for small businesses. Never mind that, the math isn’t actually important here. I’ll get to where math matters a lot more —errors in 8(a) suspensions.

But first, the Scorecard: The changes are not likely to make a big difference.1 GAO found that prior changes to the Scorecard methodology had “little impact on small business procurement opportunities.” More significant, GAO wrote, are Category Management policies that result in fewer opportunities for small businesses. And these numbers aren’t contracting goals themselves. They are a formula that SBA uses to weight those goals and, in the end, assign a letter grade to agencies’ efforts to prioritize small-business contracting.

The new formula centers small-business GovCon around veterans. Veterans already are counted in the first two categories—prime contracts and subcontracts. Now they have their own category, “Serving our Veterans,” that evaluates growth in spending with veteran-owned businesses. SBA might be overcorrecting on the close call on the 5% service-disabled veteran-owned goal—more on that below. The new math makes veterans, all told, about 25% of the Scorecard (that’s the new 15% category, plus 5% from prime, 2.5% from subcontracting, and an unknown amount from the competitive-value category). Will it matter? The much bigger mover of veteran-owned contracting is the VA. The reason veteran-owned spending dipped in 2025 wasn’t the Scorecard. It was because DOGE cut so many veteran-owned contracts at the VA.

The new competitive-value metric discourages agencies from using 8(a) sole-source contracts. That’s consistent with what the FAR Overhaul has done in 8(a). SBA might go further in the forthcoming “Fraud, Waste, and Abuse Reforms” proposed rule. SBA’s publicly stated rationale is that taxpayers get the most value when agencies hold competitions, instead of going straight to sole-source contracts.

Let’s be clear: what SBA is doing won’t make a dent in the use of sole-source contracts. Most sole-source contracts are awarded outside of the 8(a) program. Even if you got rid of 8(a) sole sources entirely, the government would still have awarded $266 billion in sole-source contracts in 2025:

Of course, the publicly stated rationale isn’t really what’s going on. SBA is trying to shrink the 8(a) program. That’s why the agency still hasn’t approved an 8(a) application since last August. But, in changing the Scorecard methodology, the agency is assuming those 8(a) sole-source dollars will go to other small businesses, preferably veteran-owned small businesses.

I don’t see why that would happen. Agencies aren’t using 8(a) sole source because of DEI or the Scorecard. They want to finalize contracts quickly, and 8(a) allows them to do that. But 8(a) isn’t the only way to do that. There’s also OTAs, CSOs, SBIR Phase III, and plain old limited-source justifications. Take a look at the top recipients of sole-source contracts; there aren’t any 8(a) firms on there:

So, as SBA narrows the path to 8(a) sole source—whether by the Scorecard or through regulatory changes—agencies are not likely to respond by using veteran-owned small businesses. Instead, they may bypass small businesses altogether.

Where bad math does damage

While math on the SBA Scorecard is not a big deal, it is elsewhere. In SBA’s fraud enforcement, the SBA’s AI is failing at math.

SBA sent suspension notices to hundreds of 8(a) firms, accusing their owners of not being economically disadvantaged. But most of them are. The concept of economic disadvantage would seem to be an area where AI enforcement could work. Economic disadvantage uses three objective thresholds—$850,000 for net worth, $400,000 for three-year average personal income, and $6.5 million for assets. The information to determine economic disadvantage comes from tax returns and financial statements.

And yet. The companies receiving these letters say that the calculations are wildly off. The AI doesn’t split joint assets. It doesn’t apply regulatory exceptions.

In some cases, the companies had been investigated previously and received notices from SBA in 2025 that they were, in fact, economically disadvantaged. But then the AI ignored that past decision. It went ahead with no new facts. And it suspended the companies despite the work that SBA staff—human beings, mind you—had already completed.

This wouldn’t be a problem if SBA used safeguards. Sometimes AI counts to 110 instead of 100. That’s what hallucinations are. But a human checks the math. Or the human looks at the company’s history to see that it’s already been cleared based on the same facts.

The way SBA is deploying its AI is doing immense damage. Because the 8(a) suspension takes immediate effect, companies are losing contract awards. They are in danger of being pulled off of big GWACs, like OASIS+ and 8(a) STARS III.

Meanwhile, press releases are smearing each company as a “fraudulent participant that took opportunity away from legitimate and eligible small business owners at taxpayers’ expense.” But it’s the AI that’s finding totally legitimate companies and inventing fraud where there isn’t any.

This problem is only going to get worse. The new SBA Inspector General is looking closely at pandemic loans, of which there are millions. The Senate-passed SBIR reauthorization bill lets agencies deny an SBIR award because of a “security risk for any reason.” AI tools are very likely to be used for both purposes.

What needs to happen is more human oversight of these tools. We’ve already seen they aren’t so great at counting. I’d rather not see what else they can get wrong.

A correction on disabled-veteran contracting

Speaking of math, I have to correct some of my own. A few months ago, I predicted that the Federal government would miss the 5% goal for disabled veteran-owned contracting for FY 2025. But I called it too early. Since my prediction, the data has changed. New data added about $60 million in disabled veteran contracts and removed a lot of other contracts. That raised the disabled veteran-owned contracting percentage from 4.71% to 4.87%.

That’s still not 5%. But 4.87% is close enough that, with more data that gets added every year, the government will probably surpass that 5% goal for 2025. I don’t know where that $60 million came from. But I think it’s more likely that it is late-arriving data instead of anything nefarious.

The women-owned and HUBZone percentages—at 4.3% and 2.55%, respectively—are still way too low to have a shot of meeting the 5% women-owned and 3% HUBZone goals.

One other thing is for certain: The number of small businesses participating in contracting went down again in 2025. This should be no surprise: 2025 was the year of DOGE, USAID’s contraction, and consolidation memos. Small businesses continued to leave contracting.

Whether they come back is uncertain. SBA isn’t helping matters with its roughshod enforcement push. But the agency can still turn things around.

All it takes is giving 110%.

This article is for informational purposes only and does not constitute legal advice.

In comments on George’s post, some people asked why they couldn’t find this on the SBA website. SBA doesn’t typically publish the Scorecard methodology until the Scorecard itself is released. So this one wouldn’t come out until mid-2027. The current version on the SBA website is 2024’s methodology.

What's next for GovCon M&A (with Damien Specht)

Sam Le — Fri, 06 Mar 2026 15:38:25 GMT

Damien Specht, a partner at the Morrison Foerster law firm, joined me yesterday on GovCon Intelligence, just a few days after the Senate passed a bill to reauthorize the SBIR program. We got into the details of the reauthorization bill. Then we talked about his specialty—mergers and acquisitions of government contractors. After working on hundreds of M&A deals, Damien shared his tips for companies in dealing with the recent small-business M&A cliff, plus what small businesses need to take care of before selling.

And, with SBA’s most recent announcement on an additional 620 proposed terminations, we discussed the 8(a) audits. How do SBA’s actions affect firms on OASIS+ and the GSA Schedule?

Links

Damien Specht bio at Morrison Foerster

Venture Capital Investment and Small Business Affiliation Rules: Why a Limited Exception is Crucial to Economic Recovery Efforts by Jessica Tillipman and Damien Specht

S. 3971, Small Business Innovation and Economic Security Act.

The Building People, B-423896, Nov. 20, 2025.

A transcript follows.

Introduction

Sam: Welcome to GovCon Intelligence. My guest today is Damien Specht. Thanks so much for being on the show. Damien.

Damien: Glad to be here. This is awesome. You’ve had a number of really great people on this thing, and I am a regular consumer of the content, so thanks, so glad to help you make some.

Sam: That’s very nice. Damian Specht is a partner at the Morrison and Foerster law firm. He’s in the firm’s government contracts and public procurement practice, and he does a little bit of everything. Regulatory counseling, subcontracting arrangement negotiations, contract disputes, size protests, M&A, a lot of M&A. According to your bio, you’ve done over 200 transactions, probably more than that now.

Damien: More than that now.

Sam: At the, at that point. And then a long list of GAO decisions. Court of Federal Claims decisions. I want to start with some breaking news this week in the small business world, which is the Small Business Innovation Research program, or SBIR program. It has been lapsed for quite some time, but it seems to be looking on the way up because the Senate has passed reauthorization. For SBIR, I know you and I last saw each other in person at a hearing with the American Bar Association about SBIR, and there was some question about whether it was going to happen this year. It looks like it’s right around the corner. So what are your thoughts about what’s happened with SBIR and how this reauthorization looks?

SBIR Reauthorization and Program Evolution

Damien: I’ve been working on SBIR-related things for almost 20 years now, which is pretty incredible to think about. And it’s a great program. And I, we had never lapsed before. We had always had these sort of short extensions. This is the first lapse. But I’ve been an evangelist for the program, and that has made the last few months really hard because you’re out there in the market talking about how great this program is, how it’s a great opportunity, et cetera, and everybody says, but isn’t it dead? And it’s very hard to get people moving again when you’re moving forward and making more awards and all that sort of thing.

I think in terms of the debate that was ongoing: There’s a fight between the folks that want to cap the Phase I and Phase II awards. And my view of the world is that if businesses are doing good research and they’re accomplishing the goals in Phase I and Phase II, and it’s useful to the government, then we should let them do that. But I think there’s a counter view. Which is essentially that the idea is to commercialize, to finish out those technologies. And if you’re not taking it from one and two to phase three, that’s a failure in the program. Fine. This is a compromise. And there, there, there may well be agency caps on phase one and phase two awards, and there’s this new portion of the program that will allow for larger awards.

Sam: Oh, okay.

Damien: My question on the larger awards is that going to, as you may know. The SBIR program is funded through a particular allocation of research and development dollars from all of these agencies. And one of my concerns is if we’re going to make larger and larger awards, is that going to mean fewer awards overall, or is that just going to mean that there’s maybe going to be more money in the program to pay for it? And I don’t know, I don’t know how that is going to develop. But the other point on SBIR is that you have a focus right now in our industry on technology, on IP, and whether that’s hardware or software or AI-enabled, this and the rest. If the focus is going to be on technology, the early-stage program that makes the most sense is SBIR.

And we need to be out educating people on the program, driving more proposals. The way that you’re going to disrupt the folks that win all the phase ones and twos is to have somebody else win phase ones and twos, right? And getting more new entrances, more new entrants, more competition, more technology. And it’s just been a, I’m very glad to hear that it’s probably on the glide path to being re-upped and being re-upped for a number of years.

Sam: Where do you see this program evolving with this opposition to multiple award winners and then this new emphasis now on larger awards and on commercialization? Where do you see it two, three years from now?

Damien: It’s interesting because the SBIR program is sleepy right up until it has to be renewed. That’s how it goes. Is that there is a, it gets renewed. There are some tweaks; last time there were ones about foreign investment and those sorts of things that were the, where the changes last time. The real question I think going forward now is, okay, is our focus on. Early-stage research and development. Are we buying lottery tickets here, or are we really ends-based and we’re going to be focused on the end outcome? And these larger awards are an indication of an ends-based mindset that we really want to get to the end. And that’s a policy choice that is way above my pay grade.

But I do think that. The purpose of the SBIR program is not to be just another procurement program; it’s to do basic research and development that nobody else is going to bet on, but the federal government. If you are in a place where co, where venture capital will come and bet on your company, it’s great to be in the SBIR program, but you’re not the target audience, at least from my perspective. And I also just, if the goal is to cap awards to particular companies, I don’t know how effective that is to implement because they can just start another company, and I don’t know if you’re going to then track those people, and all of a sudden this starts to get very complicated, very fast. Sure. Whereas I think if you. If you do more to advertise the program internally and externally, I think there are more people on the private side that know what the SBIR program is than in the whole of the government. So if you do more to advertise the program, you get more people involved on both sides and run through Silicon Valley, and you run through all the technology corridors that we have in this country, that’s the solution rather than some arbitrary cap.

Sam: And that’s a good entry point to whatever it is, government contracting or grants. These are companies that have done no work with the federal government at all. And now they’re able to get their systems in place and get introductions to people. They can potentially be part of the industrial base.

Damien: That’s right. And the thing that we’re assuming knowledge of, but let me actually emphasize it, is that SBIR phase ones are not necessarily winner takes all. The topic can come out, and the government can make any number of awards on those. And so if you’re an emerging small business, one path is to go beat Lockheed Martin, and the other one is to be one of three awardees on a hundred thousand dollars SBIR. There’s one of those that is a far easier entrance point to the market.

The Congressional Experience and Policy Evolution

Sam: Certainly. So look forward to getting that passed and then getting the funding out for this fiscal year. Want to take a step back in your bio? I didn’t mention that you actually started as a congressional staffer on the Small Business Committee. How has the experience of a congressional staffer changed? Or maybe more broadly, if you can’t answer that. How has the process for getting small business legislation through Congress changed? Since you were there.

Damien: You know the answer to this from your seat. So I was up on the Hill for a heartbeat while I was in law school. I was in the Senate Small Business Committee. Had the great pleasure to work for Kevin Wheeler, who is just one of those SBIR experts, and to work collaboratively with Max Kidalov, who is still working on SBIR stuff today. He was there as well. And one of the things that we were frustrated with then—again, even in the short time I was there—was that we couldn’t get things done. It wasn’t a priority to get small business legislation pushed through, seen as a collaborative, but not a particularly high-priority committee. And we were mostly looking for other pieces of legislation to hang things on in order to get them. Through.

And when I came out, I intended to go back after law school. I was going to go back and work on the hill. And I didn’t, and I will tell you that because of folks at SBA, like you, who, and John and the others who were willing to talk to industry, I think that those of us on the outside can get more done than even the Hill staffers can. Because the regulations that are coming out on small business affiliation or recertification or whatever, if the agencies are willing to talk to industry and folks who care, we have the ability to actually get things done without worrying about what bill we’re tying it to, or whether we need to have a hearing.

I think, I’ve also seen, there was, even then there was an increase in partisanship, and I’ve thought of that as a non-partisan committee. Everybody wants small businesses to succeed. We can disagree on the 8(a) program or on any particular program, but everybody wants. I bustling Main Street, a successful small business program. Everybody wants the government to buy the best new technologies from the most interesting, innovative firms. Everybody wants that. But when we get tied up in fights about particular programs, things just hit the rocks. And in my seat now outside is outside counsel. I’ve testified before the committee a couple times on the House side. I’ve been able to work on rules with smart SBA lawyers. And I’ve also been able to get exposure to way more businesses than I would have had. I just stayed on the Hill. Hundreds of small businesses a year. I talk to the private equity guys, the venture capital folks. All those perspectives are really valuable and have helped frame how I see the small business rules as well.

Sam: That’s certainly one of the, maybe the last place, of true bipartisanship, the small business committees. At least in their hearings. Maybe not so much in their legislation that’s coming out, but at least they are cordial to each other in their hearings.

Damien: It was always collaborative, but a little too slow for me.

Affiliation, Recertification, and the “January 16th Cliff”

Sam: Speaking of your background and your work now with private equity firms and investment firms. I mentioned in the last recording of this that you had worked on a paper. It’s probably more than 10 years ago now, with Jessica Tillipman on investment potential in small business contractors. If you were to go back and look at that paper, how do you think it’s aged? Do you think those ideas have become more mainstream since you wrote the paper in terms of allowing more investment into small business contractors?

Damien: It’s interesting, I think Jessica may have said—I was a law student at the time, so now we’re talking about years ago, right? One part of that analysis was here’s how affiliation works. And affiliation is incredibly hard. The regulations are thousands of words. And that’s not even the good stuff. The good stuff is in the case law. And that’s where you get more of it.

But the question was, okay, how do we maintain some level of purity where real small businesses are getting real awards? But we allow them to. To grow. We allow them to potentially take minority outside investment, or we allow them to have a pot of gold at the end of the rainbow, where they get to exit. Because if you don’t have that, you’re going to limit the people that come into the market. If the idea here is that I’m going to build a business that is going to be a permanent, small business, that’s going to attract one slice of people. If you say, okay, it’s going to be a small business, and then you can grow, and you can go compete with the bigs, that’s going to be another. Small but optimistic slice of people. But if they’re, but if you then have a situation where those people can build value, and they’re maybe regular entrepreneurs or they come from an entrepreneurial background. Many of my clients come from entrepreneurial families, right? They want to build something to eventually sell, to potentially do it again.

And so if you want the most people to come into the funnel. You have to attract all three of those. You can’t just attract the first two. And the purpose of the paper was to argue that there are places where we can allow more outside investment, where we can have different affiliation rules, where we can modify how we look at it without just throwing the doors open and saying, no more small businesses. Everyone gets to be large. I think it’s aged pretty well. But what that didn’t anticipate was the whole recertification regime that we now have on top of that. Did not see that one coming.

Sam: Let’s get into that because I did have a talk with a business owner—this morning even--asking, what is the point of this new recertification rule? So he is referring to the January 16th cliff. Now that the cliff has passed, the rule is that if you’re a small business that gets acquired by a large business, you can no longer qualify for small business set-aside orders or orders off of an IDIQ that was originally set aside. And so the

Damien: question, and you get off from the IDIQ.

Sam: Yes.

Damien: If it’s a set aside, IDIQ, right?

Sam: Or you could get shifted over to the large business pool if that’s an option. I wish the rule said that a little more clearly. You could talk more about that. That would be the, that would be the ideal state of the rule. So I argued in a Substack post a couple of weeks ago, when the cliff arrived, that part of this recertification regime is to have small businesses competing against other small businesses rather than having a small versus large situation. It’s a matter of fairness.

But even more to the point, it is a sticking point for the SBA Inspector General and for a particular whistleblower group for over 20 years. Now, since 2005, the SBA IG had been prodding SBA to make changes to recertification because the idea was that without this recertification regime, small business dollars were going to large. And by the way, I found some testimony from one Damian Specht saying this is a problem and that SBA needs to fix this problem of small business dollars going to large businesses. So, looking back on that, but more to looking at junior 16th, the arrival of the cliff, what do you think about this particular issue--this cliff issue of preventing acquired small businesses from going after small business orders?

Damien: So first off, I don’t know that you and I agree on the premise necessarily, right? So I agree that set aside dollars to generally go to small businesses, but I think that we can make a business judgment that says: The important thing here is that the government is hitting its small business goals and that those dollars are making it to small businesses. And if we have a recertification regime that runs to credit as opposed to eligibility. We’ve balanced the market between allowing for growth, allowing for acquisitions, and making sure that 20-some odd percent of federal dollars end up in small business hands. I think you and I probably disagree on that, but when we talk about small business dollars, there’s a difference for me between a contract that was awarded to a business that was a small business at the time that it certified, that it was, and counting that as for credit after they’ve been acquired. So I think I see a distinction between those things. That is a policy call, right? That is not the outside counsel call. And it’s not like it’s illegal to do it that way. It’s just a policy call. But the implication.

Sam: It’s also a technology call, though. Let me just mention that I don’t know that it’s actually technically possible to separate the credit from the eligibility. Please go ahead.

Damien: I’m sure we’ll solve that problem in good time. But, because what worries me and I’ll, I will get to, I promise I’ll get to the January 16th, but what worries me is a circumstance where you have the 180-day rule. Where a submitted proposal for a small business that is a single award, not a MAC. If you recertify within the first 180 days as large, you are ineligible for award. After 180 days, you’re eligible, and then if it’s a MAC, you’re ineligible no matter when it happens. What I worry about is a circumstance where I’m a contracting officer, and I’m trying to let a procurement, and I get X number of proposals. The procurement timeline is six months a year, 18 months. CIO-SP4: The rest of our lives. And all that time, people are drifting off. We are getting less competition because the folks that the government would’ve awarded to are falling off.

