Nancy Mace was the first Republican woman elected to the U.S. Congress from South Carolina. She got to Washington by starting her own public-relations business, then getting into political journalism. Now, from inside the institution, Mace is reporting on the misogyny in Congress and its Republican leadership.

“Women will never be taken seriously until leadership decides to take us seriously, and I’m no longer holding my breath,” Mace wrote in The New York Times in December.

Since then, Mace was the first legislator to call on Eric Swalwell to resign over sexual misconduct allegations. Last week, CNN reported that Mace had uncovered over $500,000 in Congressional sexual harassment settlements, paid for with taxpayer dollars.

The misogynists in Congress are now coming for government contractors. There are 22,486 contractors in SBA’s women-owned small-business program. Now opponents in Congress want to eliminate the program entirely. The bill—the Ending Discrimination in Government Contracting bill—would even stop SBA’s reporting on contracts to women-owned small businesses.1

So far, the bill hasn’t gained much traction. The only Senate sponsor is Mike Lee, the senator from Utah who single-handedly blocked creation of a Smithsonian women’s museum. On the House side, the lone sponsor is Wisconsin Representative Glenn Grothman.

Grothman is an ardent opponent of Federal programs for women, advocating for a “way back to where America was in the 1960s.” He opposes women’s equal pay because “you could argue that money is more important for men.”

These aren’t legislators who just want to level the playing field between women-owned small businesses and other contractors. They don’t want women-owned small businesses to exist at all. And they’re using the current anti-DEI fervor to push an anti-women agenda. That’s the Congress that Nancy Mace warned us about.

How the WOSB program differs from DEI

The organization behind the Ending Discrimination bill is the Pacific Legal Foundation. PLF discussed its reasoning in National Review last week: “The same constitutional principle that forbids racial preferences in college admissions forbids them in awarding a bridge construction contract,” wrote Maddie Salamone, PLF policy counsel. That “constitutional principle” refers to the Supreme Court’s decision in Students for Fair Admissions. The problem with PLF’s reasoning, though, is that the decision only addressed racial preferences. Sex-based programs, like the WOSB program, haven’t been struck down.

PLF is out on its own. When the Trump Administration banned “DEI discrimination” by Executive Order, it only banned “racially discriminatory DEI activities.” The White House hasn’t come for the WOSB program. In fact, SBA Administrator Kelly Loeffler defended the importance of women-owned businesses during her confirmation hearing:

Senator Markey. Do you believe supporting women-owned businesses is DEI?

    Senator Loeffler. Senator, I’ve never said that. Senator, I can assure you that I will uphold the law. I was a women-owned business. I had a majority, minority women-owned business for a decade. I understand the importance of it.

The PLF article also ignores that the WOSB program is uniquely designed to survive Constitutional challenges. The drafters of the WOSB program learned from affirmative-action rulings from the late 1990s, like Adarand v. Pena. The WOSB program operates only in specific industries where SBA has found women-owned small businesses to be “substantially underrepresented.” (Set-asides for economically disadvantaged women-owned small businesses are authorized for industries where WOSBs are merely “underrepresented.” Those set-asides are rare.)

There are no WOSB set-asides for interior design, for example, because SBA hasn’t deemed that industry to be one where women-owned businesses are underrepresented. Same for plumbers, electricians, and dentists. WOSBs aren’t underrepresented in those industries either.

SBA updates the industry lists every five years. The most recent list from 2022 included 733 NAICS codes. That means almost 300 industries are excluded from the program.

The Federal government has achieved the goal of awarding 5% of contracting dollars to women-owned small businesses only twice: in 2015 and 2019. (The Ending Discrimination bill would end that goal.) The number of WOSB set-asides is far fewer than the set-asides in SBA’s other socioeconomic programs. In 2025, there were only 566 new set-aside awards using women-owned small-business set-asides. All the other programs were in the thousands.

Based on this data, it seems like agencies look at the WOSB program last. That might be because SBA has had a long backlog of certification applications. So the number of certified WOSBs is about a third fewer than certified service-disabled veteran-owned firms. In the draft House Appropriations report on the FY27 appropriations bill, the committee expresses “concern” over “a months-long backlog of applications” for WOSB certification.

It’s also because of the industry restriction, though. The FAR requires contracting officers to check SBA’s list to see whether the contract is in an authorized industry. That’s an extra step that isn’t required for the other programs.

Additionally, in the past WOSB set-asides haven’t been conducted on multi-agency contracts. The 8(a) program has 8(a) STARS, and the service-disabled veteran program has VETS. Both are huge governmentwide contracts that are available to all agencies. But there isn’t a governmentwide contract for WOSBs. That is changing, though. Both the OASIS+ and Polaris multi-agency contracts have WOSB pools.

The low number of WOSB set-asides also partially explains why the program hasn’t been reviewed—let alone struck down—by the courts. There just aren’t enough contracts to draw attention from conservative groups, other than PLF. And it’s hard to find a male-owned business that has standing to bring a lawsuit based on losing a contract.

The attack on a growing program

This existential threat comes just as the WOSB program is having its best year ever. The program is on pace to award the most set-asides in its history. Agencies are moving away from 8(a) sole-source awards, and the women-owned program is the biggest beneficiary. WOSB set-asides are up 60% from last year to this point, the largest increase for any set-aside program:

Even with that 60% increase, the number of WOSB set-asides (213) to date is still a small fraction of service-disabled veteran-owned set-asides (1,889) or small business set-asides (7,558).

And remember that WOSB set-asides are only authorized in NAICS codes where women-owned small businesses are substantially underrepresented. Service-disabled veteran-owned set-asides, on the other hand, have no such restriction. Of the 32,000 certified service-disabled veteran-owned firms, only 15% identify as women-owned. So, as the SDVO continues to outpace the women-owned program, women-owned firms become even more underrepresented.

On a broad basis, you can see the underrepresentation in the headline numbers. Women own 40% of U.S. businesses, but the Federal contracting goal is 5%. Even then, the government hasn’t met the 5% goal in six years.

That analysis compares the share of businesses to the share of dollars, which isn’t really fair. A fair assessment is better. Women-owned small businesses represented 20% of the small businesses that won government contracts in 2025. That percentage—20% to women—has gone virtually unchanged in 15 years. But it’s still half of 40%.

So, if women own about half the share of small-business contractors as they do of businesses generally, why do members of Congress want to eliminate the WOSB contracting program?

It probably won’t pass—at least this year

Marjorie Taylor Greene, the former MAGA Republican from Georgia, delivered a stark assessment of Congressional leadership on her way out. “They want women just to go along with whatever they’re doing and basically to stand there, smile and clap with approval, whereas they just have their good old boys club,” Greene told the Atlanta Journal-Constitution.

That “old boys club” oversaw a 119th Congress that, for the first time since 2016, had fewer women than the Congress before it.

To me, that explains why the Ending Discrimination bill would kill the WOSB program. Research from Jonathan Brogaard of the University of Utah closely links the election of female legislators to new contracts for women-owned small businesses. “Female political representation causes an increase in government contracts allocated to WOBs,” Brogaard and his collaborators concluded.

As Congress has become more male—both in its full composition and at the leadership levels—it appears more willing to lump WOSB preferences into the broad category of “discrimination.” Senator Lee and Representative Grothman introduced a bill together two years ago, the Ending Racism in Government Contracting bill. But it didn’t have WOSB in it. The Ending Racism bill would have removed racial preferences from the 8(a) program. It gained eight cosponsors in the House. It wouldn’t have touched the WOSB program.

Now in 2026, with PLF’s support, Lee and Grothman added the elimination of the WOSB program and renamed the bill “Ending Discrimination.” They timed the bill to be introduced in the midterm election cycle. Evidently, they thought it might find support with voters. There’s some support for that. I talked with Jayna Rust about how even Democratic Party voters disagree with their party’s stance on government-contracting preferences.

But that voter preference was specifically about contracting programs based on race. Programs based on sex haven’t faced the same backlash. Part of the reason for that is, in other contexts, the preference works in the opposite direction. Colleges heavily recruit men, who apply and enroll at lower rates than women. Colleges would “skew to 65 percent female overnight,” if those programs ended, said Ted Mitchell of the American Council of Education, in an interview with the Washington Post.

It’s hard for me to see how, in a midterm election year, killing a program with just 500 set-aside contracts a year—less than 1% of all contracts—could be a winning issue. Small business owners tend to lean Republican. Why antagonize 40% of business owners over 1% of contracts?

For that reason, I don’t see the Ending Discrimination bill passing this year. It hasn’t gained any cosponsors. The bill wasn’t referred to the Senate Small Business Committee and hasn’t been docketed for a hearing.

Legislators who support small businesses would be better off spending their time on the Protecting Small Business Competitions Act. That bill would preserve the small-business Rule of Two. The Rule of Two requires agencies to set aside a contract for small businesses if at least two are competitive. The bill could be marked up by the House Small Business Committee as early as today.

Next year is not an election year, though. And PLF appears bent on taking down the WOSB program. So expect the bill to come up again. Nancy Mace, a former WOSB owner herself, is running for South Carolina governor, so she won’t be in Congress anymore. The future of the WOSB program will be up to the “old boys club” or the legislators who replace them.

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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. His website is www.samlelaw.com.

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

Links discussed

Scott Flesch bio (Miller & Chevalier)

Intervention Download: Why Offerors Must Prepare for Bid Protests

Executive Order: Promoting Efficiency, Accountability, and Performance in Federal Contracting

FAR Council Memo: Agency Implementation of Executive Order 14398, Addressing DEI Discrimination by Federal Contractors

Life Sciences Logistics LLC v. United States (Court of Appeals for the Federal Circuit)

Global Connections to Employment, Inc. v. United States (Court of Federal Claims)

Noblis MSD, LLC v. United States (Court of Federal Claims)

Revelations Counseling and Consulting LLC v. United States (Court of Federal Claims)

CSlope Solutions LLC (GAO)

Timestamps

Introduction and the Value of the ABA Public Contract Law Section 00:00:00

The Shift Toward Fixed-Price Contracts 00:03:20

Dealing with Ambiguous Requirements and Bid Protests 00:09:58

Navigating the DEI Executive Order and False Claims Act Risks 00:14:37

Understanding CICA Stays at the GAO 00:23:27

CICA Stay Overrides 00:29:33

Procedures at the Court of Federal Claims 00:38:28

The Role of Intervenor’s Counsel in Bid Protests 00:41:12

The Noblis Case and Pleading for Injunctive Relief 00:50:32

Choosing Between the GAO and the Court of Federal Claims 00:53:21

The Revelations Case and Limitations on Subcontracting 01:00:44

The Certificate of Competency (COC) Process 01:05:23

Conclusion and Contact Information 01:10:20

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Transcript

Introduction and the Value of the ABA Public Contract Law Section

Sam: Welcome back to GovCon Intelligence. My guest today is Scott Flesch. Scott, welcome to the program.

Scott: Sam, it’s a pleasure to be here. Good to actually sit down with a friend. I do consider Sam a friend. I knew him when he was in the Small Business Administration when I was in the Army. You’ll hear a little bit about that. But it’s personally rewarding and professionally rewarding to keep in touch with Sam. He is brilliant on small business issues, and I have gone to him several times.

Sam: That’s very nice of you. Yes, we’ve had great collaborations. Scott is a member at Miller & Chevalier in Washington, D.C. He’s a longtime government contracts litigator—one of the best, if not the best, I would say. Former bid protest chief and then chief trial attorney for the Army. He advised the Army and several DOD contracting entities on contract matters, policy, and litigation. Scott was a former adjunct professor at Catholic University’s Columbus School of Law. He’s a U.S. Army veteran who served on active duty in a reserve capacity and as a government civilian attorney for the Army for over 25 years. And you’re now the current secretary of the Public Contract Law Section for the American Bar Association, and that means you’re going to be president soon, right?

Scott: A couple of years. My sentence is over in about four years.

Sam: How’s it looking so far?

Scott: Oh, it’s fun. For those folks that know a little bit about the American Bar Association, it is a valued asset. It is a collegial space for attorneys, especially in the procurement sectors, to get together, compare ideas, utilize each other for expertise referrals at times, but just to comfortably get together and talk about the hard issues. And this past year has been chock-full of significant changes that really drive the conversation for us to help our clients, but also compare ideas. It’s definitely like a box of chocolates every week. And the one thing that our clients do want is consistency in our advice. The problem is keeping tabs on all the changes in order to give them competent advice of the day and how that translates into their long-term strategic plans, their budgeting, and their business development goals. And we’re going to talk a little bit about an executive order and a FAR deviation that could impact whether or not they choose to get into the federal side or continue to, because it is challenging.

It can also be rewarding. Government contracts help serve a number of purposes. I’ll get on my high horse a little bit about just federal procurement law. But you want to distribute wealth, and that is federal government contracts. The wealth is distributed not only to larger businesses, but small. And the more diverse, in fact, that the contractor base is, the healthier the economy is. The healthier the industrial base is, the more capability it gives to the Department of War or Department of Defense. And so you do want to encourage businesses to participate in the federal procurement system, and you do that through transparency, through fairness, and predictability, and that leads to increased competition, lower prices, and better quality. It’s when that entire process gets disrupted that lawyers, unfortunately, have to get involved for these clients. They have to spend money at times, and it can chill their interest in proceeding and taking on risk. So that’s going to permeate some of the discussion today, I think.

The Shift Toward Fixed-Price Contracts

Sam: That’s a really good and important point about the business aspects of government contracting. There are some companies that are 100 percent government contracting, and they know the game very well. But what the government really wants are companies that might be in the commercial space and coming into government and finding a welcoming environment there. So on that note, we saw an executive order come out at the end of last week—I think it might’ve been on Friday of last week—about mandating fixed-price contracts and preferencing fixed-price contracts. Agencies have to write a justification if they move away from that, either to time and materials, labor hour, or cost reimbursement. What are the legal issues in that executive order? And then how do you think it’ll affect this welcoming environment for commercial contractors?

Scott: I think the best term of art I’ve heard, and I use too, is that it was a little bit of a nothing burger. The federal government has always consistently preferred fixed-price contracting, and that is an allocation of risk. On a firm-fixed-price contract, the government is able to offload substantially the amount of risk towards performance and cost to a contractor. At the same time, a contractor doesn’t want to absorb all the risk, and they like those sorts of contracts at times, if in fact the requirement and the facts call for it, to structure it to shift that risk back to the government.

This is a criticism of mostly cost reimbursement type contracts. Cost contracts are usually very large in dollars and in complexity. But the reason it normally is a cost contract is because it’s hard to define the exact requirements as well as all those factors that are influencing the requirement and the ability to perform. Think war zone, contingency operations, research and development. And so in order to incentivize those contractors from getting into that space and participating and making the investment, the government takes on a little more risk on cost contracts. They’re going to pay all reasonable, allocable, allowable costs, plus a fee. And so the government usually pays more and takes on more risk. The contractor’s risk is minimized.

But the government’s trying to get away from that because these contracts are extremely costly and burdensome to administer because there’s a lot of cost accounting that goes into them. They take years to close out. They’re complex. And that’s why you don’t see a lot of small businesses in the cost space—because they don’t have the infrastructure for it. They don’t have certified cost and pricing teams and auditors, and they don’t want to be in that business. They want to be more commercial-like.

And so this is consistent. It’s a nothing burger really, because the government’s just reinforcing the preference towards fixed-price contracts. That’s where commercial vendors reside mostly. And the risk is on the contractor to keep quality up but prices down. That’s what the government wants. And they don’t have to take on all the overhead of cost and accounting teams and certified pricing and costing data. It keeps it simple.

However, there’s another piece of that preference to fixed-price contracts in the executive order that I don’t know if it’s been fully thought through yet, and we’re going to see when the DFARS provision gets issued how it’s going to be implemented, and that is firm-fixed-price contracts or performance-based metrics type contracts.

Sam: What does that mean?

Scott: Good question. We’re going to see in the DFARS provision. But what it normally means—FAR Part 6 lists out all these different types of contracts. Firm-fixed-price is in there, cost is in there, but also incentive-based contracts. Even incentive-based firm-fixed-price contracts. And what it is, is just you have the firm-fixed-price, but you add another element to it that if a contractor—it could be goals, performance; it’s very subjective, but you lay that out in the actual contract, in the agreement with the parties—achieves those milestones, they’re owed an additional fee.

With that comes surveillance, potentially submission of a request for the incentive fee, proof that you’ve earned it, and possibly a fight and dispute. And that can be quarterly, that could be annually. It’s dependent on how the contract is structured. So if you really want to get away from complex contracting and go back to firm-fixed-price, but then you have this other potential of performance-based metrics type contracts, it’s not really simplifying at all.

Another example is award fee type contracts. Award fees, those are, again, you’ve got a fixed price that a company will perform for, but then the ability to effectively earn more if they achieve certain metrics. There’s an award fee plan. There’s administering that plan. There’s submission that I achieved these goals and a fight over that. And again, it could be quarterly or whatever the contract is agreed to. That is very administratively burdensome and not simplified.

I understand shifting the risk to firm-fixed-price contracts. The administration is all about making contracts more commercial-like, and that is a good goal. You want to make the contracting process easy and familiar, especially to small companies and vendors. You want them to participate to, again, control costs and improve competition. But at the same time, if the company’s risk is higher because they’re not sure they’re going to actually meet those performance-based metrics and take a loss, it could be a disincentive for some, it could be an incentive for others, but it’s not simplified.