And once they win that award, then they have to recertify as large during the course of it. So now the awardees are trickling off. And what you’re doing at the end of the day is not only reducing competition, which is a goal of the system, but you’re also reducing the certainty for that contracting officer who’s trying to make that award, trying to decide, hey, is this going to be a small business contract at all? Do I want to take that risk of having people fall off? I just want to let it full and open. Okay. Soapbox over with the January 16th rule. There was an anticipation that there would be a lot of transactions running up to January 16th because people were trying to get grandfathered in, right?

Some of that happened, I think there was less there for a couple reasons. Number one, totally unclear how any of this relates to the GSA schedule, right? I don’t understand how it fits under the rule. And the GSA schedule is just a huge driver of business. With that, there’s no certainty. I don’t know if January 16th, 2025, or January 16th, 2026, is the cutoff date for that. So I think that was part of the issue. The other part is that 2025 was not a great year for government contractors. There’s the direct impact of DOGE and the cuts that occurred there. But there’s this more subtle impact, which is that a lot of contracts last year got extended. So the incumbent got extended, but there was no recompete. And that may have been intentional; it may have been because of a lack of staff, who knows? But it is what happened.

And as a result, it’s very hard to sell a business where I say, oh, I’ve got this contract for another six months, as opposed to, I won the recompete, I have it for another six years. And so there were a number of transactions before that date, but I think the overall impact of those two things. Really stopped that from occurring. Now what’s going to happen going forward? We’re going to have to figure out how this rule works, right? So I did the math. This rule, 125.12, is 1,684 words.

Sam: Oh, okay. It’s just over 1,000.

Damien: 121.404. The other recertification rule, 1,274 words.

Sam: That’s a lot to go through. Good for lawyers.

Damien: So 3000 words. Where we used to have size is determined when you submit your bid, including price, right?

Sam: Yes. FAR Overhaul is maybe a sentence.

Damien: Exactly. Exactly. And frankly, you could make the argument that in 1,684 words, there are actually too few words in here because there are a number of issues that are unaddressed that we need to address going forward to figure out certainty. And there’s going to be litigation on. How does this apply to the point you made before? What if there is an IDIQ contract that has a large pool and a small pool? I think the text of the rule probably says that if you recertify in a reserve, which is what the small pool is, you’re ineligible for options. I cannot imagine that’s the outcome. That SBA wanted, right? There’s no policy reason to kick the company entirely as opposed to just moving them up to the full and open pool. So could we deal with some clarification there? Things like that need to be fixed here. And I understand that the timeline for the rule was, was a little rushed, et cetera. But at any event.

Sam: Just quickly, do you think it applies to novations?

Damien: I do not think that 125.12 applies to novations. I think it’s a gap. But the problem is the FAR does require recertification for an asset transfer innovation, right? So what controls your guess is as good as mine? We’re going to find out at some point. We’re going to find out. Your guess is as good as mine. But no, I don’t think it applies to novations.

Market Trends 2026: M&A and Private Equity

Sam: You mentioned the downturn in 2025 because of DOGE and extended contracts. How are things looking market-wise in 2026 so far?

Damien: Busy. There’s a lot going on in the M&A market, and I think it’s important to baseline what the M&A market looks like for government contractors. The overwhelming majority of transactions. Are somewhere between $50 million and $100 million. So we see all of these transactions that are a billion dollars or hundreds of millions of dollars. Those are an extraordinary minority. The actual majority of deals are those smaller ones. And so every single transaction has some level of small business involvement in it. Because those are the deals that are coming up as I’m doing $45 million in a five-year average revenue, I can compete as small. That $46 million can be a problem, right? Or 47 or 48, depending on where the numbers go with inflation. And so that is a huge part of the market and a huge part of all of these transactions.

So it’s been busy. There has been a lot of investment, and that investment comes, I think, in three major flavors. There’s private equity in our market. Those are control investments. They are recertifying as large, and they’re making a bet that that company plus other companies will be able to compete full and open and, and that those businesses will be more sophisticated with their work. There are private equity firms that do minority. We would refer to them as venture capital, but they’re not. So there are venture capital firms that take small amounts, but there are also investors that’ll take 30, 40% of a business in our space. Keep them small, give them some resources to grow, and then see if they can compete on a full and open basis. And then there are what are referred to as strategic transactions. So that’s either a large existing business, like a publicly traded business that buys a small business, or two small businesses combine. We see that a lot where somebody, my $45 million individual, he and another 45 million individual want to combine, be a $90 million enterprise, and think that’s a more competitive way to go forward.

Sam: And that’s preferenced under the new rule.

Damien: It is preferenced in the new rule, a small, acquiring a small. Though small for what isn’t totally clear, right? Small in their primary code; small, under a given contract. Not totally clear.

Sam: I promised the person this morning that I would ask. Now, post January 16th, what are the strategies that you would suggest to a company that did not make their transaction in time for the cliff?

Damien: You’re not going to be surprised, but number one, win more work, right? That’s easy. But primarily, we talk about the mentor-protege program as a way to transition, and I think that is beneficial to everyone. It’s beneficial to the business that is graduating. It’s beneficial to the business that is coming up as a protege. There is set aside work that needs to transition to someone. And you’ve got incumbent personnel who are performing it, and you’ve got a small business who wants to get into that market, wants to meet that customer, wants to do that work. And if you can marry the two of those, that’s the whole point of the mentor-protege program.

How does that relate to the M&A? I no longer have a recertification obligation if I’m the mentor. So instead of saying, oh, will you keep this small business work or this 8(a) work, or this SDVOSB work, or whatever it is. Will you keep that work in a transaction? It’s a fait accompli. I don’t have to recertify because the size of the mentor protege joint venture is based on the small, and so that’s one strategy. I think that is a particularly good strategy for the IDIQs. I’m going to get off-ramped from an IDIQ. Maybe it makes sense to take that IDIQ and move it to a mentor-protege JV, where it can benefit an upcoming protege and there’s not an off-ramp issue that comes up.

Sam: Okay.

Damien: Does that make sense?

Sam: And the mentor in that case isn’t necessarily a large business; it’s just trying to plan for the future certification.

Damien: You’re planning for the future, and you’re planning for either your growth or an exit or your own acquisition with it. You want to go buy somebody. The other piece that is going to get more popular here is going to be the minority investment, right? I don’t have to recertify. And as an entrepreneur, I’ve got all my eggs in one basket. A minority investment helps me get paid for some of that so that I don’t have all of my personal wealth in one place. It gets me connections to the minority investors’ connections, and their, if it’s a venture capital person, it gets me involved in all of the different businesses that they invest in, all of those technologies. Or it gets me connections to folks who have done this before, who have ridden the ride before, been entrepreneurs before, and it can get me access to professionalized staff, a new CFO, a new chief growth officer, or something like that. There are a ton of benefits that come from that, and that is going to be a more attractive option going forward for folks who didn’t transition.

Minority Investment and Compliance Traps

Sam: That’s interesting that those are the collateral benefits of getting minority investment. When I was at SBA, there was a policy effort to open up all of the programs to additional minority investment, and we changed what’s called the extraordinary circumstances rule. Essentially, allowing for more supermajority requirements. Has that shifted the market at all? Have people taken advantage of that? Does it matter?

Damien: Big change, right? So it used to be that all of the programs had slightly different rules, and it was hard to know if you were going to make a minority investment, how that would work. And yes, I know you were involved in driving that forward and making it more uniform across the programs. That is a humongous change, right? That is a humongous change. Super beneficial. And it has certainly cost me billable hours, in that I don’t have to interpret all these various programs. It’s one rule across them all.

Sam: If only they could do that for joint ventures.

Damien: Exactly. But it’s interesting. So I separated out minority private equity from minority venture, and I did that on purpose. The minority private equity folks that play in this space know these rules, et cetera. But there’s a whole other group of businesses, we think of them as Silicon Valley, but they’re all over the country. And they are the ones who are coming up with cool technologies and are primarily commercial-facing, and they take venture capital based on standardized venture capital terms. These things are fairly rote, right?

And interestingly enough, the way that the SBA rules work, even as revised, is still not consistent with that. And so I certainly, I have a real concern. That, we’re on the one hand, we’re saying, Hey, we want better technology. We want more businesses that are doing cool stuff, which is what the venture capital folks are trying to invest in, but our small business rules aren’t actually keeping up with that. And so I think that’s the next major challenge on the minority side, anyway, is figuring out how it is that we marry the way that market has developed and our desire for it. With the affiliation rules, and maybe it’s a, maybe it’s a carve out for a certain percentage of ownership or something like that. Somebody below 10% doesn’t have to worry about negative controls; there’s a number of ways to get there, but I do think that there’s an and a disconnect, and that’s more than a frustration disconnect. It’s a compliance trap because those folks are going to enter this market. They’re going to win an SBIR, they’re going to win a small business contract. Somebody’s going to file a size protest, and they’re going to lose.

Sam: Interesting. What about the catch-all at the end of the extraordinary circumstances? Does that not cover it?

Damien: Maybe. That’ll be up to Holleman, right?

Sam: That’ll be the question once they get through their 1000 cases that they’re working on right now.

8(a) Program Audits, AI, and Subcontracting Limits

Sam: Actually, let’s talk about that. There have been at least two, maybe now three waves of suspensions in the 8(a) program. The first was 1100 companies did not reply to the data call on the holiday that it was due. The second wave was DC area firms that SBA suspected of not being economically disadvantaged. And it looks like there’s now an effort to look outside of the DC area. What are you seeing on 8(a) audits and suspensions generally? Do you think SBA has gotten it right? And what would you say to a company that’s caught up in the middle of this?

Damien: And can I add onto that, too? All the limitations on subcontracting action that’s going on as well.

Sam: That’s Treasury and War. That’s all running in parallel as well.

Damien: So, number one, it is clear to me that they’re using some sort of AI to make a lot of this analysis. I think it’s great to use AI to detect fraud, right? We have forever been at this point where we say, okay, what is the return on investment for detecting fraud? How much do we spend versus how much can we catch? And using AI to do that, I think you get a better return on investment. None of us wants fraud in the programs. That’s great. The problem is that at the volumes, I think it’s going out right now. I have not seen the quality control that I would have expected.

And so what I’ve seen in terms of the letters that have gone out are errors, and I know you’ve pointed them out on some of your prior discussions, but also misunderstandings of how the regulations work. And I’m a Luddite. I don’t, I’m not great at AI, et cetera. I don’t know how you teach it to do stuff, but it seems to me that. Future letters would benefit from an extra level of review before they go out. Particularly because those 8(a) letters are coming with an instant suspension from the program. They’re not going out as a Show Cause, which is probably how they should have gone out is a Show Cause. Prove it to me, and then if you don’t prove it to me, we’ll suspend you, or we’ll terminate you from the 8(a) program. They went out as if we assume the AI is correct, which has not been my experience.

And there have been follow-on contracting actions. OASIS+ has said, okay, if you are suspended from the 8(a) program, you are not eligible for 8(a) awards on my contract. We’re going to put you in essentially dormant status.

Sam: How does OASIS+ have the ability to do that? Wasn’t the idea that you get on it and then even after you graduate, you stay on OASIS+ in the 8(a)? So what’s the difference between being suspended and being graduated?

Damien: Oh, and that’s how the contract works. The contract says that if you recertify as other than, then you go dormant. So if you’re acquired or you hit one of the recertification points—five years—then you can go dormant. That’s fine, because that’s the way that contract was set up, and that’s what everybody was told the rules were. A suspension letter from SBA, and you’ll correct me if you think I’m wrong, but a suspension letter from SBA is not a recertification. And so I don’t know how they can do that. It’s not how the contract works, and it seems to me to be a due process problem. Right is that you’re just assuming guilty until proven innocent. And I think what we’ve seen with the late submissions, and I think what we will see with these waves, is quite the opposite, is that a lot of these folks are guilty of what?

Sam: Guilty of SBA, moving from one platform to another, and potentially losing your documentation, guilty of, as you said, SBA, not applying the clear rules on how to calculate income. Maybe there are a smattering of cases where firms are legitimately ineligible, but as you mentioned, I haven’t seen a whole lot of those.

Damien: No, those are actually the ones that were the most fascinating are the letters. They’re like, you never gave me your tax returns, and then you can get a screenshot of where the tax returns were submitted. And in fact, the letter includes information that could only have been calculated using those tax returns. So it’s a little bit of a loop.

Sam: That may be for the LLMs and the training data that you have to come up with a tax return sentence.

Damien: But I’m supportive of using every anti-fraud tool we have. And I’ll say the same thing on the limitation of subcontracting. Limitation of subcontracting has been in the rules forever, and it hasn’t been closely monitored in any way that I’m aware of. There’s reporting on it. But has it been closely monitored? Not really. Great. But to your point, there are exceptions, right? There are exceptions for ODCs; there are exceptions if you’re looking at a services contract versus a production contract, right? There are all of these exceptions, and it’s not clear that those are being applied consistently with the right level of human interaction.

Sam: Yes. And they never mentioned the non-manufacturer rule, which is a big exception to the limitation on subcontracting. I’ll reiterate this. I seem to say this on every single podcast. SBA has a statutory responsibility to set up a system for tracking limitations on subcontracting. It has not done that. So as a result, the Treasury Department and War have to send out these notices to 8(a) companies to send in monthly reports or whatnot. Save everybody a lot of time. If SBA or GSA just set up this system, that’s been talked about for over a decade now.

Damien: I’ll say on the limitation of subcontracting, those rules are also incredibly complicated, right? I did not do a word count for how many words there are, but I can tell you they’re incredibly complicated. What is the measurement period? What counts, what doesn’t? What diligence do I have to do for a similarly situated subcontractor that might count? Those rules are incredibly complicated, and I do think that there is space for reshaping the SBA rules to make them a little simpler. A little bit clearer for people. Because I think what happens is that over time they start simple, and then over time you address different problems. And every once in a while, it’s probably worthwhile to give some thought to how we might clarify and simplify.

Regulatory Conflict: SBA Rules vs. the FAR Overhaul

Sam: One effort to simplify was the FAR Overhaul, which cut at least 20% from the FAR, maybe even more from part 19. But now there are conflicts between the complexity of SBA’s rules and the simplification in the FAR Overhaul. So there’s a couple of areas that we could talk about. One is the 8(a) program with the once, 8(a) Always 8(a) rule. And sole source versus competition. Another is recertification where SBA, as you said, has 1600 words or so on recertification, and the FAR Overhaul has a sentence. Where do you see this going? How is this going to play out? Is it just going to be court case after court case, OHA case after case?

Damien: There’s one thing that is unknowable, which is, or at least from where I sit, which is, is there a rewrite of 13 CFR coming to conform it in some way to the Revolutionary FAR Overhaul? And I don’t know the answer to that. I don’t know if that’s the way this is going to go. Color me skeptical, that’s the way that’s going to go. I’m sure there will be revisions to 13 CFR, and there’s a discussion of the potential rules coming out soon.

But I think those things are in conflict at the moment, and you’re right in important ways. Somebody’s going to try to move a contract out of the 8(a) program and move it to a service-disabled veteran or HUBZone, or woman-owned small business, one of the other small business programs. And, will SBA take a stand on that and say that’s inconsistent with 13 CFR, and what wins in that instance? Show me the release. Where did SBA release then? And we cannot wish into being the world that we want. And I think that’s part of what the Revolutionary FAR Overhaul was doing and saying, here’s what we want the rule to be, and that’s great, but you need to figure out how those two rules work together.

But the FAR and 13 CFR have been inconsistent for years. It was pre-Revolutionary FAR Overhaul, but in the other direction, which is to say that 13 CFR was coming out ahead, was making new rules, and the FAR Council was not getting around to implementing those rules. And so that’s been inconsistent for years, and at least the default has been to apply the more specific SBA rules. But I don’t know that’s been litigated.

Sam: On the recertification question, if a client comes to you and says I got acquired. I need to figure out which rule to follow. What are you telling them?

Damien: I’m a lawyer. I’m conservative. 13 CFR, right? We go to those recertification rules and tell them, look, your risk profile. If you want to rely on the FAR, that’s fine, but SBA is the agency that does this, and they have more detailed rules. And so, at least for the moment, we follow those rules, and those are the rules that we cite to.

Sam: And there’s no Office of Hearings and Appeals for the FAR Overhaul and all that.

Damien: Now, again, how that gets litigated over time and where that gets litigated, right? If you recertify and you get ramped off of a contract, I guess you file a claim for it, and you fight it out.

Sam: Interesting,

Damien: As to whether or not the FAR or 13 CFR controls, I am not a smart enough lawyer to know how that ends.

The Building People Case and HUBZone Challenges

Sam: Speaking of off-ramps and you being a lawyer, I was interested in this decision. This is The Building People decision from GAO in November of 2025 because I worked on this issue when I was at SBA. There’s something called the 8(a) pool on the GSA. And similar to what we were talking about with OASIS+, the idea was you get on the 8(a) pool, you stay on the 8(a) pool for competitive, even if you graduate from the program. Or you become other than small. You do have to be in the 8(a) program for sole source, but for competitive, you can stay in there. That question came up before the Department of Energy, and you represented a company called the Building People, which was on the 8(a) pool. And they were excluded anyway because of, not really clear, maybe a question of their size or their eligibility, but essentially the agency said it says you can stay on, but you don’t really have to stay on.

Damien: It is worse than that. It is worse than that. The RFP actually said, we’re not requesting recertification.

And in Q&A, the agency said you just have to be in the 8(a) pool. And to your point, I don’t think there’s any argument that The Building People were in the 8(a) pool. So, how do you get to a result where they get excluded? And procedurally, the answer to that is the agency refers the matter to SBA for an 8(a) determination. Okay. But that’s not what you said you were going to do when you set up the competition. And bids are not free. There is not only the cost of preparing the bid, but there’s the opportunity cost of, if you had told me this was the rule, maybe I would’ve bid as a subcontractor. And so when an agency does that, when they do something that is contra to what they’ve announced for the rules of the competition, that seems like a protest to me, like an issue, a problem. And the GAO’s conclusion was just that it says that they have to get an SBA opinion under these circumstances, but it doesn’t say they can’t just do it every Tuesday because they choose to.

Sam: And it doesn’t give any company certainty. And it seems like SBA was very active in this; for whatever reason, it seemed like it really caught their attention.

Damien: Yeah. Yeah.

Sam: And it raises questions about this OASIS+ scenario, too. Can they get around the strict language of the contract, as you mentioned, just by pointing to this case?

Damien: Not only the contract, the task order, right? The task order said no recertification.

Sam: On the Q&A. Let’s talk about proposed rules. SBA is coming out with the proposed rule sometime soon. They’ve already presented it to the White House Office of Information Regulatory Affairs. What do you want to see in that?

Damien: Probably not what’s going to be in it is probably the short answer. I made the point a couple of times here that I think clarity, simplicity, uniformity, all the things that put me out of a job, are the things that I’m looking for in the regulations. And that takes time, and I think it takes interaction with industry to figure out, hey, where are the pain points? And that was something that SBA in prior years was great at. Hey, industry, what sucks? What is not working for you? Where are the problem areas? And so if it were me, I think I would see more work on recertification and minority controls, and some cleanup of things that are outdated that we can address in other areas. That, that’s probably not what we’re going to see. I think we’re going to see a very likely focus on the 8(a) program that has been a consistent focus here.

And in truth, the 8(a) program has not been reformed in a while. I would like to see is reform on the HUBZone program, because that has been tried over and over again, and every year the government doesn’t hit its HUBZone goals. In part because, and I hear this from clients, it is basically impossible to comply 35%.