Sam: Yeah. When I was in government, we didn’t do many incentive-based contracts because you’re working off of annual appropriations, and you have to obligate that at the time that you award the contract. So when you get down to the point of providing that incentive, the government has a big encouragement to provide the incentive, because otherwise they can’t take it back. It’s not like a private company where you can take the money back and shift it over to another contract. You’ve already obligated that ahead of time. So I wonder if they solve that issue as they come through, that if you deny them the incentive, what are you going to do with that money? You can’t go back and obligate it on another contract.

Scott: The interpretation of fiscal rules these days, we know, are under stress, for lack of a better term. But you’re right. Those types of contracts, they do have to obligate, but they’re always going to have it being subject to the availability of funds clause. And so a contractor is not going to go into that sort of contract knowing that all dollars will be available throughout the period of performance, and so it increases their risk.

Dealing with Ambiguous Requirements and Bid Protests

Sam: The other thought on fixed-price contracting, you mentioned this with the cost reimbursement, is for those cost reimbursement contracts, they’re not particularly well-defined. So if the government really is going to shift cost reimbursement to fixed-price or time and materials, labor hour to fixed-price, they have to define the requirements better than what they’ve been doing. And that’s difficult to do when you have a contracting workforce that has left because of DRP or has just undergone attrition. What is a contractor to do when it gets a fixed-price solicitation and doesn’t understand what the requirements are?

Scott: This is definitely a two-part problem. One is literally in the bidding stage, the formation of the contract. And we’ll talk about existing contracts that may be converted in a moment because that’s another issue. So at the formation stage, when a business is looking at a solicitation, it’s structured as a firm-fixed-price opportunity. And they’re reading the requirements and the statement of work, whatever it’s called. Agencies call them different things. But those are the requirements, right? It specifies literally what you have to do. It should tell you what the limitations are. It should say what the government’s expectations are as well.

And if there’s ambiguity in what the government’s even asking for, how do you price that? How do you build a team? How do you recruit personnel? How do you potentially get financing for it? Because some of these are privately financed, and companies may not have that kind of capital. And that is going to be difficult when you do have a lot of the infrastructure on the acquisition side that has eroded over the years, this year especially, and they’re not putting forth very clear, concise, measurable, and achievable requirements. Number one, it’s a disincentive for businesses to step in to the extent that maybe the government’s asking for too much and/or too much risk to be absorbed by a contractor.

Contractors these days should be very loath to just assume, “I’m going to make it up on the back end.” Especially if the requirements are crystal clear what they had to do. It’s that ambiguity that becomes a problem. If you don’t know what the government is actually asking for, what the expectations are, what you have to do to perform and succeed, you’ve got a couple of choices. You can take on that risk and assume you’re going to perform well and the government’s going to like it. Some businesses may assume that they’ll make it up through change orders and requests for equitable adjustment later if the government issues directions that change the requirement, but then you maybe have a fight over whether there’s a change.

But what you can do upfront, and what I advise businesses do all the time, is if there is a clear ambiguity, we call that a patent ambiguity. That is something that on the surface a reasonable contractor would see as a disconnect from the requirement, something that’s fuzzy, they can’t tell what it means. They have to, and should, take advantage of the bid protest process and issue an agency-level protest, a protest at the GAO, or you could go to the Court of Federal Claims. But you see a lot of solicitation challenges at the Government Accountability Office (GAO).

And the timing on that is very important. You’ve got to submit that protest, even just seeking clarity if the agency’s refusing to clarify via the Q&A system, or their response is just a disconnect from what the requirement actually says, which happens sometimes too. You’ve got to submit that protest before the deadline for receipt of bids and proposals. If you wait past that, you’re going to be untimely at the GAO, you’re going to be untimely at the agency, and you’re likely to be untimely at the Court of Federal Claims.

Sam: And we see that a lot with post-award protests too, where the GAO says, “Oh, you should have... This was a patent ambiguity. You should have protested it back before bids were due during the solicitation stage.”

Scott: Yeah. The only ambiguities that can be raised in a timely fashion at the GAO and the courts is a latent ambiguity, something you could not have reasonably anticipated until another issue pops up. The agency said something more. There’s a post-award direction that makes you say, “Wait a minute. This is different than what I understood, and I could not have reasonably anticipated the agency’s reasoning. They didn’t elaborate in a Q&A. They didn’t tell us otherwise. This has created what we see to be now an ambiguity in the solicitation that is latent, not patent.” I didn’t know, I didn’t have a reasonable expectation, or I could not reasonably see that there was vagueness or ambiguity in the solicitation terms. You can raise that, but you better raise it within 10 days of when you knew or should have known. Else you’re also going to be untimely at the GAO.

Navigating the DEI Executive Order and False Claims Act Risks

Sam: Speaking of ambiguities, I think there’s an ambiguity here in the executive order that came out on racial discrimination in government contracting. The deviation has now come out from the FAR Council. They did it in less than thirty days. They had thirty days to do it. They beat that, which was surprising. And then agencies presumably will start implementing that deviation into their contracts soon. And then they’re supposed to go back and modify previous contracts. There’s a whole schedule for that. But there’s this question, if you have this clause in your prime contract of what to do with subcontractors. So tell me a bit about that, about this reasonably knowable standard that they have for subcontractors, and what is a prime contractor expected to do to oversee its subcontractor’s compliance with that new FAR deviation clause?

Scott: I think this leads us to go back in time a little bit, about a month from now, roughly. On March 31st, 2026, President Trump issued a new diversity, equity, inclusion related executive order titled Addressing DEI Discrimination by Federal Contractors. This follows a number of other executive orders in play addressing what the government believes to be illegal DEI. This one clarified it a little bit more and talked about the illegal activity, as applied to contracts, which is racially discriminatory DEI activities in a very broad sense. But it does go further and define racial discriminatory DEI activities as disparate based on race or ethnicity in the recruitment, employment, meaning hire and promotions, contracting, program participation or allocation, or deployment of an entity’s resources.

It goes a little further to define program participation as membership or participation in, or access or admission to, training, mentoring or leadership development programs, educational opportunities, clubs, associations, or similar opportunities that are sponsored or established by the contractor or subcontractor. And so it raises a whole host of questions about, okay, we now have a definition, but that is extending to the company’s activities, programs, clubs, and associations. Okay, what does that mean? It’s where they expend resources, okay? Program participation is a little bit broader. If the company actually spends its resources on those that meet that definition, it could effectively violate this executive order, not that it’s criminal or civil in and by its nature. But now we’ve got these deviations which are going to implement these new clauses in contracts.

Originally, the executive order talked about contracts in the future, new contracts. However, we now have guidance and a deviation that’s going to implement it in existing contracts by the end of the year, and a FAR clause that’s going to be in all new contracts within the next thirty days. And this flows down. This creates an obligation for the primes to monitor their subs, and for the subs to also follow this new deviation via contract. And why it’s also significant is it’s going to require the companies to acknowledge that the government’s payment on the contract is tied to this. And if a company violates it or doesn’t report it or spends resources in violation of it, it literally could be a false claim because they’re certifying compliance with it. False claim liability now because of DEI programs and companies spending resources on clubs, associations, training resources, the whole laundry list.

Sam: That false claim could mean that it’s subject to the whole value of the contract?

Scott: Oh, it could be more than that. Treble damages. Yeah. It literally could be a company termination clause, effectively. Because companies that go through the false claims process effectively, especially small to mid, that’s it. It literally could be that meaningful. And that’s why at the beginning of this discussion, we talked about chilling effects on entering the federal government workspace and procurement in general. This one, I see this as certainly having a chilling effect because it is hard to know how the government’s going to interpret this. Illegal participation, whether it violates the DEI itself, what is racially discriminatory DEI activities? And that is really subject to interpretation. The government has done a little bit better job of telling contractors what it believes it would be. But again, there’s a lot of open questions here.

Sam: Yeah. It’s almost purposefully ambiguous. It’s all-encompassing, first of all. At least they did not include sex or gender in it, so you have that clarified. But that whole list that you just read, that’s a lot of activities, and it could include things that if the contractor is participating in both state and federal or local and federal, that they might be required to do under one set of procedures and then prohibited under another set. So what do you choose in that situation?

Scott: I can’t tell you on this podcast because it takes an analysis, right? It depends on the specific state. It depends on your contract. It depends what the activity is that’s in question. Miller & Chevalier has an entire team in our workplace culture practice group that does this and advises companies, and it has to literally meet with a company to understand what the raised activity is, what their concerns are, an analysis of where they practice, and the state laws that are applicable. It’s an issue. It is very complicated for businesses. This is not self-promotion, but if they’re not consulting their in-house counsel or outside counsel to help them interpret this as applied to their activities or what their subcontractors are doing, especially with this new false claim threat that’s tied to this illegal DEI activity, they are endangering their very existence.

Sam: What would be the challenge that the government would run into in trying to bring the False Claims Act case under this? They had the settlement with IBM, seventeen million dollars, so it seems like there’s risk for companies out there. But usually, don’t you need some sort of scienter in a False Claims Act case? You’d have to have some knowing violation. How hard is it to bring this case from the government’s side?

Scott: I think you need to ask a little different question. I think all these cases are going to be hard for the federal government, right? Because you’re going to have a judicial system that is going to help interpret the laws objectively and they’ll apply their own objective judgment to it. It’s whether the DOJ is going to bring cases even though they have not the strongest case in order to encourage those companies to settle. I don’t think this is all about the government punishing anybody. It’s about setting incentives in place that don’t do anything that even looks, smells, or tastes like it’s DEI as it applies to race.

The DOJ, this is personal opinion, is not my firm’s opinion, is probably going to be bringing certain cases, and you mentioned one, and likely bring other cases in fact for the sole purpose of bringing the business to the table. And send messages to others that they shouldn’t even get close to the third rail on this, even if it looks, smells, or anything that could be interpreted as racially discriminatory DEI activities that judges say no to, right? That appears to be the message the administration is taking. That is not from a legal standpoint, I am not talking cultural, moral, or ethical. From a straight-up legal perspective and a risk perspective, companies really need to think twice about doing anything that even comes close to what may be interpreted by the DOJ or even your contracting officer to be racially discriminatory DEI activities.

Sam: Sure. We’ve seen it with universities, we’ve seen it with law firms, and varying outcomes in both of those areas.

Scott: And that’s difficult for businesses because they have codes of conduct and internal policies that for decades have promoted certain socially important policies to implement various aspects, either—I’m not saying curing racial discrimination—but at least providing opportunities, right? This sets a bar that’s pretty darn high as far as the level of scrutiny on those companies now to not even come close to implementing those policies or keeping those policies. So it is back to chilling potentially the process for government contractors. If you are new to the space, you should go in with eyes wide open and have a full review of your internal policies, codes of conduct, HR, everything that you do before you engage in this space so that you’re not setting yourself up or the prime for failure. Because this is a prime and sub-issue.

Understanding CICA Stays at the GAO

Sam: A lot to think about with that, and the DOJ is going to be very busy on the civil rights end and the contracting end. I’m very lucky to have you on the program as probably the most seasoned bid protest attorney potentially of all time. How many bid protests have you done? A thousand at this point?

Scott: Seasoned is the word.

Sam: Yeah. We worked on a few when we were in government together, and then now you’ve gone out and been very successful in private practice. One of the reasons to go and protest is to get a stay of performance, the CICA stay, and there’s been an important case that’s come out recently from the Federal Circuit about CICA stays. So before we get into the case, could you just explain what a CICA stay is and how that comes about when someone goes to protest at the GAO?

Scott: Sure. This is a very complex topic with really arcane timeliness rules, and I’m going to try to simplify it for the audience as much as possible. So when you say CICA stay, we’re talking GAO protests. Protests filed to the GAO. And why we say CICA is it’s a statute, your Competition in Contracting Act. You find it at 31 USC 3551 and on to two and three. But the provisions related to the stay and an override of a stay, which is a new term of art, you’re going to find at 3553.

Here’s what it is. For a GAO protest, as soon as an agency receives notification of the protest from the GAO, that’s different, it’s not the filing, it’s a notification of the protest from the GAO. If the agency has not made an award of that contract yet, full stop by statute, they cannot make an award. That’s a simple rule. That’s the easy one. If it’s an agency protest, there are agency rules in play that also apply that, really by regulation. But when you say CICA stay, it is a pure GAO protest. You can still get a stay if you file at the agency on a protest level via their regulations, but CICA stays are pure GAO.

In a post-award scenario, this is where it gets interesting. It’s a general rule of 10. And the GAO rules to file track with the timeliness to get a CICA stay, except for one small issue. The general rule is a rule of 10 days. You have to protest something within 10 days of when you knew or should have known the basis for protest. That adverse action, right? And so if, in fact, you file your protest and the agency gets notification of that protest within 10 days of the award happening, the statute applies, and the agency now has to stop performance. So you made the award, the contract has been awarded. The awardee may or may not be on the ground running and hustling, who the heck knows at that point, but they have to stop. They actually issue a stop work order by statute that they cannot proceed with work.

And if you’re the awardee at this point, this stinks because you just got awarded a contract, and all of a sudden you’re told to stop work and you’re in limbo a little bit. And one thing that’s important to remember is that a GAO protest, the shelf life is 100 days by statute. From the day it’s filed to the day it must be decided by statute, with some unique exceptions like shutdowns and things like that, you’re going to get a decision. But that stay will apply for that full 100 days or the day that the GAO closes the case and issues the decision. It could be day 90, 80, whatever it is. If a case is dismissed at day 20, the CICA stay goes away. So if in fact the protest is alive at the GAO, it could go to 100 days. The stop on performance is going to continue. Same thing with the pre-award protest. They can’t make an award while the protest is active.

For those sorts of acquisitions that have a required debrief as part of it, not just any debrief. Number one, it has to be the type of procurement that allows for a required debrief if asked for within a certain window of time by the offeror, the interested party. The agency gives that debrief, and then if it’s civilian, you’re going to have five days before you have to file that protest and the GAO gives notification to that agency, right? That has to occur in the five days after the debrief is closed for a CICA stay to apply. You can still file a protest, you’ve got 10 days, but if you want a CICA stay to apply in a post-award scenario in a civilian agency, you’ve got five days.

Sam: So it’s a faster timeline, but potentially not applicable to task orders or GSA schedules because of the required debrief.

Scott: You’ve got to look at it closely. What if the GSA is doing the procurement for them? Technically, the contracting rules apply to the GSA. But yes, it is quicker, but again, you’ve got the debriefing period. It extends it out a little bit, right? It’s not 10 days from award anymore. It’s five days from the date that the debriefing closed that you have to file a protest in a post-award scenario for that CICA stay to apply. If you’re a Department of War agency for certain acquisitions valued at certain levels, and there’s a few, right? You may actually have an enhanced debriefing, meaning that it’s required, and then after you receive the initial debriefing, you have the opportunity to ask follow-on questions. You have to ask for those follow-on questions within a specific period of time, in two days. Then once the agency answers those questions, you have five days to file. So you have that 10/10/5 rule.

And so you’ve got to really know, number one, who’s conducting the procurement. Is it a civilian agency or a Department of War agency? What is the value of the procurement? Is it going to have a required debrief? And does it also have an enhanced debriefing component? But yeah, required debriefs are only for those procurements that are negotiated where you have a comparative evaluation of offers. It gets... This is why bid protest attorneys do this full-time because it is nuanced, right? But yeah, if it’s a GSA schedule contract, you’re not going to have a required debrief technically, unless it’s built into the solicitation.

Sam: Ah.

Scott: Agencies can agree to it and it may be required by that means, right?

CICA Stay Overrides

Sam: So let’s talk overrides. That’s where this case comes out. And you and I both dealt with overrides when we were in government. What is an override and has that changed?

Scott: Okay. So we talked about a CICA stay being in place and remember, the agency can’t make an award or it may have had to order the stop performance via stop work order to the awarded contractor. But stuff’s important. The requirement doesn’t go away. Maybe for troops that need to be fed or transported. It could have literally an urgent and compelling nature to it, or it could be in the best interest of the United States that in fact the agency proceeds or overrides the CICA stay. Again, we’re talking GAO protests, alright?

So again, back to the Competition in Contracting Act, it allows the head of the procurement activity to authorize performance to actually proceed notwithstanding the stay, or for an award to go forward notwithstanding the stay based on really either the best interests of the United States or because there’s an urgent and compelling nature of the requirement that justifies not following the statute. And the agency has to document those reasons and it’s got to do it contemporaneously, right? And then it has to provide notice of that override to the GAO before the override becomes effective. And so that override, the agency can override these CICA stays even though they’re in place by operation of law because again, best interest, urgent compelling reasons, what have you.

That override can be challenged. Okay? And so the override itself is, again, you have a separate D&F. It’s a separate procurement action. It’s a standalone issue. So you’re saying, wait a minute. Scott, you’re telling me I’ve got to fight the protest and spend legal fees on that, and if the agency overrides it, I’ve got to fight that too? Yeah, it’s worse than that.

Challenging CICA Stay Overrides at the Court of Federal Claims

Sam: And do you go back to the GAO?

Scott: No. Yeah. One thing the GAO does not have jurisdiction over is CICA. In fact, they don’t have jurisdiction over CICA stays. If an agency’s not even choosing to apply it illegally, the GAO has no jurisdiction over it, and they’ve said so in their decisions. You have to go to the Court of Federal Claims that has exclusive jurisdiction over CICA stay overrides. So now, yeah, you may have a literally bifurcated fight. The merits of a protest are being fought literally at the GAO, and you’re over at the Court of Federal Claims fighting a different acquisition decision, the reason for the basis to override that stay.

And it used to be, until this case, we’re going to talk about Life Science Logistics which was issued by the Federal Circuit on April 15th of 2026. It used to be that even the underlying merits of a protest as it related to prejudice were important for the court to adjudicate, and you had literally split operations. You had to fight the fight and fight against the agency’s determination of best interest or urgent and compelling basis at the Court of Federal Claims. It’s a little simpler now. Still, you have to do it. You have to go to the court but there’s no obligation anymore under this recent clarification by the Federal Circuit to literally demonstrate the prejudice per se. All you really got to do is identify that the agency’s decision was arbitrary and capricious itself.

Let me stop there for a second. So this case simplified the fight as it relates only to the overrides. Previously, there was a four-factor test that the agencies and Court of Federal Claims followed at times, and the DOJ struggled over what actual four-part test was at play in order to challenge these overrides. But the Federal Circuit took exception to the DOJ, and honestly, the court’s previous interpretation of the four-part test in order to show that the obligation for protesters and plaintiffs in the Court of Federal Claims to demonstrate that the agency’s override was arbitrary and capricious.

There used to be an obligation to demonstrate the likelihood of success on the merits like we just talked about. They also had to show that there was irreparable harm literally staying the procurement to the plaintiff. Then they had to evaluate a balance of equities. In fact, it was in its favor because agencies do get a lot of discretion. If it’s the Department of War and because of the national security requirement in the Tucker Act to give deference to agencies, especially if national security is in play, it was hard to get over. And then there was another aspect of showing the benefit to the public. All those things were necessary to demonstrate to the Court of Federal Claims in previous override decisions, but no longer.

In fact, the Federal Circuit cleaned this up a bit to focus everybody on only that the decision itself was arbitrary and capricious. And that, in fact, this scheme that had been developed by the courts over time was not required by statute. In fact, it was created by the courts and went far beyond what was necessary for a protester that’s litigating something at the GAO to then move over to the Court of Federal Claims and now it’s just a straight-up arbitrary and capricious analysis. You still have standing, you have to be an interested party, but you don’t have to prove the prejudice per se. You don’t have to show, in fact, doing a weighing of the public interest. You don’t have to show irreparable harm. You just go up and attack the decision.

Sam: You don’t have to do a whole protest at court in addition to a GAO.

Scott: Right, which saves costs. They already have businesses that aren’t even going to consider doing this because they can’t wait for the 100 days and that, they could do it for a variety of reasons. We’ll talk about that too. But it makes it a little bit cheaper because the focus is the fight, right? If in fact you want an agency’s CICA stay override to effectively be nullified by the court, you want the status quo from your perspective. The government wants its own status quo. You don’t want the government too far down the lane where, in fact, it becomes almost impossible to undo contract performance. Key personnel are being recruited. It could be that they’re being swapped from literally the incumbent to the new awardee, and these employees are moving. It could be assets, it could be supplies. Whatever the nature, the prejudice does not get better with time, usually for the losing party. It’s going to get worse with time for the losing party if performance is allowed to continue.

Sam: So this case is good for protesters. It makes it somewhat easier for protesters to keep the CICA stay going, and particularly good for incumbents because they can keep their people on if there’s a stay, they can maybe get an extension of performance.

Scott: Yeah. I mean, your viewpoint is going to change if you are literally the incumbent. If you’re the intervener, the awardee, you’re going to likely intervene in the CICA stay override challenge. If you’re a protester, you just don’t want the train to leave the station. You don’t want award to be made, you don’t want performance to continue, because it’s going to get much harder to get back in. And you got to remember also, except for task order procurements, right? If you start a protest at the GAO, you can bring it, after that’s done, if you lose to the Court of Federal Claims. You’re not prohibited from doing so. And so what you don’t want to do is also have the Court of Federal Claims judge the underlying merits of your GAO protest before you even get there.

This also may impact the override, the ability to challenge where you bring a protest initially too, because protests are expensive for a reason. The record can be voluminous at the Court of Federal Claims. It’s more limited at the GAO, but there’s a lot of litigation and pleadings and potential motions getting into the record. And there are other reasons why sometimes companies protest, right? It could be the incumbent. Usually they believe they’re wrong, there was an evaluation challenge or something. But the government believes sometimes protesters will just protest to get a bridge contract extension, and that may be true. But you have to have a good basis and a reasonable basis to even bring a protest to the GAO and not get it dismissed. You’ve got to have evidence.

Procedures at the Court of Federal Claims

Sam: The pleading standard has changed.

Scott: Yeah, it has changed. I wouldn’t say changed. It’s been clarified. It was always there. You always had to present a prima facie case that, in fact, the government violated procurement statute or regulation. You had to bring some sort of evidence, just not your belief, information and belief. You’ve had to present something. But I think what’s clarified is the GAO believes and expects that a protester is going to bring some evidence, declaration, documentation to show in fact that there’s more likely than not an error had occurred even at the beginning stages of a protest.

Sam: Let’s get more into the Court of Federal Claims, because there have been a couple of cases about procedure in front of the Court of Federal Claims, something that I know you first of all know a lot about, but you are passionate about as well, getting the procedure right. There was one case where there was significant criticism of the government, and then another case where there was significant criticism of protester’s counsel, a position that you’ve been in several times. Let’s start with the government criticism. What happened there in the Global Connections case?

Scott: Yeah. So Global Connections to Employment Incorporated, this decision was originally issued on April 2nd, reissued on April 13th, and that’s not uncommon. But it really simply had to do with delay, effectively. What this court, I think Judge Solomson, is the current chief of the Court of Federal Claims. He likes to run a tight ship, doesn’t hide it. And he has set a tone where protester’s counsel and government counsel will sufficiently plead, will not hide facts from the court. Not that that happens, but maybe just through mistake or resources, they don’t have an ability to literally process cases as quickly as possible.

The other thing is, the DOJ is in a tough spot with their more limited resources these days at the attorney level and their support staff. But the records are getting smaller. And why that’s important is at the Court of Federal Claims, its entire administrative record under the Administrative Procedures Act that is arguably produced to the court, and that includes all proposals, all evaluation records, can include drafts, emails, even for a protest. And so the DOJ has to take all of that, process that, package it. It’s not that easy, because first they have to get it from the agency, make sure it’s relevant, talk to the other side about what goes in the administrative record, and file it. And it takes an enormous amount of administrative burden.

And I can’t get behind the reasons or basis for the government in this Global Connections case to what in the judge’s eyes here, and this was Judge Tapp effectively, be dilatory in its processing and not stay on the agreed-upon schedule between the parties. But it did raise to such a level that, in fact, he thought that it was flagrant and it amounted to unapologetic disregard for the court’s order and counsel’s time. In this case, Judge Tapp ordered the DOJ to show cause why it shouldn’t even bear the reasonable costs associated with drafting and submitting the plaintiff’s response in this case to a motion.

Sam: It’ll be interesting to find out what happened. Did the government actually have to pay for plaintiff’s reasonable costs?

Scott: I do not know. A lot of people might be... a lot of these cases, almost all the protests, are sealed.

The Role of Intervenor’s Counsel in Bid Protests

Scott: I think that does... Maybe it’s a good segue to talk just about intervention for a second. One thing we understand as attorneys is companies do not want to pay unnecessary legal fees, right? It’s a huge expense, and normally it is unrecoverable. But if you just won a contract and it’s a significant value, the one thing you don’t want to do is have a protest be filed against the government’s decision. It’s not technically your win they’re protesting. It’s the government’s decision to award you the contract and the underlying record and the judgments that are made that are usually being attacked. It could be some aspect of your proposal, but it’s that the government didn’t catch it or that their judgment related to it is arbitrary and capricious or unreasonable.

So all of that analysis and criticism relates to proprietary and source selection information. You’re talking proposals, evaluation records, source selection decisions, all that. You’re not going to get access as a company, okay? You’re going to get a debriefing, and hopefully it’s helpful. But when a protest is filed, those records become relevant all of a sudden, and you’re still not going to get access because what happens at the GAO and the court is a protective order is issued. And the protective order covers all records that are filed in the court or the GAO, and only those parties, the counsel usually, are admitted for access to see those records. In-house counsel, I wouldn’t say they never get admitted to protective orders, but there’s another layer of scrutiny for them.

Sam: Participating in competitive decision-making.

Scott: Yeah. There’s a case called US Steel that effectively scrutinizes the access to proprietary and source selection information for those that are involved in the competitive decision-making process. So that’s why in-house counsel, unless literally the structure allows for them to be somewhat insulated, will not get access. And so you have to basically hire outside counsel.

And if you are the awardee, again your award is potentially being attacked, you want to protect your interest. And what that really means, it really means you want to defend and protect the government’s decision because that’s what’s getting attacked. And so it’s important to have counsel know, number one, you won the award if you have counsel already, but two, to plan ahead for this. The one thing that’s really interesting, we’ve had a few massive size protests at the Court of Federal Claims recently with 20, 30 different parties, is each one of those has to have their own counsel. Counsel has to be admitted to the protective order. That counsel had to have been vetted via conflicts, meaning that their existing clients don’t have existing conflicts with representing you as a company.

That process is not quick, and so if you are a company going into a competition you think is going to be pretty litigious, and if you think you’re going to potentially win, otherwise you wouldn’t bid anyway, you probably want to line up outside counsel in advance. It doesn’t mean you’re going to have substantial litigation fees. It means you’ve done the administrative processing and they have them ready to go basically, your assault team. And that takes a little bit of time in processing. You get the conflict review, getting the attorney knowledgeable about the procurement so they can hit the ground running.

Why is this quick? We just talked about a CICA stay, okay? If it’s pre-award, it’s instant, and again, if the agency gets notice from the GAO in a certain window of time, they have to automatically stop performance. So when that happens, the agency’s getting attacked, their acquisition record’s getting scrutinized, and they’re starting to make decisions. And sometimes agencies will hit the easy button, right? What is the easy button?

So there’s something called corrective action in protests. An agency, if in fact has a reasonable basis to do so, believes it can cure an administrative defect in the source selection paperwork, the evaluation, some aspect of the procurement violated procurement statute or regulation, or was inconsistent with the terms of the solicitation. So they can fix it, and they get basically a do-over. Corrective action. And again, agencies are under extreme stress these days with limited resources.

So setting that stage and talking about how quick it is and why you want your interests represented immediately: as an intervenor, you may not get notification of the protest the same day. Things are already going down the track. You’ve got to monitor it. The agency is supposed to provide you notification of the protest within one day, it should, pursuant to the FAR, but that doesn’t always happen. And so this is why having counsel already locked in, conflict-free, ready to proceed in order to jump into an active protest once you find out about it, is critical, because the agency’s starting to make judgment calls, evaluating its own record, looking at the easy button.

And if you can come in there and help them, because that’s the goal, help them see if their decision is defensible, and sometimes it’s not. But you can also help them shape the corrective action to fix it if you can engage with the agency right away. An intervenor’s counsel, that’s what it’s called, a counsel that’s representing the awardee, can come in, not only represent their client’s interests, but help the agency evaluate the protest grounds in almost like a common interest type scenario. So you can assist the agency.

Sam: So you can have a seat at the table through this intervenor’s counsel to potentially shape corrective action or decide whether to take corrective action.

Scott: Absolutely. And you can also pressure test certain arguments. You can help them draft or at least identify potential motions. You can point out where we think you’re going to lose, even if the agency believes they’re going to win. You come in subjectively objective, but a seasoned protest counsel will come in and know likely what the GAO is going to see and how they’re going to react and how they’re going to evaluate a certain issue once you’ve looked at the record real quick.

So you want to basically get those interests projected immediately so you can help shape a little bit, influence, but also help the agency make the right call. Because again, you come in too late, those decisions are made, you’re reactive. You may turn into the protester instead of the intervenor. And that is not only at the GAO, it’s actually even more important for protests filed to the Court of Federal Claims. They go faster.

And here’s why. Under the rules of the court—and those rules may be adapting over the next year a little bit—protesters have to provide pre-filing notice to the DOJ that in fact they’re considering protests. They also have to identify likely intervenors, interested parties. The DOJ should reach out to those parties if they know who their counsel are, so should the agency, but it doesn’t always happen. But what does happen is the DOJ getting involved right away, they’re evaluating the case from a third-party neutral stance.

They represent the government, they assist the agency. And again, conclusions are being drawn. It could be that voluntary stays are being decided. It could be that corrective action is being advised even before you get a seat at the table. And this, again, 24-hour pre-filing notice, you’re going to have the calls between the DOJ in that window between the agency, and then you have a complaint filed, and things are rolling down the track, judges are asking for status conferences right away. And if you’re not even going to have a seat at the table, you get no say.

And so my advice for businesses that are in a procurement, you’ve invested lots of BD money, your capture teams really think they’re right, they win an award from the intervener standpoint and it’s defensible, you’ve got to have somebody with a seat at the table. Same thing on the protest side. If you’re going to protest, you’ve got to have somebody with a seat and knowledgeable and educated because the timeliness rules for protests can be very dicey, and having a relationship with a firm is extremely important, whoever that firm is.

Sam: And it doesn’t hurt to have the experience as a government counsel, because on the protest side, you’re dealing with government counsel, and you want to have those good relationships with the counsel that’s facing you.

Scott: Absolutely. Sam, you have keen insight into the Small Business Administration and all the agencies that you dealt with. My experience with the Army, I think, is very valuable to my clients. Another good thing about my past job is I worked with a lot of Department of War agencies, not just the Army. And so we did training for a lot of attorneys within the federal government on bid protests and appeals and all that. So yeah, our insight, I think, into how agencies think, who the right person is to contact, how to contact them is not usually readily accessible. But knowing how agencies may react, and some of that stuff changes with time.

Being seasoned is an asset and a detriment because you’re not there at the agency, but you keep tabs on things at the agency to benefit your clients. And honestly, again, if you’re an intervenor’s counsel, you’re helping the agency. My experience since leaving the government is every time I’ve been an intervenor’s counsel, it was a huge collaborative effort with agency counsel, DOJ counsel working together to help defend the decision. And yeah, that costs your client money, but it’s going to save them money in the end.

Sam: From the agency counsel, it’s probably old times for them working with Scott Flesch again.

Scott: It is rewarding professionally and personally to know both sides of it and the people I work with.

The Noblis Case and Pleading for Injunctive Relief

Sam: Terrific. You mentioned Judge Solomson a moment ago, and Judge Solomson issued this Noblis case that came out that made a big splash. It was about a $100 million contract for systems engineering issued by the Navy. And Noblis showed that the Navy committed prejudicial error, but then it looks like they ultimately lost the case. What did Judge Solomson decide in that case?

Scott: In the Noblis case, it was a Navy procurement. Noblis came in and made various counts. They call them counts in a complaint at the Court of Federal Claims. And all were dispensed by the judge except for one. Judge Solomson did find that the Navy’s evaluation on past performance was arbitrary and capricious. Judge Solomson has a knack for writing and likes to instruct both practitioners and companies on the nuances of the federal procurement rules and regulations. His decisions are very entertaining.

However, even though he found this error, he points out the defects in the process. And although the error was found, he found that Noblis itself waived any entitlement to injunctive relief, and that’s what the court gives, is Court of Federal Claims gives injunctions. The GAO gives recommendations. That’s another story why, because they’re not a court. They’re part of the legislative branch, but it has teeth. But the court issues federal court injunctions, and it prevents an agency from acting in a certain way. They’re not going to direct awards. They’re not going to flip an award. They’re going to basically send it back to the agency to redo their judgment.

And here they found Noblis was not entitled to any injunctive relief because first, Noblis’ original complaint did not ask the court to enjoin the government or Solis’ performance of the awarded contract. Noblis only asked this court to declare the award to Solis be unlawful pursuant to APA standards. Noblis repeated the prayer for relief almost verbatim in the MJAR in a perfunctory conclusion. And Noblis did not brief any of their prerequisite injunctive relief factors, and those are exhaustive.

The pleading requirements at the Court of Federal Claims are actually pretty onerous. It is a federal court which comes with not only pleading requirements but necessary standing, prejudice, injunctive relief factors at every stage. It could be a preliminary injunctive relief, a TRO fight, as well as the permanent injunctive relief that’s always sought in the end, that’s the merits. But yeah, he found effectively that the way Noblis had pled its arguments and what it had asked for as far as the remedy was nothing the court could really provide. And effectively, even though they found error, he denied a number of things, but most importantly, their motion for judgment on the administrative record, in fact, because of these defects.

Choosing Between the GAO and the Court of Federal Claims

Sam: So this points out a difference between practicing at the Court of Federal Claims and at the GAO. You have to check more boxes, it sounds like.

Scott: Yeah. The Court of Federal Claims is a heavier lift. It’s definitely more expensive. The pleading requirements are more onerous. The processing, the record, the procedures, it is all record-based. There is, in some cases, potential for discovery, but very limited discovery. But it’s administratively burdensome, which means extra cost for clients. And so that’s why the GAO has historically—not only because of the CICA stay, that’s reason number one, but number two, the GAO has been the first stop you normally go to because the cost disparity has been so great. That disparity has been narrowed, though.

Sam: Oh, interesting. What’s the reason for that?

Scott: A number of reasons. Part of it’s resource-based. So the DOJ, whether you fault it or you pat them on the back for doing so, is doing an excellent job at vetting cases upon pre-filing.