Sam: Is that the problem? 35% compliance?

Damien: It’s because the problem is you win a big contract, and how do you ramp and you’re recruiting for folks who aren’t steeped in the HUBZone rule. Your employees, 35% of your employees, have to come from a historically underutilized business area. These are census tracts, many of which are populated by students. Because they have lower incomes during college, et cetera. These are not necessarily—people think about urban blight, but it’s not. It’s some urban areas, some rural areas, and then college towns are where you’re hiring from. And if you win a contract where you now have to deploy a hundred people, and you have to deploy them in 30 days, it’s a real challenge.

Sam: It’s not meant for modern-day contracts. Most of these contracts are service contracts now. It doesn’t really make sense to have that same,

Damien: Maybe the answer is an investment in those HUBZones, right? If you’re not going to meet that goal, maybe there’s a way you can upgrade your office space; you can do whatever. Maybe there’s a financial component to rebuilding those places. That, that allows for more flexibility. Because until then, you’re going to have a situation where there are very few, and very few end in HUBZones.

Sam: And that creates fewer opportunities because you have to satisfy the rule of two. To put the HUBZone requirement out there.

Valuation and M&A Pitfalls

Sam: I do want to run this one question by you. Speaking of the M&A situation, even as 2026 seems to be better for M&A. Somehow I get more responses on my M&A articles than anything else. One of the responses I got was: My company was valued more when we were at half the size standard, or three quarters of the size standard than we are now, as we’re getting close to the size standard. So, where else can you see a company that’s growing and valuation actually goes down? Because it’s very close to not being eligible for set-aside work.

Damien: It’s not only what you do about that. It’s not only that, it’s that they’re eating their backlog of their small business wins. If I’m an outside investor and I’m looking at your single award, small business contract, if I’ve got five years left on it, it’s got a value. If you’ve got 18 months on it, it’s got a different value, right? And so as you get closer to that line, the, can you win this on recompete question becomes much, much harder. And you don’t have that tail to transition you through.

But the answer is, and all the smart people in this industry say, run a business, don’t participate in a program. And so the way out of that is to diversify your base, right? To use the mentor-protege program, use subcontracts where you are the sub to comply with the limitation of subcontracting, but you’re the sub to a small right? Make your revenue less small business dependent, right? One. Number two, while you are still small, and I’ll tie this to the beginning of our conversation, participate in the SBIR program. Develop intellectual property and the SBIR program allows you to go out and win sole-source work without the 8(a) program. If the 8(a) program went away tomorrow, you could still get sole-source SBIR Phase III awards. Go do that and go build a plan where a buyer can only see some backlog, but sees a plan, and then has the IP to dream on that you can win in less competitive operations. Does that make sense?

Sam: So, as you’re looking at these transactions that may be coming up and working with buyers, one of the things you engage in is diligence. Trying to make sure that the valuation is right or the transaction is proper; folks are compliant. What are you seeing in that? What are the biggest pitfalls companies should be looking out for in this?

Damien: If you’re a small business, I often say that we see more non-compliance than the inspector generals do. Because we are out there looking at dozens and dozens of businesses, and I don’t have to send them a CID or a subpoena. They open a data room, and I get to look at everything. And so we can see trend lines, and we can see all the errors, and we can see what’s going on.

So, for your small business audience, and for your large business audience that wants to acquire a small business, a couple points. The number one mistake we see is affiliates. People look around the four walls around them, and they say, that’s the size of my business, but they forget that they own another business over there, and their brother owns another business over there, or maybe they’ve got a parent corporation, right? We see that all the time with subsidiaries of larger corporations. They just say, oh SAM asked me, not Sam you, System for Award Management asked me, how many employees I have? I know how many employees I have. At the subsidiary, I’ve got 50 people on the payroll. So they put in 50 and that auto-populates the small business representations. What SAM wants them to do is to go look up and go all the way up the chain to be able to calculate that, but that’s not intuitive. And it’s not the obvious answer. For you and me it is because this is what we do for a living. For somebody who’s out there trying to actually run a business, it’s not. So we see that a lot.

And the same thing ties back to the venture piece, which is if you have taken even small minority money, but with the wrong negative controls, you can run into the same affiliation problem. So I would probably clean that up. This is going to make you bang your head on the table, but another one of the issues that comes up a lot is the belief that I don’t have to update my size status until I file my taxes.

Sam: Okay.

Damien: As the rule is once you become aware that you’re going to cross, and you’ve closed off that fiscal year, then you update SAM and you are now a large business. There is a lag. There’s a persistent myth that if you don’t file your taxes, you don’t know what your numbers are, you don’t have to recertify. And so you have folks filing on extensions in September. And that nine months, they’re qualifying as a small business in SSAM, but they’re not. I see that mistake quite a bit. That happens.

I’ll hit just two more, and then we can continue on other topics too. But SBIR, SDVOSB, WOSB they require in different ways, direct ownership, right? We see problems with that all the time because folks go to a tax lawyer or an estate lawyer that says, if you organized this way, it would be more tax efficient. That may be true. But it is non-compliant with those programs and that’s got a really long tail because that’s going all the way back to when you made that change. And we see it in the SBIR program a lot and we see it on occasion in some of the other programs. The SBA certification process has weeded a lot of that out, but it still exists. And so the important part there is just if you are restructuring your business, have a government contracts lawyer, have a small business lawyer to look at it.

The last topic I’ll hit is JVs. OHA has no patience for errors in joint ventures, right? There are the requirements and those have got to be hit, and you’ve got to update it every time you submit a bid because you have to actually break out how the work share is going to look. The regulations say you got to identify the work and the materials and the locations, and the only way to do that functionally is to update your JV agreement every time you bid. A lot of times folks go to their lawyer; they get a great JV agreement. It’s right for the first contract, and it’s wrong for every contract after that because they don’t update it, and you’ve got issues that you will lose a size protest on that basis.

The other JV issue that comes up is really esoteric, but the way that you calculate revenue coming from a mentor protege JV, or any JV, it’s not the intuitive answer. Okay I got a subcontract from the JV and I count that as income, and the other party got a subcontract from the JV and they count that as income because the JV is unpopulated. But that’s not how the regs work. If there is other income right in that JV, there are other subcontractors, et cetera, you need to divide that revenue and allocate it to the parties. That is not an intuitive outcome and people get caught on that as well.

Sam: Oh, interesting. So they don’t realize that’s the way the SBA JV rules work.

Damien: It’s all stuff that’s not intuitive. The policy rationale makes perfect sense. It’s just not, if you told a man on the street that, they’d go bang their head on a wall for a while.

Sam: We have to do some education, to put this out there.

Damien: This is part of why I’m thrilled to be on this. Not only because of the folks that you’ve had on it before, but that we can do some education.

Sam: That’s great. And thanks so much for coming on. How can people find you?

Damien: On the web, the picture’s a little old. The bio’s a little old. But if you want to email me, my email address is DSpecht, so D-S-P-E-C-H-T at mofo.com. That’s mofo.com for real.

Sam: Morrison Foerster, a great abbreviation. Damien Specht, thanks so much for being on the show.

Damien: Thanks for having me. This was awesome.

Sam: Thanks everybody.

About the guest

Damien Specht is a partner in Morrison Foerster’s Government Contracts & Public Procurement practice. Damien represents clients in government contracts transactions, regulatory counseling, subcontract and teaming agreement negotiations, contract disputes, size protests, and protests. He has played a significant role in hundreds of government contracts transactions, representing industry leaders, private-equity firms and entrepreneurs.

This video is for informational purposes only and does not constitute legal advice.

SBA preps “Fraud, Waste, and Abuse Reforms”

Sam Le — Wed, 25 Feb 2026 16:20:47 GMT

Transcript

Good morning, everybody. It’s Sam Le from GovCon Intelligence. Welcome back. I’m here in Virginia Beach at the Virginia Beach Convention Center. I just spoke this morning at the SAME Mid-Atlantic Conference. Let me just show you what the conference looks like here. Let’s see a good number of people out on the convention floor, networking, making connections. If anybody’s here is actually online, want to come by and say hi, I’ve got another microphone if you want to stop by and say hi real fast.

Upcoming SBA Regulatory Changes

I felt the need to come online today because, as I discussed this morning at my talk, there’s a big SBA regulatory change right around the corner. Just yesterday, people started discovering that SBA had submitted a request to a White House office. It’s called the Office of Information and Regulatory Affairs, a request for review of a proposed rule that SBA will release once this review is over.

The proposed rule is called Fraud, Waste, and Abuse Reforms. It’s on the Office of Information and Regulatory Affairs website as Fraud, Waste, and Abuse Reforms, a proposed rule states that it’s economically significant as received by OIRA February 20th. And it’s got a RIN number, AI66.

So what does this mean? Fraud, Waste, and Abuse. SBA has been talking a lot about Fraud, Waste, and Abuse. particularly in the 8(a) program. And it’s thought that perhaps this could be related to the news releases and 8(a) data call, the audits that have been coming out with respect to 8(a). There may be other areas involved as well. It could be something they’re looking at for the loan programs or the grant programs.

Subcontracting and Reporting Requirements

I said this morning at SAME, I would expect to see something in here about the limitations on subcontracting. Limitations on subcontracting have been a big emphasis for SBA during the data call. There’s something brought up by Secretary Hegseth for the sledgehammer video.

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So you might see SBA propose to require companies to submit reports on their limitations on subcontracting. There’s actually a requirement in the law for SBA to create a electronic system for companies to report their compliance with the limitations on subcontracting. So SBA may be using that statutory responsibility to now take action on the limitations on subcontracting.

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8(a) Program and Economic Disadvantage Thresholds

There may be action in there on the 8(a) program. SBA has been sending out suspension and proposed termination letters to 8(a) companies based on the economic disadvantage thresholds. There are three economic disadvantage thresholds that all 8(a) companies must comply with. There’s a net worth threshold. That’s $850,000. There’s an income threshold, adjusted gross income over three years. That’s $400,000. And there’s a total assets threshold, $6.5 million.

I’ll just know that I’ve heard from some people at this conference that the total assets threshold, particularly for Companies that require bonding is especially difficult to comply with. Because once you start getting contracts, you start to bump up against that $6.5 million threshold. Because that’s not personal assets. That can include assets in the company. So if a company needs bonding, if it needs to grow, it needs to have that capital to grow. And then it starts to bump up against that $6.5 million total asset threshold. So SBA may be looking at those thresholds or continuing compliance audits of economic disadvantage. That’s the effort that the agency is going through now with the letters of intent to terminate and suspensions.

Joint Ventures and Mentor-Protege Arrangements

What else could be in this proposed rule? Fraud, waste, and abuse reforms. Over the past few years, SBA has started to closely study joint ventures and mentor-protege arrangements. I remember when I was at SBA, I prepared a good amount of data to show the growth of joint ventures and the growth of mentor-protege over the last few years. It has grown a lot. It’s not a huge part of government contracting, but it has grown immensely as compared to small business contracting in general.

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So you may see something in these so-called fraud, waste, and abuse reforms about joint ventures, maybe more reporting on joint ventures. There are significant reporting requirements now that joint ventures may not be aware of, so there may be some efforts to formalize those requirements, at least have a designated mailbox at SBA for those or electronic system to obtain those reports from joint ventures. There was also a proposal over the past few years to cut down on the ability of mentor-protege joint ventures to win long-term contracts and multiple award contracts. So you might see that come back. in this fraud, waste, abuse reforms.

OIRA Review and Public Comment Period

That was submitted. This proposed rule from SBA on fraud, waste, and abuse reforms was submitted to the Office of Information and Regulatory Affairs on February 20th. Usually, things sit at OIRA for up to 90 days. SBA, in its last submission to OIRA, the one related to the data call, asked for expedited processing. I think they got it across in something like 24 hours that time around. So it could be that SBA looks at trying to get some sort of expedited processing with this OIRA submission for fraud, waste, and abuse reforms.

The good thing about this is it’s a proposed rule. So that means that SBA will be asking for comments from the public. Ordinarily, those comments would be a 60-day period. If SBA is trying to really push on fraud, waste, and abuse, maybe it would be something like 30 days. But that does give companies and trade associations, members of the public, the opportunity to submit comments to SBA on whatever these reforms look like. So if it’s something like economic disadvantage or joint ventures, maybe there’s something in there related to tribal, Alaska Native and Indian tribes, then organizations, individuals, and companies can submit comments to SBA. And the Supreme Court has said that agencies have to respond to significant comments received during that process.

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Use of AI and Rulemaking Precedents

Now, I’m suspicious of whether SBA might be using AI and algorithms to go through this data call. I discussed that in my last video with Dean Jessica Tillipman.

It’s not unlikely that SBA might be using AI and algorithms to go through the comments that are received as well. You know, SBA typically receives hundreds of comments on its proposed rule. So they may be getting a lot of those comments and running it through some sort of algorithm.

But even then... SBA is still required by the Supreme Court precedent under the Administrative Procedure Act to respond to significant comments during the rulemaking. So it is worth it for companies to look at this proposed rule when it does come out. It may not come out for 90 days. It may come out in a couple of weeks, depending on whether it goes through expedited processing.

Guidance for Submitting Comments

But when the proposed rule does come out, it’s worth it to companies to review it closely and submit comments through regulations.gov. It’s very easy to use website. Just go in. There’s a text box. If you have a PDF document, you can upload that to the website. And then those comments have to be considered by SBA if they’re significant.

One tip on the comment is if you can, submit data. It’s really important for an agency while it’s going through a rulemaking process to consider hard facts. And for the most part, that’s data. So if you have data that’s specific to your industry or specific to your company, your trade association, if you have data that’s specific to your members, that’s particularly relevant information.

Regulatory Flexibility Act and Economic Impact

There’s also an opportunity through the comment process to emphasize the economic impact of the rule on small entities. That’s a requirement under the Regulatory Flexibility Act, or IRFA. They call it the Initial Regulatory Flexibility Act analysis. This rule, this fraud, waste, and abuse reforms proposed rule is designated on the OIRA website as economically significant. It says it is economically significant.

So if this rule comes out, we don’t know what’s in it yet, but if it comes out and it has an impact on small entities, including small businesses, it’s worth it to bring that up. And then that triggers an analysis under the Regulatory Flexibility Act. There’s actually another office at SBA, the Office of Advocacy, that has oversight on the Regulatory Flexibility Act. So you could see separate offices of SBA involved in this proposed rule, depending on what the impact is on the Regulatory Flexibility Act.

Scrutiny of the 40% Rule for Joint Ventures

Some other things that I brought up at this conference, people had questions about mentor-protege and joint ventures. I am hearing that even though SBA hasn’t done much on the data call with joint ventures, individual contracting agencies are starting to closely scrutinize joint ventures. People in joint ventures are aware of the 40% rule. That’s the rule that the managing venturer has to perform at least 40% of the work of the joint venture. So in a mentor-protege relationship, that’s going to be the protege that’s performing 40% of the work of the joint venture.

I’ve seen cases where agencies are starting to reach out to joint ventures and ask about their compliance with the 40% rule. So pay attention to that. I did have somebody come out and ask me, where does that apply? Is that at the contract level, if you have a multiple award, IDIQ contract, or is that task order level? The answer to that is the old lawyer's answer: It depends. You have to really look at your contract to see whether a particular box is checked under the limitations of subcontracting. Maybe it’s under the contract. That’s the default rule. But if that box is checked, it could be on the task order level. And it’s important to look at your contract closely to see whether your contract’s 40% rule, as well as the limitations of subcontracting, is at the contract level or at the order level.

Impacts of the FAR Overhaul and Contracting Personnel

I’ve had a number of people. Again, I’m at the SAME Mid-Atlantic Conference in Virginia Beach. People talk about the impact of DRP and the fork of contracting officers leaving the federal government. There’s a host of impacts on the small business side as well as on the contracting side. It happens at the same time as agencies are starting to implement the FAR overhaul. So the Department of Defense, Department of War just put into place 37 parts of the FAR overhaul on February 1st. That’s a huge regulatory action. And you have a smaller cadre of 1102s and contracting officers that are handling these regulatory changes.

Additionally, the FAR overhaul has additional discretion for contracting officers. So I’m hearing that now you have younger and less experienced contracting officers that suddenly have a host of new discretionary authorities under the FAR overhaul. How is that working out? So I wouldn’t be surprised if you’re on the outside and you’re watching solicitations come through, that you’re seeing things that you haven’t seen before or new procurement authorities that you haven’t seen before, because the FAR overhaul opens it up, but also you have fewer experienced contracting officers that are running through that.

It’s a lot of work for these contracting officers to get up to speed on these regulations. That’s part of my purpose here is to give education to federal agencies as well as contractors on what some of the new initiatives are.

The 8(a) Suspension List and Technical Barriers

Another question I got by email, and I also got it here at the conference, is where can I find the 8(a) suspended list? Now, you might have seen from some of my posts on Substack, I track the companies that have been suspended.

I just posted the other day that the number of suspended companies went back down to the 800s. It was up to 1,000 for a bit, and it’s dipped down back to 800s. I try to track that on a daily basis. So keep track on govconintelligence.com and the notes section. I’ll post every few days about how many companies are suspended and whether it seems to be going up or down.

So I have knowledge of how to find the list. I am reluctant to put the list out there. My view on this whole suspension and termination wave is that most of these companies have done nothing wrong. On the suspension side, the initial wave was companies that did not reply by the January 19th deadline to the data call. January 19th was a holiday. It was difficult for a lot of those companies to get the tech support they needed. This system, anybody who actually replied to the call knows the system is not infallible. They’ve seen a lot of like twirling circles on the system. So there were companies that were not able to submit by that January 19th deadline. If they didn’t submit by the January 19th deadline, They were immediately suspended. Didn’t matter if they submitted the next day. I don’t think they did something wrong by being suspended. They may just have had technical issues that really could have been a system issue rather than something on the company’s side. So that’s the first wave.

AI Algorithms and Economic Disadvantage Reviews

And the second wave now are companies being identified for issues with economic disadvantage. That’s probably another 230 companies that have been suspended and proposed for termination for economic disadvantage. Companies go through an economic disadvantage review every year. 8(a) companies are required to submit financial documents to their district office to go through a review of whether they’re economically disadvantaged. So these companies, if they’re in the program now, they’ve already been cleared by a human being.

Now SBA is using likely an algorithm, AI, to go through those same documents again. And that AI is finding issues with maybe a few hundred companies. I’m not certain that those are legitimate issues. And some of the cases I’ve seen, those are not issues that comply with SBA practice and regulations. I’ve talked about this before. There are exclusions to the economic disadvantage threshold. This AI, this algorithm is not, in all cases, applying those exclusions.

So I think a lot of these 200 or so companies that have been identified in the second round, first of all, they’ve already been cleared by a human. That’s why they’re in the program. And second of all, this computer is making mistakes as it goes through. Jessica Tillipman and I talked about the fact that SBA is just really jumping to suspension and termination, rather than having another human in the loop to review these suspensions and terminations. So that’s all to say, I’m not on board with saying that these companies are somehow engaged in some wrongdoing. And for that reason, I’m not putting a list out there. You can find which companies are suspended. You can go to the SBA website. It’s search.certification.sba.gov and start searching up companies and see whether they’re suspended or not. It’s not that hard to start to go through the whole list. I just not willing to put a list out there for it.

Conflicts Between 13 CFR and FAR Part 19

A few more questions that I got today in the Virginia Beach SAME conference. I got questions about CFR versus FAR overhaul. There are a lot of changes in the FAR overhaul, particularly with the 8(a)A program. And what controls when there’s currently this conflict between the SBA rules, which is 13 CFR, and the FAR overhaul rules? Those are out there in Part 19.