Sam: Oh, okay.

Scott: And so what used to be, I think more than 10 years ago, the cases would just develop and the DOJ would not get into the record too deeply at the outset. Now, what you’re having and you’re finding is the DOJ is getting a limited record, engaging with counsel right away, getting into the weeds within the first twenty-four hours, and making calls on, number one, whether there’s a voluntary stay, because again, there’s no CICA stay anymore, it doesn’t apply to the Court of Federal Claims. Two, what is potentially defective in the agency’s record and what the protester is likely to bring in the complaint, because you don’t have a complaint most times, and they’re making judgment calls earlier.

And so cases seem to be actually being adjudicated earlier. They’re getting to, in some cases, more limited records pursuant to agreement of the parties on what’s relevant, and they’re getting resolved. In fact, there was a stat I heard a couple of weeks ago I can’t repeat, but a significant percentage of cases never even make it out of the pre-filing stage because the DOJ is coming in and evaluating, talking to the agency, and in a lot of cases, fixing things.

So the DOJ is not involved in GAO protests. It’s the agency counsel, and a lot of times that counsel has been involved in actually the acquisition. They take on a little more ownership. It’s a little more personal. I think there’s a little less objectivity in some agencies because, again, that attorney advised the procurement, and now there’s a defect that’s alleged. Yeah, and that’s human nature, right? But when you add a third-party objective body like the DOJ in a protest setting until they decide to defend it, it definitely helps sort out those cases that should go forward and those that are not, and a huge portion are not even going forward.

Sam: So that may be one reason to go to the court, that now you have this third party, the DOJ, that gets involved, might be able to solve the case early in pre-filing. Another consideration is, do I have a better chance of winning at the Court of Federal Claims? And some of these statistics that we’ve seen out of the GAO indicate that they are not sustaining as many protests. Have you seen that in your practice?

Scott: Yeah. We’ll see what the end of the year numbers bring. They come in surges; we have seen a number of sustains from the GAO over the last couple of months. I don’t think there’s a trend yet. It’s too early to tell. But again, the key difference is only 2%, roughly, of GAO protests are ever going to have a hearing where parties can argue. Okay? There are written submissions, there are no witnesses interviewed normally. There are on occasion a hearing at the GAO where the GAO will adjudicate an adversarial proceeding, and witnesses will be asked questions by the GAO, possibly the attorneys, depending upon what the GAO attorney will allow. But that’s just infrequent, so there’s less room to advocate. You just do it on paper.

You’re going to have an oral hearing at the Court of Federal Claims to help draw the attention of the judge to specific aspects of the record that are in line with your party’s interests. You’re going to have numerous pleadings and motions and development. There could be supplementation of the record. And again, that record is extremely broad already, the entire acquisition. By default, it can be shaped down, but if you are truly litigating a protest at the Court of Federal Claims, you’re going to see the entire record and potentially even identify additional errors and defects.

At the GAO, the difference is the agency is only required to produce relevant records, and relevancy is usually defined by the issues raised in the protest. For instance, if you’re going to be attacking the evaluation of your proposal, that’s your protest. You’re more likely not going to get access to the proposals or evaluation records related to the other offerors. It’s going to be redacted out or you’re not even going to get it. And so your ability to look at other records and find other defects is very limited at the GAO.

At the court, everything’s in the record, you’re going to find it. The question is whether you’re an interested party to allege it, right? But if you see your entire record and you see other things that are, again, a violation of procurement statute or regulation, you can ask to amend your complaint. In fact, you can amend your complaint by rights within a certain window of time. So you have more ability and opportunities to advocate. You have access to more records. And again, you have an objective body, at least at the outset, the DOJ, that’s coming in and looking at the agency’s decision.

And a lot of this is also practical, right? The DOJ will come in and just tell the agency, “Okay, this is this widget that you want. How important is it? And do you really want to go six, nine, 12 months for a Court of Federal Claims protest when I think you’re going to lose and not be able to get that widget, or do you want to fix it now?”

Sam: Yeah.

Scott: And in some cases, they’ll even settle and create a creative solution through the consent of the parties where everybody’s happy. It happens from time to time. Because if a federal court has the case, blesses off on that action, and it’s adopted via court order, what’s the violation? Okay? You had litigation. No one’s going to come in absent an appeal to the Federal Circuit and tell the court it was wrong. But somebody’s got to appeal that. So there are a lot of reasons, those are some of them, to go to the Court of Federal Claims first these days.

But back to a comment we made earlier, the type of procurement, it may limit you in where you can go. A task order procurement, meaning the award or anything in relation to the issuance of a task order, by statute can only go to the Government Accountability Office (GAO).

Only over certain values. Yeah, which is raised year by year. In fact, the last threshold was raised a bit for the Department of Defense. Civil agencies are a little bit less. Talk to your counsel about your specific circumstances. If it’s pre-award, what is the value? Again, the record may help you through independent government assessments, if you have that, or maybe the value of the proposal. All these little pieces may actually have an impact on your ability to protest the jurisdiction and whether you can even protest a task order.

Sam: Okay. And that came up a lot when we were working on the Rule of Two, whether you could protest the Rule of Two at the task order level. And the FAR overhaul says you cannot do it. You cannot protest the Rule of Two at the task order.

The Revelations Case and Limitations on Subcontracting

Sam: I don’t want to let you go without asking you about a couple of small business cases that have come out recently. There’s one called Revelations out of the Court of Federal Claims. It’s about the limitations on subcontracting. This was a good case for companies that work at the VA, Veterans Affairs, because there’s a special VA requirement that companies certify to the limitations on subcontracting with their offer. It’s a particular statute for the VA. We’ve talked about limitations on subcontracting on this show several times. And in this case, the SDVOSB went after a VA set-aside, and in the VA’s view, did not comply with that special certification. They tried to argue that it had been considered to be certified. What happened in that case? Why did the business end up losing in that decision?

Scott: In the end, it is pretty simple, right? We talked about, and I think in reference to, ground rules for a competition. What does that mean? It means when an agency issues a solicitation and it talks about what it expects in a solicitation—the requirements, right? And I mean the proposal requirements: what goes in a proposal, the content, the forms, the information you are required to put in. It also specifies how an agency says it’s going to evaluate offers; it sets up that scheme. That together becomes the ground rules for the competition, okay? Not only is the agency bound by that, but offerors are bound by that. That is the ground rules for that competition. And if an offeror does not comply 100% with a solicitation requirement—and by the way, if they didn’t agree with it, what they should have done, Sam, if they didn’t...

Sam: So it’s going back to what you said before. There are pre-award protests. You could have looked at that as a patent ambiguity.

Complying with Solicitation Ground Rules

Scott: Patent ambiguity, latent ambiguity... again, protest when you knew about it. But if you don’t believe that it is necessary—this is where businesses get in trouble, right? Small and big, by the way. “We know better, okay? We know better because the agency doesn’t really want that. The requirements don’t really say that, but we know what they want. We’re the incumbent. We’ve been doing this for 20 years. I don’t care that this solicitation requirement says X, we’re going to do Y. We’re not going to comply 100% with that solicitation requirement.” They don’t fill out a form. That’s where you get in trouble because the ground rules for the competition—that box, right? You need to stay within the four corners of that box. It’s an artificial box, but it is there for a reason.

So, back to what we first started this discussion with: offerors want to know they’re going to get a fair shake. Things are transparent, right? The agency is going to apply the rules, be fair and equal to everybody. If you don’t stay in that box and apply the ground rules for the competition—both the agency and the offerors—that’s when the system fails. That’s where people feel aggrieved. That’s where they think they’ve been disparately treated.

In this one case, in Revelations, they didn’t do the certification right. At least in Judge Solomon’s eyes, they did not comply with the ground rules for the competition. In fact, Judge Solomon says, “Because Revelations did not comply with the solicitation’s explicit instructions, including FAR clause 852.219-75 certification requirements, the VA did not act arbitrarily and capriciously in eliminating Revelations‘ proposal from consideration.”

Again, this decision is 27 pages. You could say this in two sentences: Read the ground rules and comply with the ground rules. And if you don’t want to do it, you better protest because you’re going to get excluded. Or here, you’re going to spend thousands of dollars and hear from the judge exactly what you could have known going in. If you think you know better, you’ve already started on the wrong foot. Just play in the box.

Sam: There were a couple of cases that came out from the Court of Federal Claims at the same time—I was looking to see if it was in here—that said exactly what you just said, which is, “You have to turn square corners.” That was the phrase. Absolutely. You have to check every box. You’ve got to make sure that you know what the ground rules are, and if it tells you to sign on this dotted line, you need to sign on that dotted line.

Scott: Yeah. It is artificial. You know better, and a lot of times businesses do. They know better than the government. But you’ve got to play along. You want to win the contract. If you want to talk to the agency about in-scope changes later on, fine. But play in the box now, or else those thousands, sometimes millions of dollars that your capture teams are spending on proposals, and the employees you’re recruiting because you “know better”—that is a false premise. It’s a waste of money and resources, and you’re setting your company up for failure.

The Certificate of Competency (COC) Process

Sam: One more case I wanted to bring up with you. This one is out of GAO, and this is a case that hits close to home because it involves the Small Business Administration. The SBA comes in to represent its position from the Office of General Counsel. They’re actually listed in the representative box on the decision. And this is a case about the Certificate of Competency requirement. This trips up agencies all the time. They probably haven’t even heard about it. But the rule is, if you eliminate a small business for responsibility reasons, you must send that elimination to the SBA for consideration under the COC procedure.

So, if a small business company has been eliminated for responsibility, the SBA has the chance to allow that company to appeal, and it used to be that the SBA would tell the agency that it has to make an award to that company. SBA OGC said, “Yes, we agree with the small business that it should have been referred to the SBA for a COC,” but GAO does not agree with the SBA. What happened in that case?

Scott: Yeah, so the Certificate of Competency issue is one that has actually raised some of the most substantial legal quandaries, especially for the Department of Defense, over the years. In fact, I think I first met you when we were debating whether or not that was extraterritorial, meaning that the COC and responsibility issues applied worldwide, because the Department of Defense is just not a US-based business. They operate in the strangest and most remote of locations. And if you’re dealing with a US small business, you have to start with that premise, right? Otherwise, the SBA is not going to play here.

But if you take an action which can be interpreted as an objective decision that they’re not responsible, that kicks in the requirements where the SBA’s judgment, by statute—and even the FAR references it—is reserved for the SBA. Contracting Officers cannot declare a small business not responsible without referring to the SBA. Now, KOs can advocate to the SBA and actually be a party to the SBA on why they should agree they’re not responsible, and the SBA will give them deference. But it’s that processing piece that KOs trip up all the time.

But here, when you say “responsibility determination,” what do you mean? It’s not usually a piece of paper saying they’re not responsible. It can be criteria in the evaluation scheme which looks and smells like they’re evaluating their capacity to perform, right? That is responsibility if it’s a pass/fail type evaluation criteria. But in this case, this had an evaluative nature. They were comparing. They had ratings; there were subjective calls. And that does not amount to a responsibility determination in GAO’s eyes because it was not check-the-box. It was not pass/fail. You’re responsible or not responsible.

It could even be past performance, right? Where it’s “Five years or you’re out.” Technically, that could be a pass/fail, right?

Sam: Sure.

Scott: But here the agency actually had ratings in their evaluation scheme where they objectively applied criteria and evaluated and rated the company under what appears to be responsibility, but allowed the agency some discretion in evaluatively rating and evaluating this proposal under that evaluation factor. Not pass/fail. So, not responsibility.

And even though the SBA, I understand, wanted to broaden—I wouldn’t say broaden their authority, but they have a much more global look at responsibility—it’s not a surprise that the SBA came down this way. I’ve had that happen before where GAO and the SBA have disagreed. Sometimes the agencies and the SBA will disagree; that has happened too. GAO applied its historic rules of, if in fact it’s an evaluative process...

Sam: So in CSlope, the SBA comes in and says the COC process should apply, but GAO and the agency ultimately win out. What happens there? What’s the reason for that?

Scott: Facts sometimes get in the way, right? In CSlope, the past performance evaluation of the protester got a satisfactory rating. They wanted higher, but the facts alone demonstrate it wasn’t pass/fail; it was gradations of ratings, which does not amount to a responsibility analysis. And if it was pass/fail or go/no-go, that would potentially amount to a responsibility determination where a KO must refer to the Small Business Administration before excluding them from the competition.

You know, simply wanting more is not enough. The agency complied with the evaluation criteria, it was reasonable, and it didn’t violate the SBA’s Certificate of Competency requirements.

Conclusion and Contact Information

Sam: I feel bad for the SBA, but I lost a lot of cases when I was there too, so it’s somebody else’s turn to come in and lose at GAO. COC, the Rule of Two—those things come up a lot for the SBA at GAO. Scott Flesch, how do people find you?

Scott: Easy. They can find me on the website. My email address is SFlesch@milchev.com (C-H-E-V). Also, feel free to contact me via LinkedIn. I have prospective clients contacting me all the time. I’m the only Scott Flesch out there practicing contract law; type Scott, Army, government contracts, and you’re bound to find me. I am more than happy to help businesses. My clients are all over the map, which is exciting with my new entry into private practice.

Two and a half years now. It has been a fun ride, especially when I come in to help businesses reach their goals and understand what’s important to them, how they’re structured, and interpret this pretty volatile time in government contracts that continues to change by the day. I look forward to working with you, and of course, on small business issues, Sam is an expert. I think the world of him, so definitely reach out to Sam as well. Look out for our podcasts. Absolutely. There’s a lot to discuss in this space. Look out for client alerts from Miller & Chevalier; we issue them all the time. You can get on our distro list pretty easily. But I appreciate the time and consideration being here on this podcast. It is one that’s very thoughtful. I think it’s helpful for both small and large businesses, and it provides great content.

Sam: Best bid protest lawyer out there. Thanks, appreciate it.

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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.

8(a) participants in 2026

EO on Promoting Efficiency, Accountability, and Performance in Federal Contracting

White House Budget Request FY27

Appropriations Committee Draft Report on FY27 Government Appropriation Bill

SBA Office of Advocacy Leadership

GAO decision in KriaaNet, Inc., B-422717.4, B-422717.5, April 23, 2026

GAO decision in Threat Tec, LLC, B-424221, April 23, 2026

Public Law 119-82, Small Business Innovation and Economic Security Act

OHA decision in Size Appeal of Nisou Enterprises, Inc., SBA No. SIZ-6380 (2026)

Jason Miller: “Is SBA Moving the small business contracting goal posts?” (Federal News Network)

Draft SBA FY26 Scorecard factors (Federal News Network)

FAR Council Memorandum on Agency Implementation of Executive Order 14398, Addressing DEI Discrimination of Federal Contractors (April 17, 2026)

David Fahrenthold, Luke Broadwater, and Andrea Fuller: “Firm Building Trump’s Ballroom Got a Secret No-Bid Contract for a Nearby Job” (New York Times gift link)

Correction: When I was referring to 8(a) firms being terminated, that was in April, not August.

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Timestamps

00:00 – 8(a) Program Data: Shrinking Participation and Audit Impacts

02:54 – SBA Budget Proposals: White House Cuts vs. House Appropriations

06:23 – WOSB Program: Addressing Backlogs and Recertification Surges

07:46 – Congressional Spotlight: The Decline in New Entrants and 8(a) Removals

11:09 – Regulatory Update: Delay of Dodd-Frank Section 1071 Reporting

12:34 – GAO Case Law: Reprocurement and Certificate of Competency (Creanet Case)

18:36 – SBIR Protests: Timeliness and Successor in Interest (ThreatTech Case)

24:41 – SBIR Reauthorization: Program Extension to 2031 and New Security Rules

25:44 – SBIR Program Extension and Security Denials

26:16 – OHA Suspension Appeals and the 8(a) Data Call

28:52 – OHA Case Law: Nisu and Identity of Interest Affiliation

31:12 – The SBA Scorecard and Category Goals

34:50 – Regulatory Developments: FAR Council and DEI Executive Order

36:20 – Q&A: AI in Source Selection and Bid Protests

39:13 – Q&A: 8(a) Sole Source Trends for Native-Owned Firms

43:03 – Q&A: White House Procurements and Sole Source Contracts

45:06 – Q&A: 8(a) Certifications and OHA Remand Timelines

Transcript

8(a) Program Data & Trends

So let’s start with the 8(a) data. I found just yesterday that the number of 8(a) participants actively in the program is now below 3,400. Let me see, for people who are on the live stream, you can see it there in the screen share. We started the year at over 4,300 8(a) participants. To give this kind of historical context, the number of 8(a) participants used to be around 5,000. So it’s dipped significantly now to less than 3,500.

The reason for this, of course, is SBA’s continued audit of the 8(a) program. Most of the firms that have left the program have done so because they either withdrew or they were terminated for not replying to the data call. At first, these firms were suspended for not replying to the data call, and then they were terminated. That happened around the middle of August [Correction: April].

Then there were a number of firms that just decided, “Look, it’s really not worth it for me to stay in the 8(a) program,” particularly with what the agency is doing in terms of sole sources and cutting back on the “once 8(a), always 8(a)” rule. You can see here that you had almost 500 firms that were eliminated from the program between August 8 and August 13 [Correction: April]. That’s because of firms leaving or firms that were terminated for not replying to the data call.