Some of the areas of conflict include the once 8(a), always 8(a) rule. Is there an automatic release for contracts that are being moved from the 8(a) program to service-disable VET or HUBZone or women-owned? Another area is on recertification. I wrote about that in my last article on whether agencies need to require a company to be eligible at the time of order where SBA rules say they must be eligible at the time of order. The answer is we haven’t seen it happen yet. So we don’t really know.

On the 8(a) side, SBA would tell you SBA is in charge of the 8(a) program. They have a partnership agreement with every agency on how that agency is expected to conduct its contracts under the 8(a) program. So, for example, on the once 8(a), always 8(a) rule. SBA issues releases. If an agency doesn’t get a release you’re not supposed to take something out of the 8(a) program. FAR overhaul doesn’t say that. FAR overhaul says there’s an automatic release.

But SBA hasn’t changed its rules. The SBA will still require that there be a release from the SBA headquarters in order for that agency to take that out of the program. So if sSBA a is in charge of the 8(a) program and it hasn’t released yet, the current rule would say, since SBA is in charge of it, that contract has not been released.

And I’ve heard instances where SBA has been asked for a release. And just because of the last thing that I mentioned, people taking the DRP, taking the fork, they’re not getting around to those releases fast. It can be months, potentially, for an agency to actually get a response on a release. And if it hasn’t gotten that release, that means that requirement, based on the CFR, should stay in the program. That’s also what the 8(a) partnership agreement says.

Future Outlook and Closing Remarks

We’ll see when this comes up. It’s certainly a big issue that could come up in litigation before GAO, both that 8(a) issue as well as the recertification issue. We’re in this interim period right now where SBA rules say one thing, the FAR overhaul says something else. It’s been said, Larry Allen said in an interview with a law firm that SBA rules eventually will change. That hasn’t happened yet. It might happen in this new Fraud, Waste and Abuse Reform rule that comes out where SBA might consider some of the changes that happen in the FAR overhaul. But that doesn’t seem to be, you know, if you call something Fraud, Waste and Abuse Reforms, it doesn’t indicate that it’s going to be changes to reflect the FAR overhaul.

I think that wraps all the questions that I have. I just want to call everybody’s attention again to the proposed rule that will be coming out from SBA on Fraud, Waste and Abuse Reforms. You might see that in 90 days. You might see that in 30 days. Depends on whether SBA requested expedited processing from OIRA. When it does come out, there’ll be an opportunity to comment. It’s designated as economically significant, and certainly I’ll come back online and talk about it when it’s available to the public for review. Thanks, everybody, for joining me. I had fun talking to SAME Mid-Atlantic here in Virginia Beach, and I’ll see you next time. Thanks, everybody.

This video is for informational purposes only and does not constitute legal advice.

AI, GovCon, and the Perils of Speed (with Jessica Tillipman)

Sam Le — Fri, 20 Feb 2026 20:34:10 GMT

Jessica Tillipman is the dean of GW Law’s procurement law program and the leading expert on the use of AI in government contracting. I caught up with her about the Supreme Court’s tariffs decision, the potential for AI-enabled corruption, and the future of lawyering. Along the way, we discussed SBA’s recent wave of suspensions and proposed terminations of 8(a) firms.

An auto-generated summary of the conversation follows.

In this episode of GovCon Intelligence, Jessica Tillipman, the associate dean for government procurement law studies at the George Washington University Law School, discusses how rapid federal adoption of artificial intelligence is reshaping oversight, competition and integrity in government contracting.

The conversation opens with breaking news about a Supreme Court decision striking down tariffs as a tax and turns to Tillipman’s forthcoming article, Buying Blind: Corruption Risk and the Erosion of Oversight in Federal AI Procurement, which argues that “risky buying equals risky deployment” when agencies pursue A.I. without sufficient training, infrastructure and governance. Sam links those concerns to the Small Business Administration’s February 11 wave of more than 150—closer to 230—letters suspending or proposing termination of 8(a) companies, describing basic errors and legal deficiencies that suggest automated screening without adequate human verification or due process.

Tillipman explains her “wedding cake” model of the A.I. tech stack—chips, data and cloud infrastructure at the base; foundation models as the “brain”; applications near the top; and human oversight above it, with security and governance layered throughout.

She warns that market concentration and preferred partnerships can deepen lock-in and complicate accountability. She also outlines how the stack can create organizational conflicts of interest, from biasing ground rules and unequal access to information to risks that arise during customization and fine-tuning, and she raises concerns about “algorithmic collusion” and the use of telemetry and logging data.

Drawing on South Africa’s “state capture” scandal, she describes how procurement can be exploited to capture institutions and argues that A.I., operating quietly inside data-rich agencies, could magnify those dangers.

The episode distinguishes between “corruption risks,” including A.I.-generated fraud, prompt injection and proposal gamification, and “integrity risks,” such as bias, drift, hallucinations, opacity and automation bias. Tillipman urges agencies to treat A.I. as an aid rather than a substitute, emphasizing human-in-the-loop oversight, traceability to solicitation requirements and proposal text, and the need to protect due process for those flagged by fraud tools. She critiques the current federal posture as governance in retreat—citing a speed-first approach, promotional OneGov pricing that can fuel behavioral dependency, and the disruption of a FAR overhaul alongside buyouts and retirements.

The discussion also addresses a ProPublica report on the Department of Transportation’s effort to draft regulations rapidly with Gemini and rumors of Pentagon pressure on Anthropic tied to contractual clauses allowing any lawful use of A.I. systems. Tillipman says these developments underscore that A.I. governance is not neutral and that the government still wields leverage, including through supply-chain risk designations.

Turning to the classroom, she describes growing anxiety among students about the job market and worries that heavy reliance on A.I. is eroding foundational legal skills, prompting a shift toward more in-person, closed-book assessment and instruction aimed at A.I. literacy. Tillipman predicts that industry may use governance as a competitive differentiator, but she expects a scandal-driven swing back toward reform.

She directs listeners to jessicatillipman.com and LinkedIn.

00:00 Meet Dean Jessica Tillipman (GW Law)
00:31 Small Business Affiliation Rules: The Paper That Shaped SBA Policy
02:23 Supreme Court Tariffs Ruling—What It Means for Business & GovCon
05:20 The paper, ‘Buying Blind,’ and AI Corruption Risk in Federal Procurement
06:16 SBA’s 8(a) Suspension Letters. Did AI Fraud Detection Get It Wrong?
08:48 ‘Risky Buying = Risky Deployment’: Human-in-the-Loop & Due Process Safeguards
11:36 The ‘Wedding Cake’ AI Tech Stack Explained
16:03 Conflicts of Interest in the AI Stack: Algorithmic Collusion, OCIs & Telemetry
21:40 South Africa’s ‘State Capture’ Scandal
25:47 Promo Pricing, OneGov Deals & Behavioral Dependency
30:23 Corruption Risk vs. Integrity Risk
32:31 AI Fraud & Voice Consent: The Next Wave of Scams
32:47 System Corruption in Procurement, Prompt Injection & Proposal Gaming
34:01 Hallucinations, Protests, and FAR Part 15: Why Humans Must Stay in the Loop
37:08 Using AI the Right Way in Evaluations
40:10 AI ‘Slop’ and Losing Your Voice
41:44 Speed vs Guardrails in the FAR Overhaul Era
45:35 Should AI Write Regulations? The DOT ‘20-Minute Draft Rule’ Debate
48:34 Prompts for Brutal, Bias-Checking Feedback
50:58 Pentagon vs Anthropic
54:48 Preparing the Next Generation for the Job Market
59:52 10-Year Outlook: Compliance as Advantage, the Next Scandal, and Finding the Middle Ground
01:02:54 Wrap-Up: Governance & AI Literacy as Differentiators + Where to Find Jessica Tillipman

About the Guest

Jessica Tillipman is the Associate Dean for Government Procurement Law Studies and Government Contracts Advisory Council Distinguished Professorial Lecturer in Government Contracts Law, Practice & Policy at the George Washington University Law School. She is a leading authority on public procurement, corruption, and the governance of AI in the public sector, with a particular focus on integrity, compliance, and emerging technology risks in government contracting.

This video is for informational purposes only and does not constitute legal advice.

How large businesses get small-business contracts

Sam Le — Thu, 12 Feb 2026 13:24:35 GMT

The FAR Overhaul became effective across much of the Federal government last week. And with that came the setup for a big catastrophe, an inevitable train wreck taking place in slow motion.

Here’s how the disaster will happen under the new FAR Overhaul.

A small business gets a big multiple-award contract, an IDIQ. Let’s assume that IDIQ was not restricted to small businesses in any way. That small business does really well, maybe because of the IDIQ. So it grows to become a large business. Then that now-large business wins a blanket purchase agreement on the IDIQ. An agency sets aside work on the BPA for small businesses to compete for.

Multiple small businesses bid for the agency’s set-aside work. Yet the large business wins the work. The small businesses wasted their time bidding on the set-aside.

This is bad. It’s unfair to the other small businesses competing. The work went to a large business on the basis that it used to be small. That seems counter to the concept of a set-aside. Is it allowed?

Here’s the worst part: There is no answer. No one can confidently say what will happen in this scenario. And that’s because the FAR Overhaul says one thing, and the SBA says another.

Which one is right?

The SBA Inspector General’s 20-year crusade

SBA has the stricter rule, but the SBA’s rule didn’t come about organically. The agency had to be pushed.

Starting in 2005, the SBA Office of Inspector General started sounding the siren about large businesses winning small-business contracts. “Procurement flaws allow large firms to obtain small business awards and agencies to count contracts performed by large firms towards their small business goals,” the SBA IG reported.

Large firms obtain small business awards. The actual facts were scandalous—at least by early 2000s standards. Verizon reportedly won $107 million in small-business contracts. Raytheon got small-business money too.

The SBA IG had found a cause to fight for. The issue of large businesses winning small-business contracts became the IG’s #1 “serious management” challenge. It stayed at #1 for fifteen years. Only in 2021 did the large-business issue get dethroned by COVID loan fraud. Even then, the cause went down just one spot to #2.

SBA’s contracting policy was profoundly affected by the IG’s crusade. In part because of pressure from the IG, SBA issued a merger-and-acquisition recertification rule. I discussed the latest iteration of that rule in a recent post:

The small-business M&A cliff should have never happened

Small businesses have one more day before the “M&A cliff,” the date that SBA set for changing the mergers-and-acquisitions rules. After that, mergers between a small bu…

3 months ago · 8 likes · 1 comment · Sam Le

SBA also published a series of other recertification rules, each with its own exceptions and contingent scenarios. The current version is 19 paragraphs long. It has a whole subsection dedicated to exceptions.

But, even with those changes, the IG kept up the crusade. Plus, an outside watchdog, the American Small Business League, repeatedly sued SBA on the issue. This went on for 20 years. That’s 20 years of SBA getting beaten up for small-business contracts going to Verizon and Raytheon.

It didn’t stop until SBA published the current recertification rule.

The FAR Overhaul vs. SBA’s recertification rule

SBA’s recertification rule now prohibits, in that first scenario, the now-large business from winning the work. If the original contract isn’t set-aside, the firm must be small to win set-aside orders. Not just small for the contract—which might have been years ago—but small for the order, for the work itself.

That change was enough to satisfy the SBA IG. In 2025, the SBA IG finally took the large-business issue off the list of top SBA management challenges. It was because of that change to the recertification rule.

And for a short, glorious period, the FAR mirrored SBA’s change. Both sets of rules agreed—large businesses shouldn’t get small-business work. That was February of last year.

But, in September, the FAR Overhaul changed it back. In a nod to the Overhaul’s simplicity ethos, the Overhaul’s recertification rule is much shorter. It’s hardly a rule at all, and the result is that large businesses (if they used to be small) can win small-business work:

A business that represents as a small business concern at the time of its initial offer for the contract (whether or not the offer includes price or the price is evaluated (see 13 CFR 121.404(a)(1)(iv)), is considered a small business concern for each order issued under the contract.

This was, in a word, breathtaking. This sort of territorial swordfighting doesn’t happen often in procurement policy. After the IG’s 20-year crusade, the SBA rule now states that a small business has to be small at the order (with lots of caveats, the main one being that the contract itself was not set aside). The overhauled FAR rule doesn’t say that. The FAR—which just eight months before had adopted the SBA rule—now says that the business only needs to be small for the overall contract.

There’s no Tenth Amendment in procurement policy. So this isn’t JB Pritzker vs. ICE, with a tiebreaker to the states. There isn’t a clear winner in FAR vs. SBA.

Leave it to the courts

If Kalshi opens this battle up to betting, I’d give a slight edge to SBA. The main reason is the sequence a case would need to follow.

Because recertification really gets to whether the company is small, SBA’s OHA would get to rule first. I wrote about OHA two weeks ago as the office that hears 8(a) suspension appeals:

OHA will hear your appeal now

SBA suspended 1,091 businesses from the 8(a) program last week, in the aftermath of the data-call deadline on January 19, a Federal holiday. Hundreds of those sus…

2 months ago · 15 likes · 6 comments · Sam Le

OHA also hears size appeals. I’ve appeared as the lawyer in 55 published OHA appeals, and most of them are size cases. In size cases, OHA follows SBA rules.

But OHA is not the last word. If the large business loses at OHA, the business can go to court. There are a couple of court cases favoring SBA’s rules over the FAR. It’s not certain that those cases would control, though.

One factor might be the depth of explanation. SBA’s recertification rule was developed over 20 years. Each time, SBA explained why it was changing the rule, received hundreds of pages of comments, and then explained the rule again. There are likely thousands of pages of explanation between the SBA commentary and the public comments.

The FAR Overhaul’s explanation is basically a sentence, plus Don Draper against a blue background, holding an oversized pen and staring aggressively at a seven-foot scroll:

FAR Overhaul Part 19 Practitioners Album (Acquisition.gov)

It’s also relevant to this discussion that the SBA Administrator has staked her reputation on combating fraud and abuse in government contracting. Just yesterday, the SBA suspended 150 D.C.-area contractors for, in essence, winning a lot of contracts. Those firms, some would argue, were just good at contracting; they weren’t abusing the system. Here’s what’s abusive: large businesses winning small-business contracts.

Maybe that’s what the FAR Overhaul says can happen. But read the law: The SBA Administrator has the authority to “determine within any industry the concerns, firms, persons, corporations, partnerships, cooperatives, or other business enterprises which are to be designated ‘small-business concerns’ for the purpose of effectuating the provisions of this Act.” In otherwords, for size, what SBA says goes.

But let’s say the FAR Overhaul prevails. The large business wins. Then what? Prepare for disappointed small businesses, more uncertainty, and lots of protests.

This article is for informational purposes only and does not constitute legal advice.

Trump Isn't Done Reshaping the SBA (with Robb Wong)

Sam Le — Sat, 07 Feb 2026 00:49:37 GMT

Robb Wong was the government’s top small-business advocate in the first Trump Administration, working closely with former SBA Administrator Linda McMahon. He joins Sam on GovCon Intelligence to discuss the Trump Administration’s posture toward small-businesss contractors, the 8(a) data call, and his outlook for 2026.

An auto-generated summary of the conversation follows.

Guest Background

Robb Wong served as the government’s leading advocate for small business contractors in the Trump administration from 2017 to 2020 under SBA Administrator Linda McMahon. He currently runs FedSolve, a platform supporting high-performing small businesses in IT, professional services, and construction.
SBA Achievements: During his tenure, federal small business utilization goals were exceeded for four consecutive years, and the market grew to over $240 billion.
Key Policy Wins: Robb formalized the Women-Owned Small Business (WOSB) certification program, initiated the transfer of the VA’s Service-Disabled Veteran-Owned Small Business (SDVOSB) program to the SBA, and shaped the current SBA Mentor-Protégé program.

The “Trump 2.0” Administration and SBA Policy

Administrative Approach: Robb observes that the current administration is operating differently than the first but hopes they remain faithful to the same goals. His philosophy during Trump 1.0 was to strictly follow the law.
Department of Government Efficiency (DOGE) Cuts: Robb generally supports the concept of smaller government and procurement reform but criticizes the “ham-handed” execution of recent cuts.

Staff Reductions: The SBA’s Office of Government Contracting and Business Development (GCBD) staff was reduced from approximately 80 employees to 40, according to Robb.
Impact: Robb notes that losing key personnel hurts the agency’s ability to process actions and support the warfighter.

The Hegseth Memo and DEI Scrutiny

The Memo: Sam discusses a memo from Secretary of War Pete Hegseth directing a review of all small business set-asides over $20 million for cost efficiency, questioning the DEI focus.
Robb’s Reaction: Robb suggests Hegseth’s memo parrots language from a recent SBA press release. While the industry fears the 8(a) program will be eliminated, Robb argues the program is grounded in the Small Business Act and 13 CFR regulations.
Removing DEI: Robb agrees with the administration’s move to remove DEI as a criteria for 8(a), emphasizing that admission should not be based on race alone.

Status of the 8(a) Program: Freezes and Audits

Approval Freeze: Sam notes that there have been zero 8(a) approvals since August 15, 2025. This is due to a change in processing and a slowdown rather than an outright termination of the program.
The Data Call: The SBA has shifted resources from processing applications to conducting audits and data calls.

Survival Rates: Robb helped firms successfully navigate the data call by ensuring their submissions were complete and on time, warning that incomplete submissions would result in removal.

Future Scrutiny (Economic & Social Disadvantage):

Economic Disadvantage: Robb predicts the next wave of audits will focus on economic disadvantage thresholds. He advises firms to verify their numbers and prepare explanations.
Social Disadvantage: The administration may scrutinize narratives. The “two incidents” rule is weak, Robb says, compared to the requirement of “chronic and longstanding” disadvantage.
White Male Eligibility: Robb clarifies that white males have historically been able to enter the 8(a) program through a social disadvantage narrative. That makes new guidance on “illegal DEI” redundant to existing regulations.

Market Environment and Predictions for 2026

CIO-SP4 Cancellation: Robb predicts what will come out of the cancellation of the CIO-SP4 contract vehicle.
Mentor-Protégé & Joint Ventures: Robb continues to advocate for the Mentor-Protégé program. He advises firms to form joint ventures to combine capabilities (”Mighty Mouse and Superman”) and pursue small-business contracts.

Advice for Small Businesses

Change the Pitch: Robb emphasizes that companies must stop leading with their certifications (e.g., “I’m 8(a)”). Instead, they must lead with quality, problem-solving, and past performance.
Do the Homework: Businesses must conduct deep market research, understanding agency missions and specific program problems using public information.
Business Development: Companies must actively engage contracting officers by proving they can solve specific problems, rather than relying solely on status.

About the Guest

Robb Wong is the founder and principal of FedSolve, an advisory service for high-performing small businesses. He served as the White House-appointed SBA Associate Administrator for Government Contracting and Business Development from 2017 to 2020.

This video is for informational purposes only and does not constitute legal advice.

OHA will hear your appeal now

Sam Le — Thu, 29 Jan 2026 15:48:54 GMT

Photo by Sasun Bughdaryan on Unsplash

SBA suspended 1,091 businesses from the 8(a) program last week, in the aftermath of the data-call deadline on January 19, a Federal holiday. Hundreds of those suspended firms are expected to appeal to SBA’s Office of Hearings and Appeals. To say that OHA is a small office is an understatement: The office has only one full-time judge.

But, just in time for the flood of 8(a) appeals, OHA is expanding capacity. Administrative Law Judge Brian J. Haring has started to hear SBA cases. Haring is an ALJ with the Office of Medicare Hearings and Appeals, part of the Department of Health and Human Services. He is working on SBA cases through an interagency agreement between SBA and HHS.