There are still 114 firms that got unsuspended today. It seems to be a Friday thing to try to go and unsuspend firms. That number may have dipped since I created this graph, but right now we’re at fewer than 3,400. You can probably expect for that number to continue to go down. There haven’t been new applications that have been granted—at least in what I’ve seen—since August of 2025. Additionally, you have these firms that are graduating naturally after their nine- or 10-year period, but also firms finding that the 8(a) program isn’t giving them the return that they expected. I’ll be going through some of that data as well in response to one of your questions that came up when I brought up this data before.

SBA Budget Request & House Appropriations

Let me go now to SBA’s budget request. This is really interesting. When it first came out, the White House issued a proposed budget from the Office of Management and Budget. But it’s really the House that sets the budget. The White House proposal is just a signal to people of what the White House priorities are. The White House budget this year cut SBA by 67%. It says the budget requests $330 million for the SBA, a $670 million or 67% decrease from the 2026 enacted level.

The White House would have cut the entrepreneurial development programs and completely cut the SCORE program. It would have cut salaries and expenses by a third. It would have cut the business loan programs by $160 million. People watching that kind of figure said, “Look, you’re not going to cut SBA by two-thirds. It’s a really bad signal to say we’re not supporting small businesses through SBA support anymore”.

Lo and behold, the House Appropriations Committee issued a draft budget for consideration, and it does not cut the SBA by 67%. It keeps most of the programs at the same level as they have been before. The SBA salaries and expenses go down by about $25 million. That’s far less than what the White House had proposed—it’s less than a 10% cut for salaries and expenses. It also keeps the entrepreneurial development programs at a bit less than what they had before, maybe a bit more than a 10% cut. But still, they keep SCORE around in some of those programs, and keep the Office of Inspector General at the same level. The Office of Advocacy, interestingly, gets a boost. The Office of Advocacy gets an additional $4 million in this budget from the House Appropriations Committee.

The budget states that the Office of Advocacy was established by Congress in 1976 to serve as the independent voice for small business within the federal government. Interesting timing for that statement, because the prior chief counsel for SBA recently switched jobs. The chief counsel was Casey Mulligan. He’s a renowned economist from the University of Chicago, and he was a Senate-confirmed chief counsel. There hadn’t been a Senate-confirmed chief counsel at SBA since President Trump was first elected. So there’s not a permanent chief counsel in that position, making it kind of questionable whether the advocacy is acting as an independent voice established by Congress when there’s not a Senate-confirmed head of that office.

WOSB Program Backlog

There are some good statements in the House Appropriations budget report for SBA. One of them is about the WOSB program. The committee states in its report that it’s concerned about the WOSB program having a month-long backlog of applications. The increased number of certified firms in the program, as well as the recent surge of participants undergoing an in-depth recertification process as they enter their third year, has added an additional strain on the program’s resources. The committee directs SBA to ensure that eligible applicants obtain the required initial certification and continued certification to meet SBA’s goal of supporting WOSBs.

That’s a significant development, with the House Appropriations Committee putting a spotlight on a backlog in the WOSB program. We’ve seen recently that SBA is pushing through applications on the WOSB program. One day they had approved over 250 applications, and I’ve seen it myself as well—WOSB applications getting approved. So they may be heeding this guidance from the Appropriations Committee to get through this backlog of applications.

8(a) Program New Entrants & Terminations

The Appropriations Committee is also interested in the 8(a) program. Number one, they’ve taken on this mantle of looking at new entrants. This has been a sticking point for SBA and policymakers for quite some time, and the Appropriations Committee notes that the number of new small business entrants entering new contracts declined 80% during the period between 2005 to 2019. You see this issue come up again and again. SBA highlighted it in its scorecard changes—we’ll be talking about that in a bit—and is looking to add that as a factor to the scorecard.

Here it is: the House Appropriations Committee is also paying attention to the decline in new entrants. The committee links that with actions we’ve already talked about in the 8(a) program, stating that recent actions undertaken by the SBA are exacerbating the decline in new entrants, particularly in the 8(a) contracting program. 8(a) is a way for companies to get into government contracting for the first time. They’re able to get sole source contracts, so they don’t necessarily have to compete and face that deficit in past performance because they’re new. They have limited competition against other 8(a) firms when they do have to get into a competitive atmosphere.

But the committee is directing SBA to look closely at the 8(a) program and report to the committee on appropriations on the statutory and legal justifications for terminating 622 small businesses on March 4th. They must also include the statutory and legal justification for initiating SBA’s June 2025 audit of the program. The report should include the results of the June 2025 audit and evidence of fraud and/or improper payments in the 8(a) program supporting the removal of these small businesses from the program.

That’s language I hadn’t heard before—that there could be improper payments in the 8(a) program. I suppose SBA is really looking at eligibility. Are companies meeting the disadvantage requirements of the program? Maybe they’re thinking that if the company is not eligible, it could potentially be an improper payment to have paid a company that’s not qualified for the program. I think that’d be a bit of a stretch when looking at firms that might be a few thousand dollars over the economic disadvantage threshold. That’s a lot of the firms that have been suspended or considered for termination. As for those 628 small businesses that were removed, that was that big jump in the red line that I showed on the graph. That’s primarily firms that didn’t reply to the data call.

Remember, I had this conversation with Matt Schoonover a while back. It was very expensive for firms to reply to the data call—thousands of dollars, tens of thousands of dollars—and firms may not have seen the return on investment in replying. But now Congress, through the House Appropriations Committee, is first of all not cutting SBA by 67% as the White House had proposed, but also putting a spotlight on the WOSB program and the 8(a) suspensions and terminations.

Section 1071 Loan Reporting Delay

One other note in this is there’s a provision here, Section 520, that is drafted to prohibit small businesses from having to comply with Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That’s loan reporting. Section 1071 was passed in 2010. So it’s 15 years old and has just been running around regulatory procedures for a while and hasn’t gone into effect. We have a further delay in the enactment of Section 1071 from this committee report here.

Case Law Update: KriaaNet & Reprocurement

Let’s get into some case law. I’m going to have a podcast next week with Scott Flesch, who is one of the best protest lawyers out there right now. We’re going to go over a lot of court cases and protest decisions coming out, and we’ll also talk about the executive order on fixed-price contracting that just came out. I’m going to save some of those until next week when I talk with Scott. But I couldn’t stop from highlighting this decision that came out from GAO just this week called KriaaNet.

This is about a reprocurement case. This is an 8(a) contract that was reprocured by the agency. It’s interesting because honestly, I’ve been around federal procurement now for almost 20 years and I have not seen a reprocurement in the flesh. I think I’ve talked about it and thought about it, but these do not come up very often. So it’s interesting to see this area of law arise.

KriaaNet is protesting a task order awarded to LBO Technology. There was an RFQ under the GSA Schedule set aside for 8(a) firms. KriaaNet and LBO were two of the firms that submitted quotes on that. KriaaNet actually won the initial competition in February of 2025. There were some protests, and KriaaNet had some personnel changes during the course of that time that they were waiting to perform on the contract. The agency had concerns regarding KriaaNet’s failure to provide proposed key personnel in a timely manner, issued a cure notice, and ultimately terminated KriaaNet’s task order for default. The agency did eventually convert that termination to a no-cost termination for convenience.

The SBA issue comes up after the agency goes to issue a task order to LBO. Back off the original competition in 2024, the agency goes back and asks LBO for a revised quotation, and then issues the task order to LBO after terminating KriaaNet’s task order for a lack of those key employees. The area of law that comes up is the process under reprocurements. The FAR Section 49.402-6 covers reprocurements. It says an agency has considerable discretion to repurchase goods and services for a substitute contract where the agency needs to repurchase goods or services in a quantity not exceeding the undelivered quantity. It may use any acquisition method, provided that it preserves competition to the maximum extent practicable. GAO has said it will not review an agency decision to exclude a defaulted contractor from a reprocurement for the remaining work under the defaulted contract.

KriaaNet brings up a number of arguments. The one I paid most attention to was an argument about the SBA Certificate of Competency (COC) procedures. The COC is rarely seen but often discussed. It comes up in GAO cases and Court of Federal Claims cases from time to time, and it’s kind of a historic process. There used to not be as many set-asides, and a lot more contracts used to be lowest price or sealed bidding. A small business would bid against larger businesses and might have the lowest bid. But the agency would deny the small business the contract because the small business didn’t have the capacity to do the work. It was too small, basically, or didn’t have the past performance to do the work. So Congress and SBA created the COC process, where that small business that is excluded from a contract—even though it has the top-rated proposal or the lowest price—can appeal to SBA for a COC. If SBA grants that certificate, the agency would need to award the contract to the small business under the COC.

That’s the way historically it was designed. It doesn’t quite work that way anymore because of two-step procurements and go/no-go decisions on past performance, but KriaaNet here is trying to use the COC procedures to make the case that the agency needed to allow it the opportunity to appeal to SBA to be considered for the follow-up task order. Now remember, KriaaNet is the company that just got terminated. So it has a number of other arguments, but on this argument, GAO says, “We’re not even going to consider that”. Under the procedures for reprocurements, when a company is defaulted and the agency reprocures, GAO has said the statutes and regulations governing federal procurements do not apply, and the COC process does not apply because of that.

That’s another reason agencies can avoid using the COC appeal process. We saw another one with the CSlope case—which I may be talking about with Scott Flesch—where the agency was able to make the case that it did not use a go/no-go procedure, that it was a comparative evaluation, and the agency was able to avoid the COC procedure. Here in KriaaNet, the agency is able to avoid it because the award to LBO is conducted under a reprocurement in FAR Part 49. So I will keep this case in mind in case I ever run into a reprocurement. Very interesting set of facts.

Case Law Update: Threat Tec & SBIR Protests

Then another GAO case, which is significant for anybody who works on SBIR, came out recently. It’s called Threat Tec. That name may sound familiar in the context of SBIR cases because there was a Court of Federal Claims decision about CICA stay procedures involving Threat Tec that came out just a few weeks ago. We’ll be talking more about stays in the next episode with Scott Flesch, but what eventually happened in that Court of Federal Claims case was that Threat Tec was denied the challenge to the override of the stay. So the agency was able to override the stay during the GAO case.

Now we see the GAO decision coming out in Threat Tec regarding SBIR. The outcome of this case is that you have to pay really close attention to who wins and who loses an SBIR award. Threat Tec had its protest dismissed not on the substance, but on timeliness. It got dismissed on timeliness because the agency had selected a company, Chitra Productions LLC out of Virginia Beach, that was awarded under SBIR Phase III, and Threat Tec did not know that when it brought the protest. Threat Tec actually protested in part because the agency did not give an explanation as to why Chitra was able to receive the award.

Very quickly in the protest response—just five days after the protest was filed—the agency told Threat Tec that the award was made to Chitra under Phase III. Eventually, on February 17th, Threat Tec filed a supplemental protest at GAO stating that Chitra hadn’t received an SBIR Phase I or Phase II. So how can it possibly receive a Phase III? That’s what Phase III is—it’s a follow-on to an SBIR Phase I or Phase II award. You can’t get a Phase III unless you’ve got an SBIR Phase I or Phase II.

Now, the agency has an explanation for it. You don’t see this in GAO cases very often, so it’s interesting that it’s even discussed. The agency is claiming that Chitra is a successor-in-interest to another company’s Phase II contract. Chitra had purchased IP and technology from a company called Architecture Technology Corporation (ATC) that had won a Phase II. That technology is what led to this Phase III acquisition. The agency said the technology it’s going to use in this Phase III contract is the same technology that ATC had designed under the Phase II contract.

Threat Tec tries to challenge that. There’s stuff about the DEC standard—derives from, extends, or completes. Maybe it’s arguing it’s not actually a successor-in-interest, but they don’t even get there. If you pay attention to the dates, the agency had told Threat Tec very early on, within five days of filing a protest, that Chitra was the company and had gotten the award under Phase III. At that point, GAO says, the clock starts to challenge Chitra’s SBIR Phase III. You can’t wait until you get more information from the agency in a request for dismissal or further filing.

The reason is you can look up all of this stuff on SBIR.gov. You can look up who’s won an SBIR Phase III award. GAO quotes the SBIR.gov website as having every SBIR award since the program’s inception. It says this is a publicly available government source—the same source the agency used when it conducted its search. So there’s an expectation that Threat Tec can’t wait to find out that Chitra is the successor-in-interest to this architecture firm. Instead, Threat Tec had the information at the time it knew the identity of the company to go search the SBIR.gov database and find out that the company’s not in the database.

GAO also goes through some of the discussion about the successor-in-interest argument and notes that they considered the argument that it’s not a successor-in-interest, determining Threat Tec had not given a reason to question the agency’s judgment. So it’s interesting there that once you know what the company is, you’ve got to go and find out what your challenges are to that company right away. You can’t wait until you get further explanation from the agency. GAO says a protester may not passively await information providing a basis for protest. Threat Tec did not file a timely supplemental protest challenging Chitra’s eligibility, and therefore its second supplemental protest was untimely.

SBIR Program Reauthorization

On that note, with SBIR, most people probably heard this, but the SBIR program was reauthorized through the Small Business Innovation and Economic Security Act that became law on April 13th. It was signed by the president, and it creates a new program: strategic breakthrough allocations for critical technology areas. That’s higher value SBIR awards that have to have a match to them.

It also requires agencies to set a maximum number of proposals per fiscal year that a company can submit in response to a Phase I or Phase II solicitation. That had been a big issue with multiple award winners—are we going to try to cap the number of awards? Here it’s a cap on the maximum number of proposals, and that’s set by the agency. There’s no specific cap in the legislation. It also expands requirements for federal agencies to evaluate security risks for small businesses that apply.

And if the agency denies an application for security reasons, the agency must provide the small business with a basis for such determination. We’ve heard from companies that are getting denied, and they don’t get a reason. The legislation requires the agency to provide the basis for that. So that’s the new Public Law 119-83 extending the SBIR program. It gets five years, so it’s now authorized through 2031—through Fiscal Year 2031. Hopefully, we don’t have to deal with all this stress and back and forth on the SBIR program when it gets to 2031.

OHA Suspension Appeals and the 8(a) Data Call

On the OHA front, OHA has been busy with the suspension appeals. Let’s see, 714 is the last one I saw. These are numbered sequentially, so you can kind of see how many they’ve done. Let me see, 714 is still the last one. They number all these cases, and at the beginning of this, they were at 638. They’re now at 714, which means they’ve done upwards of 80 suspension cases. All of these are dismissed. We have not seen a substantive suspension decision. For the most part, they’re dismissed because SBA has told the OHA judge that they’ve let the company back into the program.

I think a lot of what happened here is companies got suspended because they didn’t reply to the 8(a) data call, and they filed an appeal at OHA. They also filed the response to the data call with SBA at the same time. Now that they filed the response to the data call, SBA can take them off the suspension list. That means SBA can let them back into the program, and OHA, even if that happens—even if there’s really not a long period of suspension—still issues the decision. For firms that are suspended, they get the time they were suspended back on their 8(a) term. So if you’re suspended for 30 days, you get an extra 30 days at the end of your 8(a) term. You still get the full nine or 10 years in the program, even if you’re suspended from the program because of not replying to the data call.

Now, there are a number of companies that have been suspended because of concerns with their economic disadvantage. They may be over—or at least from SBA’s view, they may be over—some of the thresholds for economic disadvantage: $400,000 for income, $850,000 net worth, $6.5 million for assets. Some of those suspensions are coming through in these decisions as well. All told, there are probably well over 100 cases that have reached OHA, but many of them have been dismissed, and for the most part, it is because the company has gotten back in. I’m sure there are companies in here that have withdrawn from the program as well during the course of time and just seek not to continue to push their suspension.

OHA Case Law: Nisu and Identity of Interest Affiliation

There are a couple of substantive cases out of OHA. Let me see if there are any good ones here. We do have a case called Nisu. I may be trying to set up something about Nisu in the future, so I won’t go too far into it, but it’s an interesting identity of interest case. You don’t see identity of interest come up in these OHA cases as an affiliation ground very often. I think there was a point in time where identity of interest was a much bigger deal, but in the last few years, it seems to have waned in importance. This is potentially because of the way economic dependence has changed; they kind of made a big exception that follows the economic dependence rule.

But identity of interest comes up a lot with familial relationships. People who are related can have this identity of interest ground for affiliation, and those were the facts here. This happened in multiple stages. SBA finds a firm to be affiliated or not affiliated, and OHA reviews it. At the SBA stage, the SBA had found the firms to be affiliated because I believe it was a father-daughter relationship. The father was an executive at one firm, and the daughter was the head of an 8(a) company, and they were doing business together, including through a mentor-protégé relationship. The area office found affiliation, which would cause them to lose the contract that they were going after. Let’s see if I can find out what the contract was. It was an Air Force contract for sustainment, restoration, and modernization. So they’re affiliated, they lose the contract, but OHA actually granted the appeal and vacated the decision—not reversed it, but vacated it—and remanded it to the area office. I’ll be tracking that and seeing if we can have more discussion about it in the future.

The SBA Scorecard and Category Goals

The SBA Scorecard has made it into the news lately. There’s an article by Jason Miller in the Federal News Network about changes to the SBA Scorecard, and I was actually quoted in it. I know a bit about the SBA Scorecard; I used to run it. I was quoted in the article saying it’s probably time to change the SBA Scorecard because it’s been about the same for nine to 10 years, and the administrator has the ability to change it within some statutory confines. I pointed out in an earlier article that the numbers put out online didn’t actually add up to 100%. It was 110%. Apparently, SBA heard a little bit about that from Congress. There was a letter, summarized in the Jason Miller article, that went from the ranking member on the House Small Business Committee to SBA, pointing out that these numbers don’t add to 100—they add up to 110.

I think the biggest impact, as I noted when I first looked at the scorecard, is on the trade-off between the 8(a) program and veterans. The 8(a) program used to be a big emphasis for the scorecard in the Biden administration because that administration raised the goal for small disadvantaged businesses to 15%. In federal contracting, the only way you can target small disadvantaged businesses is through the 8(a) program. So, that was a bigger use of the 8(a) program encouraged by the scorecard under the Biden administration. Here, this administration is seeking to emphasize veterans. They’ve added veterans into the disadvantaged business category. They’ve created this economic disadvantage category and say veterans are presumptively economically disadvantaged. Veterans also have another category, the SDVOSB category. So it’s not clear whether that overlaps. Are you only counting veterans that are not service-disabled for that? Are you going to double-count service-disabled veterans for that?

There are additional elements in the scorecard that consider veterans. There’s actually a standalone category called “Serving Our Veterans” that is worth 15% of the scorecard. It says that increasing award dollars in outreach to SDVOSBs and veteran-owned small businesses could earn agencies that 15% of the scorecard, although I’m not sure if it’s going to stay 15% if it all adds up to 110. I told Jason Miller this in the article: my general view on the scorecard is that it can be effective for a bit. It leads to a letter grade. It’s good for agencies to get A’s; they want to get A’s, and people expect them to get A’s. But I think it’s more important to hold agencies to the actual numerical goal. There’s a 5% SDVOSB goal. The Department of Defense does not meet that 5% goal. Many agencies do. The VA is at over 25%, so they meet that goal. But a lot of agencies don’t meet that goal. I think it’s more important to hold agencies to those goals than it necessarily is to get them an A. Because you can see here, okay, you get 15% for increasing outreach. What does that really mean? How do you get that 15%? These things can go back and forth on the grade. Sometimes you can work the grade a little bit, just like you can in high school and college, but you can’t work the numbers. The numbers are what they are, and agencies that don’t meet their numerical goals should be held to account. I would focus more on those than I would on the grades.

Regulatory Developments: FAR Council and DEI Executive Order

Going over to other regulatory developments, there was the executive order that I discussed in my last podcast on addressing DEI discrimination. The FAR Council came out very quickly with its deviations for that executive order. They had a 30-day deadline, and they did it ahead of that deadline, which is pretty incredible. I think they actually did it the day before I filmed the podcast; I would have talked about it otherwise. The deviations are very similar to what you saw in the executive order. I’ll be talking about that a bit with my next podcast guest, Scott Flesch. The timelines are very aggressive on these deviations, and they also include incorporation into existing contracts. By July, agencies should look at incorporating the deviations into existing contracts through a bilateral modification. It says if a contractor refuses to agree to a bilateral modification, the CO should consider whether, absent the modification, the contract no longer meets the agency’s needs and should therefore be terminated for convenience. That’s a good reason for contractors to strongly consider allowing the modification to the contract, because otherwise, the CO will strongly consider whether it might be terminated for convenience. We’ll be talking about that in the future.

Q&A: AI in Source Selection and Bid Protests

Okay, I’m going to go to questions that I’ve received online, first in the articles, and then if there are any in the chat, I’ll go over those questions too. On the last podcast that I had in North Carolina, I talked about AI legal risks and what law firms were doing with AI, and what the government was doing with AI. There was a GSA clause on AI. There’s a good question in the comments about the government using AI as part of source selection. If the RFP states that the government is using AI to help in source selection, is that protestable, particularly since there aren’t any bumpers or guardrails for AI? I think that’s happening; I’ve seen it out there. Lufield Consulting is putting out some information about AI and source selection and how to deal with that.

I think we’ve seen it with SBA already with the terminations and suspensions. It looks like a lot of these suspension letters are at least combed through by AI, if not written by AI. And yes, is that protestable? If it’s unreasonable, then certainly it is. I think that’s why you see so many suspension appeals at OHA, and seeing that OHA is dismissing those because SBA is lifting those suspensions. A few of those suspensions might be lifted because AI got it wrong when it was going through and looking through all these files.

I think you could look at the same with AI in source selection. I always thought of it as having inherently governmental tasks, and source selection is inherently governmental. You’re not supposed to have contractors rating proposals. Shouldn’t it be the same way for AI? Could we use the inherently governmental guidance to say there has to be a human looking at this as well, because an AI is conducted through a contract? I suppose, unless you have an AI government employee, you’d have to develop the AI yourself within the government. I don’t think that’s happening. So I’d want to have some sort of explanation as to why the government is doing inherently governmental tasks under the OMB memo using AI. I’m sure it’s happening, though, especially with government employees leaving because of RIFs. There’s this Article II decision that came out recently, and government employees are leaving because of that. There are just fewer government employees around, so whether they’re directed to by their agency or not, I’m sure there’s AI being used in procurement. But yes, is it protestable? The AI is going to make mistakes. It’s probably going to make a lot more mistakes than humans will. We talked about that with Jackson Moore as to how many mistakes judges are pointing out during protests and such. So those mistakes are certainly protestable, no question.

Q&A: 8(a) Sole Source Trends for Native-Owned Firms

Then I got a question, and I have some data for this, so I’m excited to talk about it. Major Clark, who used to be the acting chief counsel for advocacy, asked: what’s the impact of the transition away from 8(a) sole source contracts on Alaskan and Native American businesses? And then, what are the characteristics of the small businesses that are winning sole source contracts? Let me share my screen on this, but I went back and looked at the data and updated it for 8(a) sole source awards. This is in the context of my article that said 8(a) sole source contracts have cratered. They were 50% more in previous years. In 2024, they were about 870, and then in 2026 they fell to 590. So a pretty big decrease—about a 40% decrease in 8(a) sole sources. Who’s getting those? Well, at this point in the year—so we’re about a month after I published that article—we’re now at 772 8(a) sole sources. This is still considerably down when you consider there were almost 900 the previous year.

Of those 772 as of the end of April, a little bit more than half are individual. There are 450 sole source contracts to individually owned firms, and 323 to Native-owned firms, which includes Tribal, ANC, and Native Hawaiian. Of those, 235 are to Alaska Native Corporation-owned firms. Individually owned firms still make up the large number of 8(a) firms, so they’re still getting a large number of 8(a) sole sources. There is a very considerable number going to ANCs, and then a smaller number to the tribes and Native Hawaiians. If you look at the number of sole sources by firms, though, it is dominated by Native-owned firms. I looked up all the sole source 8(a) contracts in Fiscal Year 2026 and the number to each individual firm. The top one is Chenega Government Mission Solutions. It has won nineteen 8(a) sole source contracts in Fiscal Year 2026, and of course, that’s a Native firm.

The top three are actually all Native firms. You have to go all the way to number four to find the first individually owned firm. That’s a firm called Aleto, out of Arlington. They got eight 8(a) sole sources. If you go all the way to the top 16, that’s the only one that’s individually owned. So the bulk of the multiple 8(a) sole source award winners are Native-owned firms, especially when you’re above five awards. The top individual ones are Aleto with eight, and then the next ones have four. So they’re being spread very evenly across individually owned firms, maybe just because there are so many more of those. Thank you, Major Clark, for that question.

Q&A: White House Procurements and Sole Source Contracts

I got another question on that post about 8(a) sole sources from Bill Elmore. He used to be at SBA in the Veterans Office. He said he’d be interested in the White House’s procurements and how those have progressed. Just in time, The New York Times did an investigative story to answer Bill’s question about how the White House’s procurements are going. There’s an article published by David Farenthold, Luke Broadwater, and Andrea Fuller titled, “The Firm Building Trump’s Ballroom Got a Secret No-Bid Contract for a Nearby Job.” The National Park Service increased the value of the contract several times over and then awarded it to Maryland-based Clark Construction in a process that experts said was highly unusual.

The circumstances involved Lafayette Park across from the White House. The Biden administration estimated the contract at $3 million. It was awarded to Clark for about $12 million, and then it got increased to $17 million. So it ended up well above the estimate and even above the original award amount. Because this same firm is building the ballroom, the suggestion in the article is that they’re getting extra money for the park because they’re working on the ballroom. It’s not said in those exact terms, but that seems to be the suggestion. They quote Steve Schooner and others about how this is really unusual to see. First of all, a sole source contract for the repair of a park is highly unusual because it’s not like somebody’s going to die because the park is in that shape. And also, it is highly unusual that there’d be such a large financial increase for the park project. I’ll put a link to that very well-researched story into the show notes.

Q&A: 8(a) Certifications and OHA Remand Timelines

We have a question from the chat now from the people on the live stream. Michael Mataccio asked: what are your thoughts on when SBA will return to proceeding with sending out approvals and denials for 8(a) certifications? Did I check this week? It’s been August 15, 2025, for so long that I don’t always check because it’s kind of boring if it’s the same every time. Let me go in and check. It’s been a really long time since SBA has sent approvals, but it’s also interesting to hear that maybe they haven’t been sending denials as well. I’ve heard from some firms—people contact me and say they’re in the last step of the 8(a) process, but they still haven’t gotten anything on their 8(a) application. It seems like if there are enough people experiencing this, they should bring some sort of request to SBA. There is a regulation that says SBA will decide applications within 90 days. So if there are companies out there that have been waiting for years in some of these cases, they’re definitely past that 90-day period.

Let me go in and check the database to see what the last firm is. Let’s see... no prediction on my part, certainly. I can’t tell you what SBA is going to do. I guess I can say that the staff doing the applications is probably the same staff doing the suspensions and terminations that may be wrapping up. So to the extent that the application processing shifted to the suspension processing, maybe those people can shift back to applications. Looking at the database, yes, the most recent firm still remains a firm that was certified on August 15, 2025, at least according to the SBA search website.

Then we have a comment or question from David Timm: how quickly do you expect SBA to issue a new size determination after an OHA remand? It varies a lot. There was a case about six months ago where OHA had remanded a size case to the area office. I think it was to find the firm other than small, but it had been nine months, and the firm still hadn’t gotten the remand decision from the area office. So OHA, in a very rare type of case—I’ve never seen one like it—just declared the firm to be small or other than small; I’d have to go back and find that case. But in that instance, it took nine months. There was another remand case recently involving JP Morgan, finding that JP Morgan was an investor with negative control in a company, and that was a remand as well. You can check to see how long SBA took to decide the remand in that case.

All right, that’s all I have. Thanks for joining me for data and case law updates, legislative updates, and tracking the SBA budget goings-on within the SBA Office of Advocacy. Keep your questions coming. I’ll have another podcast next week with Scott Flesch, where we’ll be going over recent bid protests and the executive order. Feel free to take a look at that, comment on it, and we’ll see you again soon. Thanks for joining, everybody.

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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.

Links

Jackson Moore at SmithLaw.com

NCMBC Summit

Turning Chats Into Trial Exhibits: Litigation Risks of Generative AI Use (smithlaw.com)

You Can’t Spell Sanction without “A” and “I”: When Unchecked AI Hallucinations Result in Court Sanctions (smithlaw.com)

Whitting v. City of Athens (6th Cir. 2026)

AI Hallucinations database (damiencharlotin.com)

Appeals of Huffman Construction LLC (ASBCA Oct. 23, 2025)

U.S. v. Heppner (S.D.N.Y. Feb. 17, 2026).

Steve Koprince: What aspects of federal contracting AI is most likely to get wrong

Proposed GSA clause 552.239-7001, Basic Safeguarding of Artificial Intelligence Systems

Executive Order on Addressing DEI Discrimination by Federal Contractors

IBM Pays $17 Million to Resolve Allegations of Discrimination Through Illegal DEI Practices (justice.gov)

A transcript follows.

Introduction and Guest Background

Sam: All right. Well, for GovCon Intelligence, we’re reporting live from the North Carolina Military Business Center Summit here in Wilmington, North Carolina. And my guest today is Jackson Moore. Jackson, welcome to GovCon Intelligence.

Jackson: Welcome. It’s a beautiful day here in Wilmington, North Carolina. It’s been a great conference. Glad to be here.

Sam: Thanks very much for being on the show. Wahoowa, by the way. Jackson Moore is a graduate of the University of Virginia undergrad, but graduated from Duke Law School, another ACC school rival, in ‘95. He’s been an attorney at Smith Anderson in Raleigh, North Carolina since 2001, focusing on government contracting and business dispute resolution. Smith Anderson has about 170 attorneys in Raleigh. Just moved into a new building, I hear.

Jackson: Or renovated some existing space, so it’s great.

Sam: That’s terrific. So, a growing firm. Your GovCon practice includes compliance and bid protests before the GAO, the SBA Office of Hearings and Appeals. We work on REAs, so here working with construction contractors, a lot of REAs are involved in that. You also likely have claims in front of the Armed Services Board of Contract Appeals and CBCA. Drafting agreements, subcontracts, joint ventures, and teaming arrangements to comply with the FAR and North Carolina laws. Are you primarily working on federal laws with North Carolina or state?

Jackson: We also work on public-private projects and infrastructure in the state of North Carolina and the Southeast.

Sam: How’s it look here?

Jackson: There’s a lot of stuff being built. There’s a lot of need. There’s a hospital that is going to be built in the Triangle area to deal with mental health. That’s a first for the state, and that’s very exciting. We hope to be able to work on those opportunities, for sure.

Sam: That’s great. That’s kind of fun to walk around and see a building that’s built or a hospital and say, “Oh, I had a little part in that.”

Jackson: Yeah, absolutely.

The Use of AI in Government Contracting Law

Sam: That’s very interesting. Well, I wanted to have you on because you published an article recently about the use of AI, artificial intelligence, in government contracting, and specifically with the practice of law in government contracting. I see these things on LinkedIn every once in a while; AI is going to get rid of these jobs. Coding is one of them. Another one is lawyers. And I see this sometimes with my clients. They look things up on AI ahead of time and they come to us and they say, “Oh, well, this is what Claude told me, or this is what ChatGPT told me,” and I think, “What is my role here now? Am I the lawyer or is ChatGPT the lawyer?” So tell me a bit about how AI is being used in government contracting and specifically in the practice of government contracting legal services.

Jackson: It’s interesting, and I’m a big fan of these AI tools, if you know their limitations and what they can do. I think the primary challenge, Sam, with respect to these AI tools is they’re not searching databases necessarily for information. They’re language completion models, and they’re not thinking the way that you and I are thinking. So if you go ahead and ask a legal question to your AI tool, it will give you an answer and it may look like a very good answer. But it may be spectacularly wrong. One of the things that has come up in a lot of published decisions is where you have parties, whether they’re representing themselves or whether they’re represented by lawyers, presenting cases and arguments to the courts that are fictional. They’re hallucinations, and parties are getting sanctioned; lawyers are getting sanctioned.

There’s a decision recently from the Sixth Circuit Court of Appeals that sanctioned a party tens of thousands of dollars because multiple fake cases were presented as real cases to the court. So there are risks there, and parties who are especially thinking about presenting information or arguments in bid protests or claims to the federal government really need to scrub their information and make sure that they are citing accurate stuff to the court. Otherwise, you may wind up in the same position as those parties in the Sixth Circuit of being sanctioned by the court or the tribunal.

Sam: So is this primarily companies that are representing themselves in front of the court pro se, or are they represented by attorneys as well?

Jackson: It’s a mix. Part of the reason why lawyers are getting sanctioned representing parties is they don’t understand what the tool is doing. It will give you an answer, and you just need to go back and check and make sure that the answer is accurate, that the case exists, and that the argument presented by the AI tool exists. So it’s a mix of people who are pro se with no lawyers and people who are represented by barred attorneys. You just need to be careful about that. There’s a professor in France, of all places, who’s been gathering and keeping track of all these instances where a court has pointed out or sanctioned somebody for citing to a hallucinated case. I think he’s up to 1,200 published decisions.

Sam: Oh, wow.

Jackson: Mostly in the US.

Sam: I think I saw the Armed Services Board of Contract Appeals was very harsh against one of these representations and briefs in front of the ASBCA.

Jackson: Yeah, and it’s the kind of blocking and tackling that you would expect a party, and especially an attorney, to be checking. Because if you’re going to go ahead and present something to the board, or the court, or the agency, or the GAO, you’ve got to make sure that it is accurate. If not, you’re making a misrepresentation to the court. If you’re not checking it, then you’re just not doing the baseline work that you need to be doing.

Sam: That’s interesting because contractors use case law in front of the BCAs. They use it in front of SBA OHA and GAO, but they also sometimes use case law when they’re just corresponding with agencies and contracting officers. They say, “Well, let’s give an example regarding limitations on subcontracting. You may be interpreting limitations on subcontracting this way, but there’s also this case at the GAO or OHA that says this.” And if the contractor is using AI for that, they may be getting those cases completely wrong, and that really kills their credibility as well. So you need this verification at multiple stages in the process.

Jackson: I think anytime you’re going to tell a governmental agency, “I should win because of X, or this case says X,” you need to go back to the case and just make sure that the case exists. A lot of these cases are instances where the AI tool is designed to give you an answer. It’s going to come up with an answer. It may give you a beautifully looking answer as far as cases and citations, but it doesn’t exist. You just need to go back and make sure it exists, make sure it’s correct, and then you can go ahead and proceed and present it to whoever you’re speaking to. Because you lose credibility and you could be sanctioned.