Haring supplements the work of longtime SBA OHA Judge Christopher Holleman. Holleman has been deciding cases for OHA for over 30 years. Holleman became SBA’s lone full-time judge in 2025 when another judge left Federal service and was not back-filled.

OHA has had these surges before.

During the COVID pandemic, SBA routed appeals of the Paycheck Protection Program to OHA. Borrowers could appeal SBA loan review decisions and loan-forgiveness decisions. The scale of PPP appeals dwarfs what could come out of SBA’s 8(a) suspensions.

For PPP appeals, SBA created a standalone website, appeals.sba.gov, but that is not being used for 8(a) suspension appeals. Instead, 8(a) appeals need to be emailed to OHA or submitted through their Hearings and Appeals Submission Upload. That HASU application is a rudimentary upload page hosted at Box.com.

I started doing OHA appeals 18 years ago. Back then, I would walk upstairs to OHA and file in person. I had to hand in the filing by 4:30 p.m. The clerk there, Pat Lee, would stamp the filing with the date and sign to confirm receipt. Now everything is electronic. The basic operation and function of the office, however, is unchanged.

What does OHA do

OHA has limited jurisdiction, meaning it can only hear cases that are specifically assigned to it in a Congressional law or in an SBA regulation. For 8(a) suspensions, OHA’s jurisdiction is in a law. The Small Business Act deems an 8(a) suspension to be a “termination” and requires a termination to include an “opportunity for a hearing” before OHA.

That same law provides that one reason for a termination or suspension is “a demonstrated pattern of failing to make required submissions or responses to the Administration on time.”

Other areas where OHA can hear cases are: appeals of SBA size determinations; appeals of protest decisions in the HUBZone, women-owned small business, and service-disabled veteran-owned small business programs; and appeals of declines in the SDVOSB and VOSB programs. Those are appeals of SBA decisions. OHA also decides appeals of any agency’s assignment of a NAICS code to a contract. And, in one area, OHA makes the initial determination. That’s in protests of veteran-owned or SDVOSB status on set-aside contracts.

Veterans cases make up the largest portion of OHA’s docket. Last week, OHA issued decisions on three SDVOSB protests, all involving the Polaris GWAC pool for service-disabled veteran-owned small businesses. OHA rejected all three protests. In one of them, Sugarloaf Technologies, OHA approved the use of a “conformity clause” in a joint-venture agreement. Those conformity clauses state that the agreement’s provisions must be interpreted to comply with SBA regulations. The clause read:

Conflict with SBA’s Rules. If any provision contained in this Agreement is in conflict with or prohibited by SBA rules, regulations, information notices, or guidance concerning joint ventures, such provision(s) shall be null and void ab initio or interpreted in a manner that is consistent with SBA rules, regulations, information notices or guidance.

In the Sugarloaf case, that clause saved the joint-venture agreement from being noncompliant.

Cases about the 8(a) program are relatively rare. Of the 96 cases that OHA has decided in the past year, only 12 were about 8(a). And all but two of those were dismissals because of a settlement, withdrawal, or deficiency. OHA only issued two substantive cases about the 8(a) program last year. In both cases, OHA denied the appeal.

What to expect at OHA

Firms in the 8(a) program might be concerned about whether they will get a fair hearing at OHA, given SBA’s public statements. The SBA Administrator has called the 8(a) program a “vehicle for massive fraud and abuse.” And, as the acting Assistant Administrator for OHA, Judge Holleman reports directly to the SBA Administrator.

But OHA’s mission is to be impartial, objective, and independent. Congressional statute provides that OHA is to “impartially decide matters.” The office’s mission statement is to “provide an independent, quasi-judicial appeal of certain SBA program decisions.”

In my experience, OHA takes great pains to be impartial. The judges are textualists. This means they hew closely to the strict wording of the law. I’ve even been on the wrong side of that. My SBA colleagues and I lost a number of OHA cases by arguing that the law should say something as a matter of policy, when in fact the law was ambiguous. That’s actually how we ended up with the small-business M&A cliff earlier this month:

The small-business M&A cliff should have never happened

Small businesses have one more day before the “M&A cliff,” the date that SBA set for changing the mergers-and-acquisitions rules. After that, mergers between a small bu…

3 months ago · 8 likes · 1 comment · Sam Le

One area where OHA is reliably strict is timelines. For 8(a) suspensions, appeals must be filed within 45 days. It’s worth knowing what a “day” is in OHA practice. If an appeal arrives past that 45 days, OHA is very likely to dismiss it.

OHA also has detailed rules about service. In the old days, that used to mean faxing copies of every filing to the opposing party. Now it just requires cc-ing specified email addresses on your appeal and other submissions. The service rules are 13 CFR 134.403. For 8(a) suspensions, you need to send copies to 8aBD2@sba.gov and OPLService@sba.gov.

How OHA will handle the 8(a) suspensions

If you file at OHA, your appeal or protest goes first to a clerk. Clerks play a much bigger role than their title suggests. The clerk is an attorney who works closely with the judge to review facts, communicate with parties, and even write the decision. OHA usually has had three clerks. The number fluctuates based on caseload and staffing churn. You’re more likely to interact with the clerk than with the judge. And how you treat them may get back to the judge.

You also might wonder whether you should have a lawyer for your OHA appeal. Answering that verges on legal advice, so I’ll just say this. The other side has lawyers too (to paraphrase a Tony Kornheiser line). A lawyer in SBA’s Office of Procurement Law will receive an appeal of the 8(a) suspension.

Sometimes the OPL lawyer will review the case and find an error, and SBA will reverse the suspension. In other cases, the case will go to a decision. SBA’s recent track record on pure suspension cases is actually not very good. (“Pure” here means the suspension was not accompanied by a termination, as 8(a) terminations go through a slightly different process.) In one case, OHA lifted a suspension because SBA had apparently misplaced “23 pounds” of the participant’s documentation. In another, the SBA attorney failed to file an adequate record with OHA.

That said, OHA upheld a suspension and termination where the 8(a) firm failed to file documents “due to system malfunctions.”

For an 8(a) suspension, OHA’s legal standard is “whether the Government's interests need to be protected.” SBA noted in its press release this week that “about half” of the suspended firms have received contracts since 2021. The contracts total over $5 billion, SBA stated. (I confirmed that calculation; it’s $5.15 billion to be exact.)

That is a minuscule amount. The government issued $3 trillion in contracts over the past five years, $800 billion of which went to small businesses. So the suspended firms received only 0.1% of overall contracts, or just 0.6% of small-business contracts.

The distribution of contracts among the suspended firms is even more striking.

As SBA noted, 50% of the suspended firms did not receive a contract in the past 5 years. A vast majority of them—72%—received less than $1 million in contracts. And just 16 of the suspended firms won $50 million over those 5 years (an average of $10 million per year). Those 16 firms accounted for more than half of the $5 billion that SBA reported.

So, for the vast majority of the suspended firms, government contracting isn’t a big money-maker—if it makes them any money at all. That is a factor in whether they decide to appeal the suspension. And it might play into what “Government’s interests” need protecting.

One last note on the 8(a) suspensions: These are not governmentwide suspensions under FAR Part 9.4. Governmentwide suspensions—like what SBA levied on ATI Government Solutions—are far more serious. A governmentwide suspension prevents a contractor from receiving most types of contract actions, including new awards, options, and subcontracts that require approval. They aren’t limited to 8(a) contracts. The 8(a) suspensions, by contrast, do not prevent a company from receiving non-8(a) government contracts.

Given those stakes, some companies might decide not to appeal their suspensions. For those that do, be sure to follow OHA’s requirements. As my experience with the 4:30 deadline taught me years ago, OHA respects the letter of the law above all else.

Thanks for reading GovCon Intelligence! This post is public so feel free to share it.

This article is for informational purposes only and does not constitute legal advice.

Who are the 1,000 firms suspended by SBA--plus Q&A

Sam Le — Fri, 23 Jan 2026 22:57:25 GMT

Links mentioned:

Dave Zvenyach: “The 8(a) Dustup”

SBA: “SBA Issues Clarifying Guidance That Race-Based Discrimination is Not Tolerated in the 8(a) Program”

SBA 8(a) Program Mandate

SBA Small Business Search

City Journal: “They Systematically Discriminate Against One Group: White Men.”

Below is an auto-generated summary of a live video.

This episode discusses recent developments and heightened scrutiny surrounding the Small Business Administration's (SBA) 8(a) program. Sam touches upon the announcement by Secretary of War Pete Hegseth regarding a review of sole source contracts, leading to an intense week of actions by SBA. Key points include the recent data call for 4,300 8(a) firms requiring submission of 39 documents, SBA's suspension of over 1,000 firms for lack of response, and new guidance which states that race-based discrimination is not tolerated. Sam also goes over the removal of the guide for demonstrating social disadvantage, implications for new applicants, and a controversial article claiming no 8(a) contracts were awarded to white men between 2020-2023.

Sam discusses the suspension of firms, the efficiency of sole-source contracts, the program's historical context, and upcoming reviews that could impact the program. Audience questions address the suspension appeal process and broader application of sole source authority.

Topics
Introduction to Recent Developments in the 8(a) Program
SBA's Data Call and Immediate Consequences
New Mandates and Social Disadvantage Criteria
Race-Neutral Administration and Social Disadvantage Narratives
Reverse Discrimination and White Men in the 8(a) Program
Suspensions and Their Impact on the 8(a) Program
Q&A and Final Thoughts

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The truth about 8(a) and ANCs (with Christine Williams)

Sam Le — Thu, 22 Jan 2026 00:15:56 GMT

On this episode of the GovCon Intelligence podcast, Sam and Christine Williams cover the current state of the SBA 8(a) program, focusing on recent administrative challenges, fraud allegations, and the specific role of Alaska Native Corporations (ANCs).

An Open Letter to Sec. Hegseth

The SBA 8(a) Data Call and Data Security. The discussion begins with Christine describing the recent SBA 8(a) data call as “awful” due to a portal that was unequipped for large contracts, resulting in slow performance and timeouts. She expresses distress over an SBA proclamation that the submitted data was not proprietary, raising concerns about the protection of sensitive information and social security numbers. Sam notes the possibility of the SBA using third-party vendors like Palantir for forensic analysis, which raises further questions about data security for 8(a) participants.

Debunking Fraud and Misconceptions. The speakers address recent reports of fraud within the program, with Sam clarifying that actual fraud figures are significantly lower—estimated between $22,000 and $13 million—than the “click bait” figures of $550 million often cited. They emphasize that the 8(a) program is not a “giveaway” but is highly competitive, with some estimates suggesting four out of five firms never receive a contract award. To counter negative narratives, they highlight 8afacts.org, a resource that tracks the program’s significant economic and job impact across various congressional districts.

The Role of Alaska Native Corporations (ANCs). Christine explains the historical context of ANC participation in the 8(a) program, noting it was established through the Alaska Native Claims Settlement Act (ANCSA) as a negotiated exchange for land and pipeline rights. She highlights that the U.S. Supreme Court has affirmed the status of ANCs as tribal organizations entitled to self-determination. The speakers also discuss Alaska’s strategic military importance, noting that the state receives over $10 billion in defense money.

Demographic Shifts and Political Scrutiny. The conversation shifts to the 2023 change in SBA rules that removed racial presumptions for social disadvantage. This change has led to a 50% increase in participation by white male-owned firms and a high level of participation among service-disabled veterans. Despite these shifts toward objective standards, the program faces new scrutiny from the Department of War. Sam and Christine discuss a video by Secretary Pete Hegseth that targets sole-source contracts exceeding $20 million, a threshold that primarily affects ANCs and tribes. Christine warns that this targeted scrutiny could create a “chilling effect” for contracting officers, even though 8(a) sole-source awards provide unmatched procurement speed.

Proposed Reforms and Conclusion. In closing, the participants suggest several reforms to improve the program’s transparency and palatability:

Implementing electronic reporting systems for subcontracting compliance.
Developing a “TSA pre-check” style pre-vetting process for qualified firms.
Formalizing social disadvantage through objective standards like poverty levels in specific zip codes or veteran status.
Encouraging small businesses to adopt corporate compliance programs based on Department of Justice guidelines: https://www.justice.gov/criminal/criminal-fraud/page/file/937501/dl?inline=

The episode concludes with an emphasis on the lethality and efficiency that 8(a) firms bring to the government and a recommendation for listeners to use 8afacts.org as a resource for verified data.

About the Guest

Christine Williams is a principal at Outlook Law in Anchorage, Alaska. She was named one of America’s Top 50 Lawyers for her work on government contracts in Alaska. She is a fellow of the American Bar Foundation and a former adjunct law professor at Seattle University School of Law’s Alaska Campus.

Relevant Links

Outlook Law: outlooklaw.com
8a Facts: 8Afacts.org
An Open Letter to Sec. Hegseth (Holly MathNerd)

Holly’s Substack

3 months ago · 74 likes · Holly MathNerd

DOJ Evaluation of Corporate Compliance Programs: https://www.justice.gov/criminal/criminal-fraud/page/file/937501/dl?inline=

An Open Letter to Sec. Hegseth

This video is for informational purposes only and does not constitute legal advice.

How Hegseth's "sledgehammer" video could change control of the U.S. Senate

Sam Le — Wed, 21 Jan 2026 13:05:21 GMT

Just before the long weekend—that long weekend where 8(a) participants rushed to submit their data-call responses—Secretary of War Pete Hegseth posted a video committing to take a “sledgehammer to the oldest DEI program in the Federal government.” He was referring to the 8(a) program. That’s even though the 8(a) program is no longer a DEI program nor even all that old.

The most intriguing part of the video, though, was its timing. Secretary Hegseth published the video just days after former U.S. Representative Mary Peltola, a Democrat from Alaska, announced her run for the Senate. Peltola’s announcement pushed incumbent Dan Sullivan’s seat from “Safe Republican” into “Lean” territory. It created a path for control of the U.S. Senate in the 2026 midterms to go through Alaska.

And no companies receive more assistance from the 8(a) program than those in Alaska. Alaska Native Corporations win the most 8(a) contract dollars, and they win the largest 8(a) contracts. If the “sledgehammer” is wielded in the way Secretary Hegseth suggested—concentrating on large, sole-source contracts—Alaskan companies become the overwhelming target.

It’s now entirely plausible that the 8(a) program, though just 4% of Federal contract spending, could become a pivotal issue in a pivotal political race. That’s already part of the discussion. Bret Weinstein introduced Joe Rogan listeners to the 8(a) program in February last year. He observed on X that Hegseth’s video would “likely help Democrats win back the Senate.”

The reason for Weinstein’s prediction gets back to the first point: The 8(a) program isn’t DEI. Not anymore.

Mostly for ANCs, Tribes, and NHOs, plus veterans

The idea of a fast-track contracting method is older than SBA itself. What has changed is which firms can receive the contracts.

In 1942, when the Smaller War Plants Corporation was the precursor to SBA, the agency would find specific small-business manufacturers to supply the military. Those manufacturers could then receive direct, sole-source contracts through the SWPC. I have a favorite fun fact about the SWPC program: The small-business program was headed by pharmaceutical magnate Robert Wood Johnson. His family founded Johnson & Johnson and now owns the New York Jets.

Outside of wartime, though, the direct-contract program waned. The SBA was founded in 1953, but it didn’t use the program at all. The race riots of the late 1960s caused SBA to rediscover the authority. In 1967, the Johnson Administration brushed off the direct-contract authority to encourage Black entrepreneurship. Then Congress formalized the 8(a) program in 1978. It’s far from the oldest DEI program—that crown probably goes to FDR’s 1941 edict to end discrimination in the military.

But take a look at who the program most benefits today. It’s not Black business owners, or even minority-owned firms in general. It’s ANCs, Indian tribes, Native Hawaiian Organizations, and veterans. Those four categories together receive over 80% of the military’s 8(a) dollars:

Today, the 8(a) program is first and foremost a fast-track contracting method where Alaska Native Corporations, Indian Tribes, and Native Hawaiian Organizations can win contracts the fastest. After that, it’s veterans.

Outside of those four groups, Secretary Hegseth’s department spends only $2.5 billion with minority-owned contractors through the 8(a) program. That’s just 0.5% of the military’s budget. Put another way, people spent more on Labubu in 2025 than the Department spent with (non-veteran) minority-owned 8(a) firms.

Where the sledgehammer will land

Secretary Hegseth sounded most concerned with 8(a) firms acting as “brokers” for “giant consulting firms.” To address that, he ordered a line-by-line review of 8(a) sole-source contracts over $20 million.

Guess which companies have those contracts: It’s mostly Alaskan companies. Over the past two years, the military has awarded 207 8(a) sole-source contracts over $20 million. Alaska Native Corporations have over half of those, 104. Indian tribe-owned and NHO-owned firms have the other half.

Less than 10 percent of those $20-million-plus contracts are for consulting. That’s consistent with the concentration of the 8(a) program in general. Consulting isn’t a big part of the program. The top three industries in the program are construction, computer systems design, and facilities support. Consulting doesn’t crack the top three. So reviewing the contracts that involve giant consulting firms isn’t going to be hard.

Plus, the fact that Secretary Hegseth put consulting firms under the microscope likely means that big consulting firms will be increasingly wary of partnering with 8(a) firms. Consulting will become an even smaller part of the program.

What this talk of “brokers” misses, though, is the value that the 8(a) program adds in terms of speed and innovation. On her Substack, Holly MathNerd wrote a wonderful and comprehensive response to Secretary Hegseth’s video. The website 8A Facts goes even deeper into the value of the program. I can’t do the analyses justice, so just go read Holly’s piece and peruse 8aFacts.org. The most persuasive point I found in Holly’s piece is that 98% of the Department’s sole-source contracts go not to 8(a) firms, but to primes like Raytheon and Boeing.

Holly’s Substack

3 months ago · 43 likes · Holly MathNerd

The point I would add to 8A Facts and Holly MathNerd is that the sledgehammer’s force is not equally distributed. We’ve already seen the outsized effect on Alaskan companies. Another group with much to lose is white male-owned firms.

White men lose because SBA stopped applying racial preferences in 2023. Now, white men have exactly the same process to get 8(a) certification as other businesses. They must establish social disadvantage using a narrative that describes instances of discrimination. The discrimination could be the result of disability, religion, or a rural upbringing. Under the new process, white men have benefited to an enormous degree. Since 2023, the number of non-minority, male-owned 8(a) firms has jumped over 50%. Everyone else’s participation is virtually unchanged.

If I were a white man in the 8(a) program, I would be unusually dismayed by the Secretary’s actions. Only recently have white men had a fair chance of admission. They have just started to gain a foothold, but actually winning contracts takes more time. But now the Secretary has pulled the rug out from under them.

What contractors under scrutiny can do now

Secretary Hegseth did not provide a timeline for when the sledgehammer would strike. That makes it even more curious why his department published the video the same week as Peltola’s announcement instead of in, say, mid-November. But, while we await details about the review, there are a few things 8(a) companies can do now.

First, check whether you are on the $20-million sole-source list. I know that the Secretary said that they would review “everything smaller than that too.” But, if all contracts were undergoing the same scrutiny, there would be no reason to pinpoint a specific dollar amount. So we have to assume that the $20 million-plus contracts will undergo a special review.

Second, know your contracts’ NAICS codes. This is important not only for determining whether it is classified as consulting. It also determines what subcontracting pass-through limits apply to your contract, or if the nonmanufacturer rule applies. The nonmanufacturer rule is one of the more complicated rules in government contracting, as I wrote a few months back. If you have a supply or manufacturing NAICS, examine the application of the rule and whether a waiver was issued.

The nonmanufacturer rule puts additional regulations on small-business resellers that large businesses don't face

SBA doesn’t mess much with the nonmanufacturer rule, possibly because it’s one of the more complicated rules in small business government contracting. But SBA could be…

7 months ago · 2 likes · Sam Le

And, third, catalog your subcontractors—which you probably did during the data call—and apply the similarly situated-entity rule. That rule allows for unlimited subcontracting. There is nothing that prohibits an entity-owned firm from winning a large sole-source contract and then subcontracting entirely to another 8(a) firm. Secretary Hegseth and other critics might call that a “pass-through.” But it’s legal. If that’s a problem, Congress wrote the rule and can limit it.

Congress wrote these rules so that the military can move fast. Alaska Native companies—more than anyone else—have brought that speed. Now, Secretary Hegseth’s sledgehammer threatens that advantage. His stated purpose is to end a DEI program. But the 8(a) program as DEI doesn’t exist anymore. Whether the program should continue to exist at all may end up in the hands of voters, especially those in Alaska.

This article is for informational purposes only and does not constitute legal advice.

Transcript: Secretary of War Hegseth announces a "line-by-line" review of 8(a) contracts

Sam Le — Sat, 17 Jan 2026 01:42:21 GMT

Below is a transcript of the video that the Secretary of War Pete Hegseth posted on X and Facebook on Jan. 16, announcing the Department’s review of the 8(a) program.

When President Trump appointed me as your Secretary of War, I made you a series of promises. I promised that every single one of your taxpayer dollars would go toward one thing and one thing only: Building the most lethal fighting force on the planet. And I promised we would gut the corruptive unconstitutional, non-merit-based DEI programs that have weakened our military and distracted us from our primary mission.

I promised we would hunt down the waste, the fraud, and the abuse that is run rampant in this Department for decades, and to instead redirect that money to President Trump’s America First priorities. Well, today we are once again taking action on these promises. We’re actually taking a sledgehammer to the oldest DEI program in the federal government.

A program few people outside of Washington have ever heard of, that I hadn’t heard of. It’s called the 8(a) Program. Now, if you’re like me, you’re asking yourself what is an 8(a)? It’s a great question. 8(a) refers to the Small Business Administration’s program to assist small disadvantaged businesses owned by a socially disadvantaged individual or tribe.

End quote. Providing these small businesses with opportunities is a laudable goal, but over the decades, as it happens, the 8(a) program has morphed into swamp code words for DEI, race-based contracting. And 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. For decades, this program, 8(a), has been a breeding ground for fraud, and this administration is finally doing something about it. The Department of Justice under Attorney General Pam Bondi recently exposed half a billion dollars in 8(a) fraud. Treasury, led by Secretary Bessent, found another quarter billion, and their investigation is just beginning. Treasury, Justice, and the Small Business Administration under Administrator Loeffler are all actively investigating their 8(a) contracts right now. Now in the Pentagon, $100 million sole-source contracts go out the door to these 8(a) firms almost every day.

Hundred million dollar sole source contracts go out our door to these 8(a) firms almost every day. Without any competition or opportunity for anyone else to bid, the Department of War is required by law to do almost a hundred billion dollars worth of contracts per year with small businesses, including 8(a) firms.

Hmm. Seems 8(a) is quite important, but we’re not required to pay enormous brokerage fees only to have these firms pass those contracts along to giant consulting companies, and we won’t, we’re not doing this anymore. So effective immediately, I’m ordering a line-by-line review of every small-business, sole-source 8(a) contract that is over $20 million. And we’ll look at everything smaller than that too.

The Department of War has the biggest chunk of 8(a) spending by far, 10 times more than any other agency. So our cleanup. It’s gonna be 10 times tougher. It’s a two-stage mission. First, if a contract doesn’t make us more lethal, it’s gone. We have no room in our budget for wasteful DEI contracts that don’t help us win wars, period. Full stop.

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, and not just some shell company funneling your money to a giant consulting firm. This approach is, of course, not meant to hurt small businesses, and that’s not the point.

America’s full of great, amazing small businesses. This is part of a larger effort to transform our acquisition ecosystem into one that makes sense for the threats we face in the 21st century. I gave a long speech about this back in November. Our goal is to spend your money to build our defense industrial base with businesses large and small that share our mission not to line the pockets of beltway fraudsters.

Or to advance the agenda of DEI apologists. Only lethality, and we’re gonna look at every single contract.

The small-business M&A cliff should have never happened

Sam Le — Thu, 15 Jan 2026 19:08:00 GMT

Photo by Kevin Chen on Unsplash

Small businesses have one more day before the “M&A cliff,” the date that SBA set for changing the mergers-and-acquisitions rules. After that, mergers between a small business and a large business make the firm ineligible for new competitive set-aside awards, including task orders.1

The M&A cliff should have never happened.

Instead, SBA should have been clear all along about what happens when a large business acquires a small one. I bear some of the responsibility for that, since I was in charge of SBA regulations for most of this decade. But I’m glad that SBA provided the certainty that companies need to predict what will happen with their contracts. And, in the process, SBA also created some exceptions that small businesses can use to make themselves more attractive acquisition targets.

That said, I’m still shocked by how divergent the inside view of SBA’s regulations—the one that I held while the policy director there—was from the view on the outside. Before the change, Steve Ramaley and Damien Specht first explained to me how private lawyers read the M&A rules. I couldn’t fathom that anyone could read the regulations that way. And then I discovered basically all of the private bar interpreted them the same way as Steve and Damien.

So, from a personal standpoint, the M&A cliff is a reminder of my own revelation. The inside-government perspective can be wildly different from how people in most of the world see it. You can see that phenomenon elsewhere: the 8(a) program and Category Management, to name a few. It teaches the lesson that the government folks need to make a special effort to engage with the public. Sometimes, they aren’t even speaking the same language.

OHA: SBA's policy was “completely silent”

The saga of the M&A cliff starts with the Odyssey Systems case in 2021, from SBA’s Office of Hearings and Appeals, the agency’s internal adjudicatory body. Odyssey had protested the size status of Millennium Engineering for a small-business OASIS task order. Millennium had merged with a New York-based private-equity firm, Odyssey alleged. Odyssey had found this information in the private equity firm's press release, which is a common feature in these protests.

The question for OHA turned out not to be whether Odyssey was qualified for the OASIS task order. Instead, it was whether Millennium could timely protest Odyssey’s status at the time for the task order. Initially, the SBA area office—the decisionmaker that comes before OHA—had said no. The SBA’s Office of General Counsel agreed: No, there could be no timely size protest for this task order.

OHA agreed with both the SBA area office and the general counsel’s office. OHA decided that this wasn’t one of those rare task orders that met SBA’s standard for requesting size recertification. So, as with most task orders, a size protest could not be timely.

But OHA didn’t stop there. Odyssey had insisted that a merged firm couldn’t get a task order. So, in dicta (that is, language that doesn’t affect the ultimate holding), OHA stated that Odyssey’s argument would make SBA’s then-current M&A regulation “largely meaningless.” The logic was that, because the regulation discussed the consequence of the merged firm receiving an order, SBA must be assuming that merged firms can receive orders.

That last part, about the regulation being “largely meaningless” under Odyssey’s argument, made no difference in the final outcome of the case. OHA allowed SBA to dismiss the case as untimely; the “largely meaningless” language didn’t matter. But it would come to shape the caselaw in this area in a way SBA didn’t predict.

OHA applied that “largely meaningless” language in Forward Slope, decided in 2023. The facts were simple. Forward Slope had won the Navy’s Seaport-NxG as a small business. Then it was bought by a Texas-based private-equity firm. Less than a month after that purchase, Forward Slope bid for a set-aside task order that it won.

This time, SBA itself filed the protest. SBA protests are always timely, so that got around the timeliness issue from Odyssey. Yet SBA still lost. OHA cited the “largely meaningless” language from Odyssey and ruled that Forward Slope remained a small business on Seaport-NxG. OHA allowed Forward Slope—now owned by the Texas private-equity firm—to receive the set-aside award.

The Forward Slope case caught SBA’s attention, and matters reached a head in 2024. In two cases decided just two months apart, Saalex and Lintech, SBA’s general counsel’s office argued that OHA’s ruling couldn’t possibly be right. The policy was clear: “Large companies cannot buy into small business contracting and contracts,” the counsel’s office wrote. In one of the cases, the small business had been purchased by a global consulting/technology firm.

OHA rejected the SBA counsel’s arguments in both cases. In Lintech, the judge rebuked SBA on the notion that SBA had been “clear.” The SBA rule “is almost completely silent as to any effects of a merger or acquisition,” Judge Kenneth Hyde wrote (emphasis is mine).

To OHA, that “complete silence” meant that, contrary to the SBA counsel’s policy, large businesses could, in fact, buy into small-business contracts.

A new concept fills the silence

The complete silence lasted only three months. In August 2024, SBA unveiled a wholesale rethinking of the M&A rules. The new framework at section 125.12 consolidated rules from various parts of SBA’s rules and created a new concept: the “disqualifying recertification.” The disqualifying recertification could come at the end of the fifth year in a long-term contract, or at the request of a contracting officer. But, most commonly, it would result from a merger or acquisition.

Disqualifying, of course, means that the firm cannot receive new set-aside orders. In most cases, it can’t receive options on a set-aside multiple-award contract.

Importantly, the disqualifying recertification rule applies to new work. The acquired firm can continue to perform on any work it was already awarded. And, depending on how SBA’s 180-day rule applies, the acquired firm might even be able to receive an award for work that it bid on before the transaction.

SBA also solved the timeliness issue that blocked Odyssey Systems. A new protest rule allows a competitor to file after an order award.

During the public review process, some commenters hated SBA’s new “disqualifying recertification” concept. They complained that it would hurt small businesses’ acquisition value. They thought it would discourage growth.

In response to comments, SBA made several important changes to the final rule, published in December 2024. The first was that the rule would not apply to agreements in principle. The second was that it only applies to large-with-small transactions, not small-with-small.

And the third was that it wouldn’t take effect for 13 months, which is how we ended up with the M&A cliff ending tomorrow.

What mergers and acquisitions still qualify

The new disqualifying recertification rule doesn’t cover every situation. Damien Specht, Amy Fuentes, and I went over hypothetical scenarios for an hour for an American Bar Association event. We still left with unanswered questions. What happens if the firm can move over from a small-business pool to an unrestricted pool on the multiple-award contract after the acquisition? That’s an open question.

Some general principles are clear. First, a transaction between two small businesses doesn’t have the same consequences. There’s some nuance with this: What NAICS code do you use? What if there is another recertification after the small-with-small transaction? Some of the details may need to be worked out with SBA.

Second, and related to the first point, a transaction that does not result in a change in the business’s size isn’t disqualifying. In another section of the rules, SBA defined a “qualifying recertification.” That language is easy to miss. But it also encourages mergers between smaller firms.

Third, a recertification is required for a change in “controlling interest.” But what if there isn’t a change in the controlling interest? This issue is intertwined with SBA’s affiliation rules. In the same rule change in December 2025, SBA amended the affiliation rules to allow for more access to minority investments. The “controlling interest” test is consistent with opening up that access.

The big worry with tomorrow’s cliff is that, as commenters had suggested, firms’ valuations will be hurt. For individual businesses, that might be true. But the fact that a large-business-owned firm can’t compete for small-business set-asides isn’t the whole analysis. A presently small business will win instead. So the overall effect is mostly a wash. The dip in the larger firms’ valuations is offset by higher forward-looking prospects for smaller firms. (This would not be true, by the way, if the Rule of Two applies to task orders. But the new FAR Overhaul says it doesn’t.)

Ultimately, this cliff results from a forced choice between two valid goals: higher valuations for mature small businesses, and the integrity of small-business set-asides. This was more than a policy choice, though. The bigger problem with the cliff was the ambiguity that preceded it. The regulation should never have been, as OHA suggested, “completely silent.” But the agency wasn’t speaking the same language as the practitioners, and that caused a lot of confusion. So this cliff is a reminder that clarity is as important as the policy itself.

This article is for informational purposes only and does not constitute legal advice.

The rule actually refers to January 17, but that’s Saturday. (Specifically, the rule states that the transaction must occur “prior to” January 17.) At least it’s not a Federal holiday.

What SBA says it will do with the 8(a) data call (with Matt Schoonover)

Sam Le — Thu, 08 Jan 2026 20:29:36 GMT

Matt Schoonover and I got together this afternoon to discuss what SBA told the Office of Management and Budget about the 8(a) data call. Below is an auto-generated summary of our conversation. You can find the topic of our conversation, SBA’s submission to OMB, on reginfo.gov.

In this episode of GovCon Intelligence, Sam sits down with Matt Schoonover, a leading attorney in government contracting, to unpack the SBA 8(a) data call.

The conversation focuses on the data call issued by the SBA in December, which requires 4,500 firms in the 8(a) program to submit extensive operational and financial records by January 19th—a federal holiday. Bypassing standard public notice procedures under the Paperwork Reduction Act, the agency cited urgent concerns over “waste, fraud, and abuse” and the potential for evidence destruction as justification for the emergency measure.

Together, Sam and Matt analyze the regulatory filings that reveal the SBA’s rationale, the estimated $32 million compliance cost to small businesses, and a surprising statement regarding the confidentiality of the data collected.

Topics

Emergency Authorization: The SBA used emergency clearance procedures to fast-track the data collection, bypassing the standard notice-and-comment period. The agency argued that a public process could allow bad actors to “alter, destroy, or otherwise conceal” evidence.

The Cost of Compliance: The SBA estimates the total burden on the 4,500 respondents will be approximately $32 million—roughly $7,000 per participant. However, the hosts note that for less sophisticated firms or those with complex contracts, the actual costs could be significantly higher.

“No Assurance of Confidentiality”: Perhaps the most concerning discovery in the SBA’s supporting documents is a statement explicitly declaring, “There is no assurance of confidentiality.” This raises questions for contractors asked to hand over sensitive “secret sauce” data, including complete accounting ledgers, employee lists, and vendor details.

Fraud Narrative: The data call appears rooted in the SBA’s belief that the 8(a) program is riddled with waste, fraud, and abuse. Matt argues this premise undermines a program that has successfully fostered economic development for decades.

Social disadvantage focus?: Sam and Matt discussed SBA’s investigation into program compliance, focusing on potential issues with social disadvantage narratives and truthful representation in admissions. They speculated that SBA may be reviewing data to verify the accuracy of companies’ social disadvantage claims. Sam suggested that a permanent government-wide solution could involve implementing a system for companies to report their compliance with subcontracting limitations, as required by statute.

Format changes: Sam and Matt discussed changes between SBA’s initial data call draft and the final version, focusing on format requirements and data collection methods. They noted that SBA switched from requesting Excel files to CSV files, which Matt suggested could be intended to be more inclusive of non-Microsoft users or to facilitate easier analysis.

About the Guest

Matt Schoonover is the lead partner at Schoonover & Moriarty, a Kansas-based law firm specializing in federal government contracting for small businesses. He serves as a co-chair on the American Bar Association’s Small Business Committee.

Relevant Links

Schoonover & Moriarty: schoonoverlawfirm.com

This video is for informational purposes only and does not constitute legal advice.

Small business contracting dropped in 2025. Unless you were an 8(a).

Sam Le — Tue, 06 Jan 2026 19:02:19 GMT

Amid the “full-scale” audit of their program, there’s a bright spot for 8(a) contractors. The Federal government set a new record for spending in the 8(a) program in 2025, according to the latest SAM.gov data. In fact, SAM.gov currently reports that 8(a) spending was up 80%. But I’ll explain later on why the real increase was far less.

All other small-business contractors have reasons to worry, though. Spending with small businesses outside the 8(a) program went down. It was the first such decrease in a decade.

And the government likely missed the women-owned, HUBZone, and service-disabled veteran-owned small business goals. The miss on the service-disabled veteran-owned goal is concerning. It will be the first time since 2011 that the Federal government has not met the goal for service-disabled veteran-owned small businesses.

All this comes from SAM.gov data, the official repository for Federal contracting data. (In 2026, SAM.gov is going to replace FPDS, which is where I have always gotten my data.) SAM.gov now includes all transactions from fiscal year 2025 after a 90-day delay. The SBA won’t publish the final data for several months, however. And there are good reasons for that. Agencies are still revising and updating their FY25 numbers. As we’ll see, that’s the difference between a $1.5 billion increase to the 8(a) program and a massive $20 billion increase.

8(a): speed over policy

Since inauguration, the 8(a) program has been in the cross-hairs. First, SBA announced that it was lowering the goal for small disadvantaged businesses from 15% to 5%. The SBA’s press release suggested that the agency believed that the goal was for the 8(a) program specifically. It’s not. But regardless, the lowered goal has the rhetorical effect of showing SBA’s shift away from supporting the program against attacks.

And then came the audits and investigations. First, SBA announced the full-scale audit. Then YouTube personality James O’Keefe found 8(a) contractor personnel willing to talk about pass-through contracts that may or may not be illegal. So the Department of the Treasury and then SBA itself went further with the audit. Now all active 8(a) firms have to respond to SBA by January 19th—a Federal holiday—with 13 sets of documents.

The 8(a) program was historically the SBA’s program for minority-owned businesses. It still reads as the program for Minority Small Business and Capital Ownership Development in the legal text of section 8(a). So there are lawsuits from conservative interest groups. One is seeking Supreme Court review. Another is still pending in Tennessee, and a third was recently filed in Louisiana. To me, the lawsuits don’t make much sense. The program no longer has any preferences for minority-owned businesses. The Louisiana case doesn’t even involve a Federal contractor; it challenges a small program run by Tulane University for Tulane alums. But the target is the 8(a) program.

The same reason that the 8(a) program is accused of being susceptible to fraud is why it remains as strong as ever. The program is fast. Unlike all the other SBA programs, the 8(a) program has an expedited sole-source award feature. Most 8(a) firms can receive sole-source awards up to $5.5 million. Firms owned by Alaska Native Corporations, Indian tribes, and Native Hawaiian Organizations have higher thresholds—up to $100 million in most cases.

In this contracting environment, the speed of the 8(a) program is its saving grace. The Federal government has a lot of money to spend at the end of the fiscal year. In 2025, it had more than usual because of DOGE-related contract terminations, a late Congressional budget, and fewer contracting officers on staff. That made all the difference for 8(a) firms. Agencies spent more money with the 8(a) program in the fourth quarter of FY25 than in any other three-month period in the program’s history. That led to the best year ever for the program.

The current SAM.gov data shows an unbelievable 80% increase in 8(a) contracting in 2025. That’s $20 billion more than 2024.

But it really isn’t to be believed. Just last week, a single agency—the State Department—reversed $19 billion of its 8(a) contracts from 2025. The reversal might be because of the latest actions from SBA and the Senate Small Business Committee. Or it might just be a strange accounting issue. (More specifically, it looks like State might have incorrectly entered an IDIQ maximum as an obligation, and then it fixed the mistake.) I’m not certain whether SBA will report the final figures with the $20 billion increase or not. Without the State Department’s reversed contracts, the increase was only $1.5 billion, just 1%. Either way, with a record-breaking year amid all the hubbub, the 8(a) program remains the big story in government contracting.

2025 wasn’t so good for everyone else

The 2025 data doesn’t show many bright spots outside of 8(a). Women-owned contracting was way down. That program will probably have its lowest percentage in a decade, well short of the 5% goal.

HUBZone will almost certainly miss its 3% goal again. And, if you don’t count the State Department’s reversed contracts, the HUBZone program will break a nine-year streak of year-over-year increases.