Sam: Yeah, I saw that all the time when I was counsel at the SBA. People presented arguments to me to try to intervene on a case and they presented cases, but it’s not before a forum. It’s not like I can sanction them, but it does hurt your credibility and I think, “Oh, well, you’re not serious about this, or you haven’t really looked into this.”

Confidentiality and Data Privacy with AI Tools

Sam: On the other side of it, there may be contractors that are using AI for preparing their proposals or preparing for some side of negotiation or litigation, and they’re putting information into AI tools. It could be specialized AI tools, or it could be Claude or ChatGPT consumer-based tools that everybody has access to. What are you advising clients about putting their information into AI tools?

Jackson: Well, let’s start with their own information because they can do whatever they want with it, theoretically. If they’re taking somebody else’s information, then there may be additional problems. But let’s talk first about clients taking their own data and sharing it with an AI tool. I think the first thing that clients need to be looking at before they share anything with the AI tool is, “If this gets publicly released or is used by the AI tool, do I care?” And if you’re taking confidential pricing data and you’re sharing it with a third-party tool, what does my agreement say with the tool? Are they going to be able to use Claude or ChatGPT to use my data for purposes of training the model? Or are there disclosure rights that the party receiving your data has? If you do, then you just need to understand that you’re potentially waiving confidentiality that would otherwise apply to this information.

There was a case that is not necessarily exactly on point, but as a warning, there’s a criminal matter pending up in the Southern District of New York, an important federal court, where the judge issued an order that required the criminal defendant’s chats with Claude to be turned over to the Department of Justice in his criminal matter. Now, the questions that he was asking Claude related directly to his lawsuit: “What defense can I raise in connection to this securities fraud matter?” So, you lose confidentiality potentially regarding that information. One thing that we’re cautioning clients is if they’re taking trade secrets or attorney-client information, be very careful about sharing that information with these tools because you may no longer have attorney-client privilege or work product protection that might apply to that data.

As far as thinking about third-party information, what if an agency gives an agency record in connection with a bid protest? Same problems, probably even more so. You’ve got protective orders that are going to vary by court and jurisdiction, and that’s going to vary by court, judge, and the sophistication of the agency or tribunal. If you go ahead and put that kind of information up in a publicly facing open-source generative AI model, you may have breached the protective order that applies to that material because you now have given that information to a third party.

Sam: I wonder if courts are going to start mentioning that in their protective orders, that this does not just apply to your organization, but also to the use of AI tools.

Jackson: There are some cases that are coming out after this. The decision from the Southern District of New York is called Heppner. One of the other two cases that we talked about in our alert that we issued last week was another decision that actually disagreed with parts of Heppner, but also issued a protective order that essentially said, if you have a generative AI model that has certain protections—that does not use the data that you upload to train the model or otherwise disclose the information to the generative AI tool—then you can use generative AI for that purpose.

Sam: Oh, you can? Okay.

Jackson: So they authorize that.

Sam: If you look at the terms and conditions to figure out whether they’re using it for training.

Jackson: That’s right. But this is an evolving area, Sam. Courts are really dealing with this case by case, and you can’t rely on that one instance to say, “Well, I can therefore use my enterprise-grade ChatGPT for purposes that may otherwise violate the rules.” There’s not really any clarity about how courts are going to rule in this space. So really the ideal situation from the client perspective is don’t share information that you’re not willing to have disclosed to everybody with these tools. The protective order issue is fairly new, it’s evolving, and parties just need to be very careful about making sure they understand what the rule is that applies to their case, their protest, their appeal, and so on.

Sam: I know in litigation there was a time when you and I had been practicing law long enough that we realized, “Oh, we should start asking in discovery for text messages.” And asking for social media posts, you know, “What have you put on LinkedIn?” Is it now at the point that people are asking, “What have you put into ChatGPT?”

Jackson: I think the short answer is yes. And if you’re in a lawsuit where that kind of discovery is going to be exchanged, courts and parties are going to have to figure out if there is any line drawing. The court in Heppner, that criminal case I talked about earlier, talked about the fact that the criminal defendant had to turn over all his Claude exchanges. His lawyer did not advise him to do this; he just did it on his own. Whether or not that means that if your attorney is advising you regarding these tools that’s going to protect things and become work product under those circumstances, is again, not very clear. I don’t think I would rely on that line of reasoning if you’re using a publicly facing, open-source generative AI product.

Sam: That would be an odd move for a lawyer to make, saying, “Don’t call me with your question, instead put it into ChatGPT in my direction.”

Jackson: Putting aside the hallucinations, I understand why people would want to use these tools. It summarizes a lot of data very quickly. It’s like me, before I go to the doctor, I Google my symptoms and see what ailments I may have, and then talk with the expert about those things and try to get feedback. The challenge with “My lawyer said that I could” is your privacy policy or terms and conditions with that generative AI model, which is also a problem that the Heppner court raised. Claude can take the inputs that you send Claude, and then Claude can take the outputs that it gives you, and it could disclose them to third parties if it wished. It could disclose to a government agency, and it could use them to train its models.

The Heppner court said you didn’t have any expectation of confidentiality over this information because your terms and conditions said Claude could pretty much do whatever it wished with the information. That’s a slight overstatement, but you didn’t have any confidentiality expectation over the info, and a lot of people will get going with these tools and they’re not reading the terms and conditions. They’re not considering second and third-order risks that flow out from use. One reason why we wanted to alert clients is that just like I might ask Google or ChatGPT to tell me what ails me, clients are going to want to ask these tools questions to try to get legal answers. And you can expect that in discovery, if there is a later dispute, those searches are at risk of being disclosed.

Sam: It is a bit higher stakes than asking, “Oh, what’s a strange thing on my hand?” Which sometimes you get wrong as well. It’s going to tell you that you might have a 0.1% chance of having cancer, and then you go to the doctor who says, “No, it’s nothing. It’s just a blemish. Don’t worry about it.”

Jackson: That’s true. And one distinguishing feature, if you’re going to use these models, is you should take them to your attorney and get advice from somebody who is an expert in the jurisdiction and in the area of law where you’re practicing. The challenge with a lot of these models is it’s searching an extremely broad area of data to try to assemble an answer. It is not looking at a legal library. If you’re in North Carolina, where we’re sitting, it’s not looking at North Carolina law. So you’re not really sure exactly what it’s using to assemble the answer. Again, it’s not really researching because that’s not really what these tools do.

Sam: Yeah. It’s like, as you mentioned, Googling something; it doesn’t have the specialized knowledge. Steve Koprince put something out on Substack and LinkedIn this week regarding the areas that ChatGPT or Claude would be most likely to get wrong in government contracting. It’s those sorts of things. It’s in the detail. The other part of it is, because it’s searching on a broad base of information, it doesn’t necessarily know what the most recent information is.

Jackson: That’s right.

Sam: So thresholds change all the time. We were just talking in our session about the SBA’s new recertification rule or the FAR overhaul. It’s probably not going to give you great information on the FAR overhaul because the information has just come out in the last six months. Whereas it might have lots of information about the legacy FAR, it’s not going to have the most up-to-date information, so that may be a reason as well to be suspicious of what you’re getting from AI.

Jackson: Because it’s a language prediction machine. Again, that’s an oversimplification, but it’s trying to figure out and build an answer on what the most likely next word would be. And if you have, say, 20 years of decisions or FAR clauses to rely upon, there is a risk that the model is going to look at the stuff that it has more volume of, as opposed to things that are most accurate because they’re more recent. Like you say, if the SAT changes, it may be looking at an old SAT threshold because there’s just more data for it to look at. It’s going to give you the lower number, or an inaccurate number instead of the most recent one, because there’s simply less stuff for it to be looking at to try to build its prediction.

Sam: Maybe they solved this by now, but around January, everybody was asking, “Who won the last Super Bowl?” And then it would go back and say, “The New England Patriots,” which I guess they were the Super Bowl champions then, but they did not win the last Super Bowl if you were following that.

The Proposed GSA AI Acquisition Clause

Sam: I wanted to ask you about the GSA’s proposal of an AI clause. It’s GSAR clause 552.239-7001 about the acquisition of AI. This is for companies that may be using AI in their systems that they’re proposing to the government or in their deliverables. The GSA initially had a very quick turnaround for comments on this clause. They put it online for something like 10 days, and afterward, they extended those comments, but the comment period is closed now. The clause would give broad IP rights to the government over custom developments. It prohibits the use of government data to train models—you mentioned training—and mandates the exclusive use of American AI systems.

It also has a term on unbiased AI principles, which has provisions allowing the government to conduct assessments and suspend or terminate systems that include ideological or partisan judgments. So a question for you first on the IP terms. This would prohibit contractors from using government data to train their commercial models and grant the government full ownership over custom developments. Was that surprising to you as far as IP terms go, and what do you foresee? Do you foresee companies trying to push back on that? Is that going to push companies out of the market because they’re uncomfortable giving up so much IP to the government for that GSA clause?

Jackson: You know, I guess on the one hand, if the government data that’s being utilized is already what we’ll call public information, right? Because there’s plenty of data that’s published or issued by the Census, for example. Are there no boundaries on what is considered to be use of government data for purposes of training under this clause or not? I don’t know if we have good boundaries for that. I do think as it relates to the government’s ownership on custom developments, if you think about some of the data rights that exist benefiting the government in connection with work that is being performed that is paid for by government money. You have certain data rights, and you need to start making declarations and markings if you want to have a contract with the government and you don’t want the government to have unlimited rights in the data. You’ve got to start making markings and this sort of thing, at least in the DoD space. I certainly can see these AI companies being very cautious about how they provide anything to the government other than, “This is our commercial product.” This is our commercial off-the-shelf product. We’re not going to give you any customization because we’re worried about the government perhaps taking more than what the company may wish to have.

Sam: Any other comments on that clause in terms of what might be surprising to companies that are usually working in the commercial market and are now trying to transition to government? What should they be looking for if that clause does eventually end up in contracts?

Jackson: I think there’s the mention of American AI systems, and that’s defined in the draft clause as systems that are developed and produced in the United States, but it doesn’t say what produced in the United States means. And if you think about how technology companies may be using global data, they may be using foreign employees, they may be using open-source models where you’re not really able to easily discern what is considered to be domestic and international. I think for companies that are trying to offer AI to the government, that’s going to create uncertainty. Companies may say, “We’re just not going to operate in this space because of the uncertainty that surrounds it.”

The other thing that you mentioned, and we had our program earlier with a lot of small businesses here at this conference talking about the DEI executive order—sitting here in April 2026—that was issued last month. The GSA clause talks about AI systems being neutral and nonpartisan and prohibiting the encoding of ideological dogmas such as Diversity, Equity, and Inclusion. I think there’s some uncertainty about what all that means and how you address that from a compliance standpoint. Are you going to present principles to the government in advance? Because the government has the ability to run an automated audit under this clause as well to see whether your output is actually following these requirements. How’s that going to work?

Sam: I think a lot of that comes out of the experience when Google first issued Gemini, and it would output images that would always have people of color in them; Google, for whatever reason, had ingrained that into their AI system initially. So there was a big uproar after that, saying, “Oh, this is woke AI.” But in some ways, I think AI development has gone the other direction, where there have also been notable instances of other AI systems that do things that probably are outside of the norm of what you would really see in responses from AI companies.

Jackson: I think that’s a challenge with the AI products generally. We kind of talked a little bit earlier about how the AI model may return an inaccurate response because it has more of a certain type of data. As I understand it, the AI challenges as it relates to imaging is that if it has more of a certain race, gender, or creed of a person, it’s going to be more likely to give an output that follows that issue. So how do you deal with that? I’m not sure the technology experts can really address that fully, and I’m not sure how the government will properly regulate it. It’s unclear to me how that’s going to work.

Sam: That’s interesting because there’s some thought that an AI can be completely neutral, but because it’s training on prior data or prior images in this case, that may not be completely neutral. So that neutrality in whatever concept this is, the non-woke AI, is probably impossible because it’s all based on the prior training data.

Jackson: You mentioned impossible. People have different perspectives on these issues, of course. I expect there’s going to be litigation surrounding all this because if there’s an unresolved dispute, or if there is a statement that it’s going to be X, someone’s going to say, “I don’t think X is legal.” And now the courts are going to have to understand these models a lot better than they do overall to try to provide decisions on whether this clause is going to be enforceable as is. What does it mean to have a neutral AI model? Is that somehow implicating the First Amendment? Because now you’re essentially telling people their content has to be this. The government is paying for it, so that’s a little bit different as well. There are a lot of interesting and unsolved questions, and I don’t know what’s going to happen. It’s going to be interesting.

Implementation of the New DEI Executive Order

Sam: Another part that will be interesting, and we talked a lot about it in this morning’s session, is the implementation of the racially discriminatory DEI executive order. We are at April 15th or April 16th, and that means we’re about a week or two weeks away from that 30-day point.

Jackson: It was issued March 26th. Right.

Sam: Yeah. So we’re about 10 days away from the 30-day point of that executive order. What’s going to happen in 30 days? What does that executive order say? Is anything going to happen in 30 days, do you think?

Jackson: I think the executive order speaks to there being a FAR clause that agencies are going to have to start including in existing and new contracts regarding certifying effectively that there is no illegal discriminatory DEI within the company. And then that requirement is going to need to be flowed down by a prime contractor to the subs, all the way down to the last tier.

Sam: Right. There are so many aspects of this executive order. First of all, you mentioned it in there, “racially discriminatory” puts it outside of looking at sex, gender, and veteran status you mentioned. And then this flow-down concept of not only do you have to flow down the clause, but you also have to report up. The prime contractor has a responsibility to report a subcontractor that violates or may violate this prohibition against racially discriminatory DEI. How do you think that’s going to work?

Jackson: Wouldn’t it also obligate the subcontractor to notify if they believe their higher tier prime is in violation too? There are a couple of challenges with it. How are you going to ensure that you’re properly monitoring if you’re a higher tier, say a large prime with a lot of subcontractors? The executive order speaks about knowing or knowable violations of this clause. Knowing is a standard of intent under the False Claims Act.

Sam: What does reasonably knowable mean?

Jackson: Right. On the one hand, I think the courts have said that you can’t hide your head in the sand and say, “Well, I didn’t know.” But the “reasonably knowable” standard seems a little bit more opaque. I don’t think you have quite as much case authority around it compared to the False Claims Act. I think part of the issues that have come up with respect to the executive order is that it’s using the False Claims Act as an enforcement mechanism. Admittedly, you could do that with a wide variety of provisions that are in the FAR, but the direct statement that the Department of Justice is going to have this almost as a point of emphasis—we’ll have to see what that looks like.

Sam: That opens up a number of different avenues. One is treble damages. When you’re talking about the values of multiple contracts, that could be a lot of money. You’re talking about millions or billions of dollars. And then the other is qui tam cases, too. You can file as a whistleblower or a qui tam case. As a federal contractor, you may be looking at all your former disgruntled employees that may be raising their hands and saying, “Hey, you had a DEI program while I was there, and you should have to pay for that.” It could be a big industry soon.

Jackson: And then attorney’s fees possibly. And then you have an administrative penalty that’s per violation. Is that going to be for every invoice that winds up getting submitted when allegedly this clause had been violated? Who knows? We’ll have to see what that looks like. I think one way that we can get some indication of where the Department of Justice might be heading is a recent settlement that was issued between the Department of Justice and IBM. IBM agreed that it was going to pay $17 million. Of course, it admitted no liability, which is very common in these agreements, and denied any wrongdoing. But the government stated in some of the provisions of the settlement agreement what it believed was wrong, and there may be some guidance in that settlement agreement to try to get some understanding of where the Department of Justice might be heading when they’re interpreting this DEI clause when it ultimately gets issued.

Sam: When the EO first came out, there was talk in the legal community that this materiality would be difficult to prove in court, even though it says it in the executive order. But really, if you performed on the contract, how material was the so-called racially discriminatory DEI to really performing on the contract? But then, of course, you have IBM settling for $17 million. That’s not a small sum.

The quote from the Acting Attorney General Todd Blanche was, “Racial discrimination is illegal, and government contractors cannot evade the law by repackaging it as DEI. The department launched the Civil Rights Fraud Initiative to root out this misconduct, hold offenders accountable, and end this practice for good.” There’s another quote in there that says, “When a company accepts federal funding while engaging in practices that sort preferred disadvantaged employees on the basis of race or sex, the company is stepping outside the conditions under which the government agreed to contract with them, and we will hold them accountable.” So you see the DOJ making this explicit link to payment on the contract with these DEI programs, and that puts prime contractors, even small businesses, at a lot of risk if they had some of the programs that were in the IBM case.

Jackson: I think that’s right. If I remember the settlement agreement correctly, and I don’t have it in front of me, I think the government was asserting wrongdoing going back to the beginning of 2019, which of course long predates the executive order anyway. How that’s going to interact is going to depend upon the provision of a FAR clause that we haven’t seen yet and how it’s going to be interpreted and enforced in cases that haven’t been filed yet.

Sam: I want to mention that FAR clause too, because we just went through this whole experience with the FAR overhaul where that was all issued through class deviations. The FAR Council would put it out on a website, and the GSA would adopt it immediately. And then other agencies would come in sometimes 30 days after, sometimes even longer after, with deviations on their own right for the agency. And that was the first time that I can recall that being done—that a whole new FAR, in this case, had been rolled out through class deviation before notice and comment. And now you have it in rolling out this executive order. The executive order specifically tells the FAR Council to implement this within 60 days through a class deviation. So you don’t usually see class deviations coming up in an executive order, but this seems like this is going to be the new normal. If you can get a FAR clause done in 60 days, why wouldn’t you try and do that? But that does put pressure on your clients, on industry, to shift very quickly.