The worst result comes from the service-disabled veteran-owned small business program. SDVOSB contracts dropped to 4.7% in the current data, over $2 billion short of the 5% goal. Agencies will miss the governmentwide SDVOSB goal for the first time since 2011. The goal was raised to 5% in 2024, and agencies met that handily last year. There was even some talk about raising the goal even further. But now, agencies can’t even get to the existing goal. So I don’t know how raising the goal would do any good.

SDVOSBs got less money where it counts the most. The top three agencies for SDVOSBs—VA, Defense, and DHS—all spent less with that category percentagewise.

So 8(a) spending was up, and SDVOSB’s was down. SBA would like the story to be the reverse. SBA’s Veteran Day press release was about pulling resources from the 8(a) program over to SDVOSB certification. But this is another case of circumstances overcoming policy. The decrease in SDVOSB contracting results from the government’s shift away from value-added resellers and toward OEMs. The biggest NAICS industry by far for SDVOSBs is 541519—the code that covers value-added resellers. (By contrast, in the 8(a) program, the biggest industry is construction). So if the government is going to spend less with resellers, that means spending less with service-disabled veteran-owned firms.

As for small businesses in general, the long-running trend of less accessibility continued. In my preliminary figures, the number of small businesses participating in prime contracting dropped 8% to 56,000. New entrant small businesses fell to 8,200, the lowest figure since 1989. I wrote about why contracting is becoming less accessible, and why the FAR Overhaul makes the situation worse in a piece a few months ago:

Contracting has a new-entrant problem. The FAR Overhaul made it worse.

The Berlin Wall fell in 1989. That was a pivotal year in world history for several reasons: protestors filled Tiananmen Square and communist governments fell in E…

6 months ago · 5 likes · 1 comment · Sam Le

If I were to pick one type of contractor that I would have wanted to be in 2025, it would be a Native-owned 8(a). They were the best-off group in the best-off program. Native-owned 8(a) firms—comprised of firms owned by Alaska Native Corporations, Indian Tribes, and Native Hawaiian Organizations—won 65% of 8(a) dollars in 2025. That’s up slightly from 2024’s figure of 63%, and the largest proportion to Native-owned firms in the program’s history. Just 10 years ago, Native-owned firms received $6 billion in 8(a) contracts. Now, at $17 billion, it’s almost triple that.

This shows the government wants to buy faster

The story behind the story for 2025 was speed. Faster contracting is why the FAR Overhaul took a hatchet to Part 13 and elevated Part 12. It’s why DoD is shifting to commercial buying. And it’s why the 8(a) program had its best year yet.

Last year was supposed to be the year of consolidation. The biggest policy emphasis from the FAR Overhaul was consolidating contracting, both to GSA and with best-in-class vehicles. But the data shows a tension between speed and consolidation.

Consolidation took a backseat. The GSA Schedule had its first decline ever, according to the SSQ+ dataset that begins in 1997. As fast as the Schedule might be, it isn’t as fast as 8(a) sole sourcing.

Prior to this year, the Category Management program had been slowly making inroads. For a brief period, the highest level of managed contracts—the so-called Best-in-Class contracts—was going to be mandatory for agency use. The FAR Overhaul drafters reversed that decision. But they still emphasized that best-in-class was “prioritized.”

Agencies didn’t get that message. The use of best-in-class contracts fell to its lowest level since 2022, and the government fell well short of its 13.6% best-in-class goal. With an even higher level of Category Management on the horizon—the forthcoming “required use” designation—it’s not certain that best-in-class will survive the next few years.

Source: GSA Data to Decisions (1/6/26)

To me, the data shows that—despite policy uncertainty—things aren’t as different as you might expect. The FAR Overhaul might have cut 20% of regulatory text, but, so far, it hasn’t actually revolutionized much. SBA took aim at the 8(a) program. But the program has withstood the challenge so far. And Best-in-Class has not taken over the world. If anything, agencies are actually moving away from consolidation.

The takeaway from all this is that speed matters most—more than consolidation and more than new FAR Overhaul policies. My experience is that small businesses in the SBA programs are the best at mobilizing and executing quickly. That will be their best selling point for 2026 and beyond.

This article is for informational purposes only and does not constitute legal advice.

Closing out 2025 with 8(a) audit questions and a FAR Overhaul update

Sam Le — Fri, 19 Dec 2025 21:40:28 GMT

Below is an auto-generated summary of a live video.

I’m back with another live Substack video. This is probably going to be our last post and video of the year. That’s my plan, unless something crazy happens in the next couple of weeks, like the SBA just ends the 8(a) program. So hopefully this will be the last video of the year.

It’s been a big year for GovCon Intelligence. We’re going to end the year with 1,600 subscribers. We started just on July 9th of this year, and this is the 38th post in the six months that we’ve been in operation. So I want to take this opportunity to thank everybody that subscribes for reading, for watching, following, commenting, et cetera. Thank you so much for your comments, your questions, and your feedback. It really means a lot to me.

I look forward to 2026. I’m committed to continuing to bring all of you expert analysis, unique insights, and especially the data and the context that you need. There’s just so much happening in government contracting; it’s hard to keep up. This newsletter helps you to do that. With that, I’ll go on to updates, questions, and cases. We actually have a few people joining us live, so feel free to put any questions that you have into the chat.

The 8(a) Fraud Debate and Senate Hearings

First, I want to go over the article that I posted earlier this week about the amount of confirmed fraud in the 8(a) program. The article was stating that the amount of confirmed fraud is barely enough to buy a Toyota Corolla. The point of the article was to respond to, in part, and analyze the Senate hearing that took place the week before about fraud in SBA programs and to get some context behind the big 8(a) audit that everybody in the 8(a) program is going through.

The fraud that could bring down the 8(a) program wasn't for millions. It was $22,000.

Participants in SBA’s 8(a) program now have less than three weeks to respond to SBA’s sweeping audit letter. The letter accuses the 8(a) program of being “a vehicle for…

4 months ago · 6 likes · 4 comments · Sam Le

Additionally, at the same time, there were letters that went to 22 federal agencies giving examples of what the Senate chair called fraud or abuse of SBA programs. In looking through some of those examples, it looked like they were primarily about NAICS code compliance. A few of them were about the LOS (Limitations on Subcontracting).

In my view, complying with the NAICS code rules is, first of all, complicated. It has some exceptions, but not complying with it, to me, would not be fraud. That’s really an SBA responsibility rather than the company being responsible for that.

Nuances of Limitations on Subcontracting (LOS)

On LOS, I’ve said it several times in articles, but I’ll say it again: there are exceptions to LOS. That is a very nuanced rule. There is the “similarly situated entity” exception. There’s also consideration for mixed contracts. So if you have a contract that combines both supplies and services, you don’t have to comply with the LOS for both of those. You comply with one or the other, and the one that you’re not required to comply with can do what you want. There’s not an LOS that applies to that.

ATI Government Solutions and SBA's Limitations on Subcontracting

I’m going to assume that readers have heard of or even seen the YouTube video that led to SBA suspending ATI Government Solutions from government contracting last week. My big admission f…

5 months ago · 7 likes · 1 comment · Sam Le

Additionally, companies that are in a MPA (Mentor-Protege Arrangement) have a different calculation for LOS.

SBA Audit Updates and FAQs

The big update from this week was that SBA published an FAQ and sent out a notice to all the companies that received the 8(a) audit letter. First, the deadline for the audit has been extended by two weeks to January 19th. Second, they clarified some points in the original audit letter. You can find the FAQ at the SBA Atlassian website.

The big questions they answered include:

Fiscal Year: They clarified it is the participant’s fiscal year you are responding to, not the Government Fiscal Year.
Sub-ledger Schedule: Item number 13 in the audit letter asked for a “sub-ledger schedule,” a term SBA seemed to create out of thin air. They clarified that if there is no sub-ledger, you just provide a brief explanation and attest to its absence.
Revenue History: For firms without a history of revenue (likely entity-owned firms as most 8(a) firms need two years of business for “potential for success”), they should submit a statement attesting to this.
MySBA Certifications: The Certify system is being phased out for annual reviews and these submissions. Instead, it goes to MySBA Certifications. You must create an account and claim the business to respond to this data call.

The FAR Overhaul

We also have the FAR overhaul. That was the big news for 2025. The drafters issued the PDF version this week; it is about 1,600 pages. We went from 2,000 pages to 1,600 pages—a 20% decrease. Some of that shifted over to the Companion Guide and supplementary materials, but it’s still a drop.

Acquisition.gov sent out an email about a new FAR online course and an IdeaScale site for feedback. However, this is not the official regulatory notice and comment period yet. Under Supreme Court precedent, agencies must respond to significant comments filed during the official period. They do not have to respond to feedback on IdeaScale. I will let everyone know when the official period starts.

Regulate First, Listen Later: The FAR Overhaul's Procedural Problem

With the Supreme Court being asked to review the 8(a) program—though SBA filed yesterday in opposition—I wondered what the justices might think of the FA…

4 months ago · 2 likes · 2 comments · Sam Le

Q&A Session

Q: Can you “stack” the 40% rule for JVs on top of LOS?

In an SBA Joint Venture under a Mentor-Protege arrangement, the protege must perform at least 40% of the work done by the JV. If the JV is performing a services contract where the LOS requires the prime to do 50%, the protege’s 40% of that 50% equals 20% of the total contract. This is technically legal if structured correctly. While the audit letter doesn’t focus heavily on JVs, I wouldn’t be surprised if SBA scrutinizes them more in the future or seeks regulatory changes to prevent this 20% minimum.

Q: Is the ultimate intent to do away with set-aside programs?

During the Senate hearing, some witnesses called for the elimination of all set-aside programs. I think that is the wrong approach. You can limit sole source awards without affecting set-asides. Research shows there is often more competition on small business set-asides than on full and open competitions because small businesses feel they have a realistic chance of winning against similar companies rather than Large Businesses.

Q: Is there rampant fraud in the 8(a) program?

Neither the GAO (Government Accountability Office) nor the SBA OIG (Office of Inspector General) has done a comparative assessment of fraud rates across different groups. While there is some fraud, the 8(a) program may actually have less fraud than what occurs in private contracting or newer authorities like CSO (Commercial Solutions Opening) or OTA (Other Transaction Authority).

Q: How do you challenge a Social Disadvantage narrative?

The process is unclear. SBA determines if an individual experienced discrimination, but it’s not necessarily their core competency. There is a process in the FAR for challenging Small Disadvantaged Business status, but it rarely happens and there isn’t a robust adjudication process for it.

Q: Will the audit uncover LOS violations?

I don’t know that the questions SBA is asking will allow them to uncover LOS violations accurately. LOS is a product of the NDAA of 2013 and is very nuanced. You have to look at “similarly situated entities,” mixed contract types, and profit retention. Looking at accounting data for 4,300 submissions is likely not enough to make a resolute decision on LOS compliance.

Caselaw update

GAO: Certificates of Competency (COC) and Binary Choices

The Government Accountability Office (GAO) recently issued a notable case regarding the Certificate of Competency process. This process is triggered when a federal agency finds a small business to be “non-responsible”; the agency must then refer the matter to the SBA, giving the business a chance to appeal.

In this case, the Army evaluated a company, C-Slope, and assigned it a “Satisfactory Confidence” rating for past performance. C-Slope protested, arguing the Army should have referred the evaluation to the SBA under COC procedures.

The Rule: SBA rules require a COC referral for “responsibility-type” determinations, such as a Pass/Fail or Go/No-Go evaluation.
The Ruling: GAO denied the protest. It ruled that the Army’s evaluation was not a binary choice. Because the evaluation included multiple possible ratings (Substantial Confidence, Satisfactory Confidence, and two levels below that), it did not act as a “non-responsibility” determination.
Key Takeaway: If an evaluation isn’t a simple “Pass/Fail,” agencies generally do not have to refer the matter to the SBA for a COC.

COFC: The “Once 8(a), Always 8(a)” Rule and Coordination

The Court of Federal Claims (COFC) addressed the “Once 8(a), Always 8(a)” rule, which states that if a requirement is accepted into the 8(a) program, its follow-on must remain there unless the SBA specifically releases it.

This case focused on the definition of “coordination” with the SBA when an agency decides a requirement is “new” (and therefore exempt from the follow-on rule).

Context: The National Institutes of Health (NIH) determined a requirement was “new” rather than a follow-on due to:
1. A 77% price increase over the prior contract.
2. The addition of significant AI-related tasks that didn’t exist in 2019.
The Ruling: Judge Ryan Holte ruled that the NIH and SBA had sufficiently “coordinated.” The agency sent the determination to the SBA, and the SBA confirmed via email that it was a new contract and no release was required.
Key Takeaway: Informal “back and forth” communication (like email confirmation) can satisfy the SBA’s requirement for agency coordination on new requirements.

SBA OHA: Ownership Changes and “Gaps” in Eligibility

The SBA Office of Hearings and Appeals (OHA) looked at a status protest involving Service-Disabled Veteran-Owned Small Business (SDVOSB) eligibility during complex ownership transitions.

The protester argued that Caduceus was ineligible because of a 12-day gap during a multi-step transaction where shares were sold back to the company before being sold to a second veteran owner.

The Ruling: Judge Christopher Holloman denied the protest. He found that the firm was qualified at the time of the offer and remained eligible after the transaction concluded.
Key Takeaway: Minor administrative gaps in documentation during a multi-step ownership change do not automatically cause a firm to forfeit its status.

Criminal Case: 8(a) Fraud and the “Unconstitutionality” Defense

A case in the Middle District of Pennsylvania involved an alleged $80 million conspiracy to defraud the 8(a) program.

The Argument: The defendants tried to have the indictment thrown out by citing the Ultima Services case. They argued that if the 8(a) program’s use of “presumptions of social disadvantage” is unconstitutional, then they cannot be prosecuted for violating its rules.
The Ruling: The judge rejected this. He stated that even if certain entry rules for the program are unconstitutional, individuals still cannot engage in fraudulent conduct to gain access to it.

GAO: SBIR Phase III Sole Source Authority

GAO clarified the limits of Small Business Innovation Research (SBIR) Phase III awards, which allow for sole-source contracts. The case was Bode Technology.

ICE awarded a Phase III contract for rapid DNA testing. A protester argued it was improper because the contract included commercially available items and lacked a high proportion of original SBIR research.

The Ruling: GAO upheld the award. It confirmed that Phase III work only needs to derive from, extend, or complete prior SBIR efforts.
Key Takeaway: There is no “price test” or specific percentage of research required for a Phase III award; if it relates to the prior technology, the sole-source authority stands.

GAO: 8(a) Eligibility and GSA MAS Pools

This case called The Building People involved the GSA Multiple Award Schedule (MAS) 8(a) Pool.

The Scenario: The Department of Energy asked the SBA for an eligibility determination for an order off the GSA 8(a) pool. The SBA found the firm ineligible. The firm protested, saying the agency wasn’t even required to ask the SBA for a determination for a competitive order.
The Ruling: GAO ruled that while the agency might not have been required to check with the SBA, nothing prohibited them from doing so. Once the SBA declared the firm ineligible, the agency was right to deny the award.
Key Takeaway: GAO will not overturn an agency’s decision to deny a contract if the SBA has issued an underlying determination of ineligibility.
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This video is for informational purposes only and does not constitute legal advice.

The fraud that could bring down the 8(a) program wasn't for millions. It was $22,000.

Sam Le — Tue, 16 Dec 2025 14:14:07 GMT

Photo by Clementine on Unsplash

Participants in SBA’s 8(a) program now have less than three weeks to respond to SBA’s sweeping audit letter. The letter accuses the 8(a) program of being “a vehicle for institutionalized abuse at taxpayer expense.” As a result, the 4,300 participants must submit 13 categories of financial documents by January 5. One of the documents—a “sub-ledger schedule”—isn’t even a typical accounting report. Most of the Google hits for the term “sub-ledger schedule” point back to SBA’s letter. (One of the unexpected benefits of running a law office is that I’ve become really familiar with small-business accounting.)

Meanwhile, on Capitol Hill, the Senate Small Business Committee held a 90-minute hearing about fraud in SBA programs. The Chair introduced a “Stop 8(a) Contracting Fraud” bill to suspend the program while SBA conducts the audit. The primary witness, Luke Rosiak, called for ending all set-aside programs—not just the 8(a) program—because they are “vulnerable to corruption.” Another witness went even further. John Hart of Open the Books said the U.S. Small Business Administration shouldn’t even exist. We should “return business to business,” Hart testified. Committee Chair Joni Ernst replied, “That is pretty profound.”

It’s now a very real possibility that Federal agencies may reduce or even stop the use of the 8(a) program, based on this aura of fraud and corruption. Ernst wrote letters to 22 agency heads requesting that they pause all 8(a) sole-source contracting. SBA already has the playbook for slowing the program to a trickle: It can pull the 8(a) partnership agreement, as it did for USAID earlier in the year.

You would think, then, that this massive audit, Congressional inquiry, and talk of corruption are premised on hundreds of millions, or even billions, of dollars in fraudulent in 8(a) contracts. They’re not. There’s one contract. It was worth $22,000.

The $22,000 sole-source contract at the center of the scandal

But what about the “$550 million” in fraud that SBA Administrator Kelly Loeffler cited in ordering a “full-scale audit” of the 8(a) program? Go back and read the DOJ’s June press release closely: The $550 million figure refers to government contracts, not 8(a) contracts.

The company at issue in the fraud, Apprio Inc., reportedly bribed a USAID contracting officer to win the contracts. The bribes included cash, laptops, and NBA tickets, totaling $1 million in value. In exchange, the USAID contracting officer, Roderick Watson, reportedly funneled sole-source 8(a) contracts to Apprio. Watson pleaded guilty and is awaiting sentencing.

When Apprio graduated from the 8(a) program in 2015, the scheme allegedly shifted to using another 8(a) firm, Vistant. Vistant would then subcontract to Apprio.

Apprio has received $262 million in Federal contracts, and Vistant has received $221 million. So that’s within the range of that $550 million figure. But very little of that was from 8(a) contracts. An even smaller amount was on 8(a) sole-source contracts from USAID, where Watson worked. Of the $262 million to Apprio, only $22,244 was awarded by USAID to Apprio using the 8(a) program. That all came through a single contract:

The $22,000 contract to Apprio (FPDS.gov)

That $22,000 contract to Apprio was for a website to be used by USAID lawyers. Apprio would “create a fully-functional internal intranet website accessible to USAID’s attorneys in USAID’s Office of the General Counsel.” I remember trying to procure a similar website when I was an attorney with SBA’s Office of General Counsel. The price does not sound outrageous. If USAID had bought monthly Clio subscriptions for 100 lawyers instead, that would cost roughly $10,000 per month. And the Apprio contract was probably for a perpetual license.

Even if USAID lawyers didn’t get the website at the end of the $22,000 contract, it’s not a huge amount of money. It’s about the cost of a new Toyota Corolla.

All the other contracts to Apprio—the company at the center of the scheme—were with other agencies or outside of the 8(a) program. Based on its settlement—Apprio paid $500,000—Apprio was a bad apple. But it couldn’t have used the 8(a) program for “institutionalized abuse.” The USAID 8(a) contracts were less than 0.01% of its contracts.

Vistant paid $100,000 to settle its allegations. Vistant has more 8(a) contracts at USAID to its name: four altogether. But three of those were competitive 8(a) contracts. The DOJ allegation was that Watson, the USAID contracting officer, was able to steer contracts to Apprio “without a competitive bid process.” So the competitive contracts aren’t the fraud. It’s questionable that bribing a contracting officer would help a company win a competitive award. As most people in contracting know, an agency’s contracting officer usually awards to the company selected by an evaluation panel of program officials.