Jackson: Yeah, no, I think that’s right. And we’ll have to see the additional background that was submitted in connection with the clause itself when it winds up getting issued. I mean, do you think that kind of flows out from the UNC/Harvard admissions case? They’re essentially saying, “Well, this is now Supreme Court authority, and we’re simply enforcing it.” Is that sort of the support, do you think?

Sam: I’m sure that’s part of it. There are also elements in that case that are not recognized in this Civil Rights Fraud Initiative. At the end of that case, it says there are instances where affirmative action could be accepted. And they give the example in a footnote of the military academies. And I haven’t seen that come up in new cases. It might come up in one of these cases of the defense, saying, “Well, the Supreme Court said it’s not always illegal. There are some cases where it’s acceptable.” So I could see that footnote having a big importance in the next few years if the Civil Rights Fraud Initiative finds more companies under investigation, potentially even going to court under the False Claims Act.

Jackson: Yeah, and you would imagine, as you mentioned, there probably will be whistleblowers that are going to step forward and blow the whistle. There’s a significant financial reward for those who successfully do that. So we’ll just have to see. The challenge always with executive orders is, as you know, every time you have a new administration, you have a certain set of policies. Executive orders that were in place get reversed, other executive orders are put in their place, and the pendulum just kind of swings from one direction to the other.

Sam: And you mentioned earlier today the potential for litigation. Were you referring to litigation specifically about the executive order, or this litigation that might come in from the Justice Department through a False Claims Act case?

Jackson: I guess I was thinking primarily about the language of the FAR clause and the enforceability of the executive order. And the downstream effects when either the DOJ pursues matters or agencies are supposed to be terminating contracts if there are violations. There are going to be claims perhaps saying, “Well, we either complied, or the FAR clause was not enforceable or illegal, or I wasn’t given an opportunity to address matters.” If you can tighten up in the clause some of the language about, for example, program participation, maybe some of the uncertainties can be lessened so that the parties can at least know, “Well, we’re really only fighting about this narrow band of conduct instead of something broader.” But I would expect by the time the FAR clause gets issued, that there will be some parties who are not going to be happy about it and that they’re going to try to take court action of some kind.

Sam: Okay. Well, that’ll kick off in a matter of 70 or so days now.

Jackson: Indeed.

Sam: Alright, 60. So yeah, we’re talking about 40 days actually. That’ll be coming up with this new FAR clause. Jackson, how do people find you?

Jackson: Oh, you find me at smithlaw.com. That’s the name of our website for our firm, Smith Anderson. We’re in Raleigh. 170 or so lawyers are representing clients around the country and around the world.

Sam: Well, thanks so much for joining us. Thanks for presenting at this conference with me again. It’s great to see you.

Jackson: Thank you.

Sam: Thanks everybody.

Jackson: Bye now.

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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.

You might think that agencies instead are turning to service-disabled veteran-owned firms. That’s where SBA has been putting its resources. But that’s not the case. The number of SDVO set-asides is basically where it was in 2023 and 2024, before DOGE cuts at VA.

Instead, the shift is to small business set-asides. The data shows a 25% increase in the use of small business set-asides. These are the ordinary set-asides that don’t require an SBA certification. Businesses simply self-certify as small in SAM.gov when they register to do business with the Federal government. The 25% increase in small business set-asides is the largest jump in my data set, which goes back to 2011.

If this data holds up, it means government contracting is undergoing a big shift. For years, agencies have concentrated on awarding set-asides on SBA’s certification programs. The 8(a) program reached all-time highs in dollars awarded in each of the last four years. The SDVO program grew so much that Congress increased the government-wide goal from 3% to 5%. And the government still met that higher goal.

But this early data indicates that certifications are taking a back seat to small business set-asides. That’s now where the growth is.

Is this the end of 8(a) sole source?

This halfway data isn’t surprising. The 8(a) program is the target of SBA, which launched a program-wide comprehensive audit and hasn’t approved an 8(a) application since August 15, 2025. As of the last count, SBA has suspended—at one point or another—over 1,400 firms in the program. Hundreds of those have regained their 8(a) status, but 715 remain suspended.

SBA hasn’t told agencies to stop using 8(a) sole-source awards. But it didn’t need to. Senator Joni Ernst, as the chair of the Senate Small Business Committee, did it herself. She sent letters to 22 agencies, seeking their action to pause sole-source awards until 8(a) had undergone a full-scale audit.

Some agencies have cut back. The request was temporary, but it’s hard to see how sole-source 8(a) bounces back to prior levels. I don’t anticipate that SBA will announce a clear end of the audit; instead, the agency likely will shift to a longer-term skepticism of 8(a) participants. And sole-source as a contracting method is disfavored publicly, making it an easy target for bad press.

Here’s a list of agencies and how many new 8(a) sole-source contracts they have awarded through mid-year. Half are in the single digits:

At this point, if agencies really want to use sole source, other routes don’t attract as much scrutiny. These include OTAs, CSOs, and SBIR Phase III. Those sole-source methods weren’t as prominent when 8(a) sole-source was at a higher level 15 years ago.

Also, new policies are making it harder to use 8(a) sole-source. The FAR Overhaul directs contracting officers that they “must first try” to compete the requirement using 8(a) multiple-award contracts before using an 8(a) sole source. I don’t know what trying means there—do you actually have to hold a competition? Plus, the “must first try” conflicts with SBA’s existing rules, which require an SBA waiver to use 8(a) competitions below $5.5 million.

SBA might change that waiver rule in the upcoming, yet-to-be-published proposed rule on “Fraud, Waste, and Abuse.” At the very least—given the proposed rule’s title and SBA’s linkage of the program to “rampant abuse and fraud”—SBA will probably propose some policies to limit 8(a) sole sources. The agency already added a scorecard element on “providing competitive value to the taxpayer.” So moving away from sole sources—and toward that “competitive value”—is right up their alley. The agency can’t get rid of sole-sources entirely. But it can make them much more painful to award.

It seems the tide has turned against 8(a) sole source, despite very good arguments for it. So what takes its place?

The new winner: small business set-asides

Not 8(a) competitive. The number of 8(a) competitive awards is down over 30% from 2024. That’s not quite as much as sole source, but 8(a) competitions aren’t picking up the slack for the 8(a) program overall.

You might think that agencies would switch to service-disabled veteran-owned, but so far that doesn’t seem to be the case. DoW and VA might adjust in the second half to increase their veteran-owned awards. But at this point, SDVOSB awards are level with where they were in 2024. Similarly, women-owned and HUBZone awards haven’t changed much from historical norms.

The big winner looks to be small business set-asides. That is to say that everybody wins. You don’t need SBA approval or a certification to qualify for a small business set-aside. It’s a self-designation on SAM.gov. You still could be protested on your size status if you win. And if that’s the case, then you’d have to open up your books to SBA during the protest process, both for size—either in revenue or employees—as well as for issues of affiliation. But, unlike the other programs, small-business qualification doesn’t require a prior review by SBA.

Why are agencies increasing the use of small business set-asides? I heard a good theory from an IDIQ expert this week. Agencies are under pressure to consolidate their contracts, so they end up with fewer contracts overall. When they combine contracts, they could be consolidating contracts that were previously separately held by companies with different certifications. So you could be consolidating an 8(a) contract with a women-owned contract and a HUBZone contract. The way to allow all those incumbents to compete for the new contract is a consolidated small business set-aside.

And, indeed, the level of consolidation is off the charts. SAM.gov shows consolidation increasing 100-fold in just this first half of FY26 alone.2

Why 8(a) is still valuable—for now

The steep decline in the use of the 8(a) program doesn’t mean that participants should head for the exits. There’s still value in the program. That’s because, although the pie might be shrinking, the number of pie eaters also is going down. After all those suspensions, there are now fewer than 3,500 active 8(a) firms. And there still will be about $20 billion going through the program this year. That’s mostly because there were a lot of 8(a) awards over the past years that will continue to receive obligations through 2026.

In fact, in comparing the 8(a) program to the service-disabled veteran-owned program, the 8(a) program doesn’t look all that bad. There are 35,000 certified SDVO firms, almost 10 times the number of 8(a) firms. But the number of SDVO awards at mid-year is only about 50% more than the total number of 8(a) awards. So that’s 10 times as many SDVO firms going after just 1.5 times the awards.

With those odds, I’d rather be 8(a). That’s not to say that the odds won’t change. Agencies might continue to shift away from sole source. Or SBA might tighten the screws on sole-source approvals through policy.

Regardless, the action is now in small business set-asides. That’s a much more competitive market. There are 60,000 small businesses that have Federal contracts. And over 400,000 small businesses are registered in SAM.gov. The bright side of that market is that eligibility comes with far fewer requirements. No annual reports to SBA, like in 8(a). And no reporting on employees’ residences, as in HUBZone. You still need to understand the risks of affiliation and have basic knowledge of how size standards work. But that was the case for the other programs too.

Is it time to focus more on small business set-asides and less on maintaining SBA certifications? The data suggests the tide is turning. In a future post, I’ll look more closely at what these new small business set-asides are for and where they’re coming from.

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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. His website is www.samlelaw.com.

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

2

The FY26 number of $317 trillion is hard to believe. Global GDP is only $100 trillion, so this might be a data-entry issue. But nevertheless, here’s the proof—a screenshot from the SAM.gov Databank report.

Federal contractors across the country face harsh consequences from the White House executive order published Thursday, “Addressing DEI Discrimination by Federal Contractors.” The Federal requirements may go into effect as early as April 25. For contractors that work both on Federal projects and Virginia state contracts, the timing puts the Executive Order on a collision course with Virginia Governor Abigail Spanberger’s April 13 deadline to sign into law HB 61 and its new SWaM contracting targets.

The White House’s order makes anti-DEI requirements “material” to the Government’s payment on contracts. This escalates the penalties available to the Federal government as compared to the certification required by the Day One anti-DEI executive order. That January 21, 2025 Executive Order required a contractor certification about not promoting DEI.

And, if Governor Spanberger signs HB 61, prime contractors in Virginia may face 50% subcontracting targets for small women-owned and minority-owned contractors at the exact moment that they risk heavy penalties for “racially discriminatory” DEI practices—including subcontracting and vendor agreements—at the Federal level.

The Federal mandate requires agencies to adopt it within 30 days. Then the FAR Council is ordered to issue a FAR clause by deviation after another 30 days. Violating the requirements will be punishable by contract cancellation and termination. Agencies will “take appropriate action to suspend and debar” contractors found in violation. And the Department of Justice would consider bringing actions under the False Claims Act, while conducting prompt review of qui tam actions brought by whistleblowers.

A significant escalation in both directions

The White House Executive Order last week escalates the framework from the January 2025 order, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” The earlier order directed agencies to include a contract term requiring a contractor to “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” That Certification Provision has been caught up in litigation, including a case decided last month at the Fourth Circuit Court of Appeals. The Fourth Circuit lifted an injunction, which partially explains how the White House felt empowered to publish this order now. With the court’s decision coming so recently, though, few—if any—agencies have implemented the Certification Provision.

Last week’s order now mandates a uniform, enforceable clause specifically for Federal contracts that explicitly carries False Claims Act liability. It also attempts to address a common question about the January 2025 order: What exactly is illegal DEI? The latest order limits coverage to “racially discriminatory DEI”—thus leaving sex-based programs unaddressed. And it includes lengthy definitions for an “activity”—to include recruitment, employment, contracting, program participation, and allocation of resources—and “program participation.” Programs include training, mentoring, leadership development programs, educational opportunities, clubs, associations, and similar opportunities that are sponsored or established by the contractor.

Meanwhile, Virginia’s HB 61 seeks to solidify the Commonwealth’s SWaM (Small, Women-owned and Minority-Owned) program. The state has fallen short of the 42% SWaM goal put in place by then-Governor Terry McAuliffe in 2014. So the bill makes that 42% a statutory goal and requires SWaM set-asides between $10,000 and $200,000. Virginia agencies and covered institutions would be required to increase their SWaM utilization rates by 3% each year until attaining the 42% target. Agencies can use set-asides and price preferences to increase work with certified firms. Then, for non-SWaM primes, the bill would set a 50% SWaM subcontracting target. Governor Spanberger has until April 13 to take action on the House- and Senate-passed bill.

All this happens at the same time that anti-DEI sentiment is focusing intense scrutiny on SBA’s 8(a) program, halting 8(a) program approvals, and fueling a court challenge to the NMSDC supplier certification program; I discussed those issues in last week’s livestream.

The EO promises more audits, sector focus

In addition to making compliance “material,” the new executive order heightens contractor risk in four important ways.

First, through a clause providing for broad investigatory authority, the order will lead to more audits. The clause would require contractors to furnish “all information and reports, including providing access to books, records, and accounts” to demonstrate compliance.

Second, contractors in certain industries will face more structured reviews. The order states that OMB, DOJ, the White House DPC, and EEOC will identify “economic sectors” that have engaged in racially discriminatory DEI in the past. Those agencies will issue guidance to agencies on best practices to ensure compliance within those sectors. “Economic sectors” doesn’t usually mean what the order suggests; it’s likely that the order has specific industries in mind, like construction. This “economic sectors” language might even lead to reverse disparity studies, where the government uses data like EEO-1 reports to target audits.

Third, the clause has a snitch rule. Not only are primes required to flow down the clause to subcontractors and lower-tier subcontractors, but they also would report on subcontractors’ “known or reasonably knowable conduct” that “may violate” the clause. That puts into play not just confirmed violations, but also suspicion of violation.

And, finally, the order directs the FAR Council to use class deviations to fast-track the clause into the FAR within 60 days. The FAR Council used mass class deviations for the FAR Overhaul, a method that bypasses the notice-and-comment process required by the Administrative Procedure Act and the OFPP Act. The order also directs the FAR Council to remove FAR provisions that “conflict or are inconsistent with” the clause created by the order. This could affect Small Disadvantaged Business goals in subcontracting plans. That’s a complex issue. But because of the requirement for a class deviation process, the FAR Council will need to put out initial guidance before getting public comments that could help explain the complexity.

What happens in the next 30 days

The order tells agencies to implement within 30 days. But, as with the January 2025 Certification Provision, that might be delayed by litigation. Given the expedited timeline, though, contractors should review their programs to ascertain their risk. Some companies already went through this last year after the January 2025 order. Now they know how the Federal government is defining important terms.

Under the new definitions, areas to review include

• employee-resource/affinity groups and mentoring programs;

• subcontractor selection processes and documentation;

• training curricula; and

• sponsorships of external programs.

Then there’s the snitch rule. Not only do contractors need to certify their own conduct, but they also will report on the “reasonably knowable” conduct of subcontractors that “may violate” the clause. The FAR Council’s class deviations—due in 60 days—would presumably include specific steps on what those reports would look like and what contractors would need to do in advance to “reasonably know” what its subcontractors do. Or at least that's what public comments would say, if the FAR Council were able to review them.

By the end of those periods, we should know whether the new Virginia SWaM program has been enacted into law. The answer makes a big difference to firms that want to do business both in Virginia and with Federal agencies. And it could change the direction of these anti-DEI actions for the foreseeable future.

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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. His website is www.samlelaw.com.

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

Links and a full transcript follow.

Links

SBA’s 8(a) suspensions (Jan 22 - Mar 26, 2026)

Recent OHA decisions

Matter of ACC International Inc (OHA)

ThreatTec v. United States (Ct. of Fed. Cl.)

Stephen Bacon on the GAO’s decision in iAdeptive (LinkedIn)

iAdeptive Technologies (GAO)

VSBC Protest of Crosstown Courier Services (OHA)

News release: SBA Relocates Washington Metro Area District Office to Herndon, Virginia

Mid-America Milling Co. LLC v. US DOT (E.D. Ky.)

News release: American Alliance for Equal Rights Files Federal Lawsuit Challenging Race-Based Minority Supplier Certification Program

Ultima Services Docket (courtlistener)

S. 3971, SBIR Reauthorization

SBA OIG Audit Division 2026 Oversight Plan

SBA OIG Evaluation of SBA’s All Small Mentor-Protege Program

New York Times: The Small Business Administration lent $378 billion to keep businesses afloat. Getting paid back is proving difficult.

Pending EO 12866 Regulatory Review on Fraud, Waste, and Abuse Reforms

EO 12866 Meeting on Fraud, Waste, and Abuse Reforms

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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.

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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.

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.

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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.

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%.

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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. His website is www.samlelaw.com.

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

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.

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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.

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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.

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.

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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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4 months ago · 25 likes · 6 comments · Sam Le

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

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.

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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.

An auto-generated summary of the conversation follows.

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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.

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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.

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:

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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:

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4 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:

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.

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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. His website is www.samlelaw.com.

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

An auto-generated summary of the conversation follows.

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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.

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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.

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:

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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…

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4 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.

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. His website is www.samlelaw.com.

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

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.”

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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 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

An Open Letter to Sec. Hegseth

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4 months ago · 74 likes · Holly MathNerd

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

Contact Me

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.

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

An Open Letter to Sec. Hegseth

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4 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.

GovCon Intelligence

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…

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9 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.

Contact Me

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. His website is www.samlelaw.com.

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

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.

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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.

Contact Me

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. His website is www.samlelaw.com.

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