That leaves one remaining USAID contract to Vistant. That contract, a $13 million award from June 2020, was coded by USAID as an 8(a) sole-source contract. But I’m not sure that it was actually an 8(a) contract.

For individual-owned 8(a) firms like Vistant, 8(a) sole-source awards are capped at (back then) $7.5 million.1 The only way that Vistant could have received a $13 million sole-source award—almost double that threshold—was to be a Native-owned firm (it’s not), or for USAID and SBA to jointly determine that Vistant was the only 8(a) contractor available to do the work. That determination is extremely rare. Of the 9,000 sole-source contracts to individual-owned 8(a) firms in fiscal year 2020, the contract to Vistant was the only one across all Federal agencies that exceeded $7.5 million at award. That’s right: Vistant’s was one out of 9,000. So it was an exceptionally strange contract, a data-entry error, or—just as likely—a strange consequence of that weird early COVID period.

And, even if the unusual $13 million sole-source contract was fraudulent, it wasn’t because of the Biden Administration. In 2021, the Biden Administration started raising the contracting goal for small disadvantaged businesses, first to 11% and then eventually to 15%. Ernst suggested that Biden’s goal increase led to “exploitation by wrongdoers.” But Vistant’s $13 million sole-source contract was awarded by USAID in June 2020, at the tail end of the first Trump Administration.

So I’m skeptical that Vistant’s was actually an 8(a) contract. But maybe it was. If Congress wants to address fraud of this sort, it should ban sole-source contracts to individual-owned firms above the sole-source threshold. That process is in section 8(a)(1)(D)(i)(I) of the Small Business Act. The repeal would have virtually no impact on how the program operates. I found only 39 awards—out of 215,000—that met the same criteria: 8(a) sole source to an individual-owned firm above $7.5 million at award. It’s not a common thing.

Let’s assume that the $22,000 contract and the $13 million contract were both fraudulent 8(a) contracts.2 That doesn’t make the 8(a) program a “fraud magnet.” The total amount of the Apprio fraud was $550 million. The 8(a) sole-source portion of that was $13.022 million, or just 2%. Since the 8(a) program is 4% of government spending, proportionately fewer 8(a) contracts were a part of the bribery scheme. For more about why the 8(a) program is actually less susceptible to fraud, see Holly Mathnerd’s excellent deep-dive:

Holly’s Substack

When the Watchmen Lie

A few days ago, the Daily Wire shit the bed so badly it almost made me cry. I used to be a member — I joined in support of their fight against vaccine mandates — and up until now, I was a fan…

4 months ago · 80 likes · Holly MathNerd

If the numbers don’t show widespread fraud, why is this scandal threatening to end the 8(a) program?

Why ATI Solutions might be compliant

The immediate answer is that the James O’Keefe video also suggests 8(a) fraud. In the video, an employee of ATI Government Solutions states the company does “about 20%” of the work on 8(a) contracts. SBA recently stated in a press release that the video represents “mounting evidence” that the 8(a) program is “a pass-through vehicle for rampant abuse and fraud.”

Yes, if true, 80% of pass-through works seems like a lot. But it’s not necessarily fraud. It struck me, when reading initial reports about the video, that the figure the employee cited was oddly precise. That number, 20%, represents the minimum amount that a small business can do legally through a mentor-protégé joint venture. SBA rules allow the joint venture as a whole to do as little as 50% of the work of a services contract. Then the small business can do as little as 40% of the work of the joint venture. You can stack those minimums, so the minimum legal amount of self-performance is 40% times 50%, which equals 20%.

ATI Government Solutions could also have complied with the rules against pass-throughs by using the “similarly situated entity” rule. That allows an 8(a) firm to subcontract to other 8(a) firms without the work counting against the maximum subcontract limit. These subcontracts are quite common. And that’s even more the case with a Native-owned firm like ATI. Individual-owned 8(a) firms can’t access high-dollar sole-source contracts, so they can team with Native-owned firms to perform larger sole-source opportunities. That is all legal too.

I’d be surprised if a sophisticated contractor like ATI wasn’t doing one of those things: mentor-protégé and subcontracting to other 8(a) firms. That doesn’t mean that ATI wasn’t also doing something wrong. But the 20% number by itself does not categorically equate to fraud. Maybe it is shocking to the conscience. In that case, though, the solution is to change the rules—raise the protégé’s required work or restrict the use of similarly situated entities. Don’t punish the company for abiding by the rules.

If 20% can be legal, there has to be something more. There could be a concerted scheme, as with Roderick Watson. The facts haven’t come out yet. But it already sounds like the Senate Committee and SBA have made up their minds.

The focus on Indian Americans

So what is this really about? The Senate hearing on Wednesday raised an intriguing possibility: The opponents of the 8(a) program don’t want Indian Americans in the program. I hadn’t remotely considered this, but the first witness went on and on about how “Indian Americans are the wealthiest demographic in America with a higher median income than whites.” He said, “Indians have never been underrepresented in the field of IT; they’re actually overrepresented in that field.”

Rosiak even named a specific 8(a) owner and the location of the owner’s house. Rosiak described the owner’s house. He showed a photo of the house. At an open Senate hearing!

The allegation from Rosiak was that “people from the country of India gobble up a lion’s share of 8(a) contracts.” That’s not true, by the way. Black-owned firms receive more in 8(a) contract dollars than South-Asian-owned firms ($2.6 billion vs. $2.3 billion in 2024). And they both receive far less than firms owned by Alaska Native Corporations, Indian Tribes, and Native Hawaiian Organizations. Together, those three categories receive over 60% of 8(a) dollars.

And, even if Indian-American-owned businesses were receiving a disproportionate share of 8(a) dollars, one owner’s large house isn’t fraud. In fact, the 8(a) program encourages this. By law, all 8(a) owners must be “economically disadvantaged.” This means their calculated net worth and total assets must be less than legal thresholds. But, in the 8(a) statute, Congress forbade SBA from including the value of the owner’s primary personal residence in the calculation. This encourages successful 8(a) owners to pump earnings into their homes. Other successful business owners might buy art, fund college savings, or invest in rental properties. Owners of 8(a) firms that do that risk their economically disadvantaged status. So they buy bigger houses and renovate them. There’s nothing fraudulent about a small-business owner having a big house. Remember the Chris Rock joke?

This isn’t the only recent issue involving Indian Americans to be politicized. The New York Times recently reported on Nalin Haley, Nikki Haley’s son, calling for a complete ban on H1-B visas. Between two-thirds and three-quarters of H1-B visas go to workers from India. Nikki Haley’s parents immigrated from India. But 8(a) participation can’t be based on visas. By law, all 8(a) owners must be U.S. citizens. That includes the owner named in Rosiak’s testimony.

The bigger point about Rosiak’s testimony is that it revives the practice of putting 8(a) owners into racial groups. This is a form of, as Noah Smith called it, racial collectivism. SBA doesn’t do it anymore. After the Supreme Court’s college-admissions ruling, SBA stopped automatically qualifying owners based on racial status. (SBA was following a directive from a lower court that found the practice unconstitutional.) Now, all current and future 8(a) owners have to submit a narrative. The narrative explains how the owner, as an individual, experienced discrimination. The narrative process—which the Department of Transportation recently adopted for the state-level DBE program—gets the Federal government away from treating people as members of groups. Instead, the narrative treats the owners as individuals. The business owner that Rosiak named had to submit a narrative, describing incidents of discrimination. SBA found the narrative compelling enough to allow his firm to continue in the 8(a) program, based on the owner’s individual circumstances.

Maybe in the future, admission to the 8(a) program can be more closely tied to the program’s goals of business growth and community development. It seems strange to me that SBA—the government agency tasked with supporting small businesses—is deciding who has suffered discrimination and who hasn’t. So the narrative process isn’t perfect. It’s probably an interim solution while lawmakers decide on the future of the program.

That future is less bright today than it was a few months ago, with this ongoing audit and the Congressional letters. The audit is very likely to find something; as Dean Jessica Tillipman and I recently discussed, business owners might not fully understand how these complex rules work (though, in some cases, the rules can work in their favor, such as with the similarly situated-entity rule). The audit might find fraud. But, so far, the total amount of confirmed 8(a) fraud is barely enough to buy a Corolla.

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This article is for informational purposes only and does not constitute legal advice.

The cap is lower for services contracts—now $5.5 million. The Vistant contract at issue was a services contract, with the NAICS for Administrative Management and General Management Consulting Services.

Valuing the fraud at $13 million is an overstatement because it accounts for the full value of the initial award. The allegation is that Apprio steered subcontracts to itself through Vistant. The value of Apprio’s subcontract was only $1.4 million.

What SBA is probably looking for in the 8(a) audit

Sam Le — Fri, 05 Dec 2025 20:27:28 GMT

This is an auto-generated transcript of a live video.

It’s a snowy Friday here in the DC area, and I’m going live on Substack this afternoon to talk about the 8(a) audit letters that went out to all SBA 8(a) participants today. (Credit to Piliero Mazza for posting excerpts of the letter on its website.)

It’s December 5th, and the audit letter asked for a response with CSV and PDF files within 30 days. So we’re talking about January 5th, 2026. Merry Christmas and Happy Holidays from SBA to the 8(a) participants. I did hear from one graduated firm that said that they received a letter as well. So it’s not just current 8(a) firms, but potentially graduated firms.

This letter follows up on an announcement that SBA made back in June that it was going to conduct a full-scale audit of the 8(a) program after the Department of Justice uncovered a bribery scheme that involved the USAID (U.S. Agency for International Development). The announcement about the full-scale audit said that SBA would go back over 15 years to look at the 8(a) program.

Fortunately, the letters that went out to 8(a) firms did not ask for 15 years of information. For the most part, they’re asking for the last three fiscal years of information. That would have been a lot for SBA to go through; there are over 4,000 8(a) participants. Even with three years’ worth of data, there are 13 points in the letter that SBA is asking for. It’s going to be a considerable amount of documentation that SBA receives from 8(a) firms, potentially as early as January 5th.

It’s not clear whether SBA will entertain requests for extensions from that. It’s obviously a busy time of the year, not just the holidays, but the end of the calendar year as well. So it’s going to be quite a challenge for the firms that receive this request from SBA to put all of this information together.

I’m coming online to talk about five areas that I think SBA is going to look into when it receives this documentation.

Audit Focus Areas

The five areas are:

Limitations on Subcontracting
Compliance with the Mentor-Protégé Program
Excessive Withdrawals
Benefits Reporting for entity-owned firms
Indications of Bribery or Kickbacks

I’ll go through each of those one by one.

1. Limitations on Subcontracting

First, the limitations on subcontracting. This is an issue that I went into with the ATI Government Solutions video. That’s really the video, the circumstances, that has pushed SBA to send out this letter.

ATI Government Solutions and SBA's Limitations on Subcontracting

I’m going to assume that readers have heard of or even seen the YouTube video that led to SBA suspending ATI Government Solutions from government contracting last week. My big admission f…

5 months ago · 7 likes · 1 comment · Sam Le

As a recap, there was a YouTube video from James O’Keefe that involved an 8(a) contractor, an entity-owned contractor named ATI Government Solutions. In the video, the employees of ATI Government Solutions stated and alleged that there were potential pass-throughs that could have happened , that up to as little as 20% of the work on 8(a) contracts allegedly was being performed by ATI Government Solutions.

The reason 20% is a concern is that’s lower than the limitations on subcontracting for most contracts. The limitations on subcontracting rule requires that on 8(a) contracts, the company that receives the contract perform at least, for most contracts, 50% of the work by its own employees or with similarly situated entities. For an 8(a) contract, a similarly situated entity is another 8(a) firm.

That rule is a different percentage for construction contracts. For general construction contracts, it’s 15%. For specialty trade construction, it’s 25%. So you could go lower than 20% on a general construction contract. And also, it counts similarly situated entities as similar to the prime contractor performance. In the example of ATI Government Solutions, if ATI Government Solutions was subcontracting some of its work to other 8(a) firms (which might include individual-owned 8(a) firms), then that work done by the other 8(a) firms would count toward that 50% limit.

How do you find out which percentage applies to your contract? It depends on the NAICS code. You have to look at the NAICS code of the contract. That’s why SBA is asking for a copy of the 8(a) contracts as well as the subcontracts. They want to see the NAICS code to see which of the limitations on subcontracting percentage counts for that contract.

One area that was interesting that SBA asked for was lists of employees. Part of the reason that SBA is probably asking for a list of employees is that it’s looking at whether you might be counting independent contractors toward your performance. Independent contractors, under the limitations on subcontracting, do not count as your employees. They are counted as subcontractors for the purposes of limitations on subcontracting.

In some of the other programs, like women-owned, service-disabled veteran-owned, those independent contractors might count as similarly situated identities. That’s not going to be the case in the 8(a) program because you’re not going to have an independent contractor, usually a 1099, that’s going to be certified into the 8(a) program. So if you have a 1099, that 1099 counts as a subcontractor, not an employee, per SBA regulations, 125.6.

The point of the request for, say, the general ledger, the copies of the contracts and subcontracts, and the employee list, a lot of that is going toward looking at the limitations on subcontracting and particularly looking at whether the 8(a) firm might have been used as a pass-through, similar to the concerns that are coming out of that YouTube video. SBA is looking at whether this 8(a) firm is being used as a front for a subcontractor, maybe even a large business, in order to get access to sole source contracts.

So that’s number one, the limitations on subcontracting. That’s probably the number one thing that SBA is looking for, and a lot of that concern is because of the videos on ATI Government Solutions.

2. Mentor-Protégé Program Compliance

The second area that SBA is probably looking into is the Mentor-Protégé Program. The Mentor-Protégé Program allows a small business, in this case an 8(a) firm, to partner with a mentor, which can be a large business. The performance of that large business mentor counts as a small business contract performance. That large business mentor gains access to small business contracts and even 8(a) contracts through the Mentor-Protégé Program.

After 27 years, SBA's Mentor-Protégé Program faces another overhaul

8 months ago · 2 likes · 1 comment · Sam Le

But there’s an important compliance requirement in the Mentor-Protégé Program: it’s the 40% rule. The 40% rule says that 40% of the aggregate work of the mentor and protégé together must be performed by the protégé. So you take all the work done by the mentor and all the work done by the protégé, add that together, and 40% of that work must be done by the protégé. There’s additionally a requirement that the protégé’s work not just be ministerial or administrative.

SBA is asking for general ledgers, trial balances, and copies of subcontracts. It seems like part of that would allow SBA to calculate for 8(a) firms that are protégés whether that mentor-protégé relationship is complying with the 40% rule. The 40% rule is a rule that considers whether work is being done by that entity or by its employees. Here again, if you have 1099s, those are going to be considered subcontractors, which will be outside of the work being done by the mentor-protégé, not work being done by the protégé toward that 40% rule.

Another thing to think about on the 40% rule is whether the mentor has affiliates. The mentor’s share, when you’re aggregating the mentor and protégé work together, includes any affiliates of the mentor. So oftentimes, if you’re working with a large business, they’re going to have different divisions, different subsidiaries. If those subsidiaries and divisions are affiliated with the mentor, then that counts toward the maximum 60% that the mentor would be able to do in a mentor-protégé relationship.

I’ll just note also, though, going back to the ATI solution, that this 40% is on top of the 50% limitation on subcontracting that goes into services. So, in a services contract, if there’s a mentor-protégé joint venture (in the 8(a) program or not, but let’s say it’s an 8(a) joint venture that wins that contract), the 8(a) firm can actually do as little as 20% of that contract. So when you heard in the ATI Government Solutions videos that ATI was doing 20%, that can be completely legal and compliant with SBA’s rules through a mentor-protégé relationship.

The reason is that the joint venture itself can do as little as 50% of the contract under the limitation on subcontracting. They can subcontract out 50%. And then the protégé in that joint venture can do as little as 40% of that 50%. When you combine those two percentages, you just multiply them, and you get 20%. So it’s possible on a services contract, which still has a 50% limitation on subcontracting, that the 8(a) firm, in a mentor-protégé joint venture, can do as little as 20% of the contract.

SBA is looking for the documentation that would show in some of those admittedly surprising cases whether it might actually comply with SBA’s regulations. That’s why they’re asking for the copies of the subcontracts, general ledger, and employee lists.

3. Excessive Withdrawals

Number one and number two were limitations of subcontracting and the Mentor-Protégé Program. Number three is about excessive withdrawals.

Every 8(a) firm is subject to a limit on excessive withdrawals. This is in 13 CFR 124.112(d), and it gives a chart as to what is considered to be excessive withdrawals:

(i) $250,000 for firms with sales up to $1,000,000;
(ii) $300,000 for firms with sales between $1,000,000 and $2,000,000; and
(iii) $400,000 for firms with sales exceeding $2,000,000.

Excessive withdrawal could be anything from a cash dividend, distribution in excess of what’s needed to pay S-Corp or partnership taxes, cash and property withdrawals, payments to immediate family members that aren’t employed by the company, bonuses, and investments on behalf of the owner.

If the SBA finds that funds or assets have been excessively withdrawn, and the withdrawal was detrimental to the achievement of the target’s objectives and goals in the participant’s business plan, SBA may initiate termination, early graduation, or require a reinvestment of funds or other assets. SBA can probably look at your general ledger, which is being asked in this 13-point item, to see whether there were withdrawals that went to the owners that would be deemed excessive per that schedule.

4. Benefits Reporting for Entity-Owned Firms

The fourth area that this audit request seems to be getting at is benefits reporting for entity-owned firms. That’s for 124.604, and that’s specifically for firms that are owned by Alaska Native corporations, Native Hawaiian organizations, and Indian tribes.

There is a case out there involving a Native Hawaiian firm where it’s suspected that some of the owners are taking excessive amounts from the firm that should have been going to benefits for the Native organization, the Hawaiian community, or the Alaska Native community or the tribal community. Firms report on their benefits to their community on an annual basis to SBA. Using some of the material that SBA is collecting from entity-owned firms, SBA could look further at whether those benefits are actually being distributed to the communities or perhaps whether they’re being diverted for the use of individuals or officers of the firm.

5. Bribery or Kickbacks

Finally, number five is looking at whether the documents show bribery or kickbacks.

The USAID situation that led to the program audit involved a bribery scheme. The Department of Justice disclosed a scheme and came into a settlement agreement with a number of companies where a contracting officer, a USAID contracting officer, pleaded guilty to bribery. The press release from the Department of Justice stated that the USAID contracting officer was listed as an employee of the 8(a) firm. It said the “bribes were often concealed through electronic bank transfers falsely listing Watson on payroll.” Watson was the USAID contracting officer.

It could be the case that, through the review of employee lists and payments, that there may be uncovering of or a thought to try to uncover additional schemes similar to this.

There’s also a law about subcontractor kickbacks: the Anti-Kickback Act. The law says that it’s illegal for subcontractors to provide payments in the form of kickbacks to prime contractors in order to receive subcontracts. That may be another area that SBA is looking through, and you’d be able to find that through some of these documents that are being submitted to SBA.

Wrapping up

The big concern I think now for 8(a) firms is just getting these documents together. But additionally, you really do have to be thinking about what is SBA going to be reviewing in these documents? What sort of areas is it looking to?

If you’re not able to comply with some of these requirements, like limitations on subcontracting or the 40% rule, SBA has stated that it could result in the firm not being eligible for continued participation or additional remedial action. And then if it rises to the level of that USAID scheme, it could be that SBA gets the Department of Justice involved in a criminal or civil capacity, too.

Happy holidays to everybody. Best of luck in responding to this SBA inquiry.