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

The last of a three-part series on the rewrite of FAR Part 19 on Small Business

Photo by Jovan Vasiljević on Unsplash

The Berlin Wall fell in 1989. That was a pivotal year in world history for several reasons: protestors filled Tiananmen Square and communist governments fell in Eastern Europe. And of course, as most millennials are painfully aware, 1989 was the year Taylor Swift was born.

It was also the most recent year in which the Federal government contracting saw fewer than 8,000 small-business new entrants. Until now.

New entrants have become a barometer for the health of the Federal contracting system. The more new entrants the system sees, the more we can be confident that regulatory barriers, long procurement timelines, and industry consolidation aren’t so powerful as to keep innovators and fast-growing companies out of contracting.

But according to the latest data, fiscal year 2025 was the worst year for attracting new-entrant small businesses to government contracting since 1989¹:

People started to notice the problem with declining new entrants in the 2010s. During the first Trump administration, the Center for Strategic and International Studies published a report showing that small-business new entrants had declined by 70% since the peak of the Iraq War—from over 40,000 to fewer than 13,000. GAO followed up with a similar report that identified specific barriers the Department of Defense could address to bring new companies into the defense industrial base.

Then, the prior administration made a concerted effort to measure and incentivize new entry. They stood up a supplier base dashboard, which is still available but stuck on 2023 data. They watered down the category management program and targeted harmful bundling practices, both of which had previously consolidated the industrial base.

The emphasis hasn’t entirely shifted. The newly confirmed OFPP Administrator Kevin Rhodes—the first confirmed administrator since 2019—has spoken about “increased participation by innovative small business manufacturers, [and] new entrants” and “growing and diversifying our industrial base.”

But good intentions and press release quotes aren’t going to be enough. The new FAR Part 19 is only going to make things worse by pulling away the best defense that small businesses had against unfair regulatory burdens: the Offices of Small and Disadvantaged Business Utilization. The overhaul of FAR Part 19, combined with changes to two other parts, is going to deter new entrants even more.

We might soon be looking at 1989—with its current status as a low watermark—as a goal to aspire to.

How the FAR Overhaul makes things worse

The FAR Overhaul makes the situation worse in three key ways.

First, the Overhaul diminishes the role of small business specialists, OSDBUs, and Offices of Small Business Programs housed within each federal agency. These specialists perform a plethora of assistance for small business contractors. They help small-business subcontractors get paid, find commercialization opportunities for high-tech research companies, and review large procurement events to identify set-aside opportunities. All of those responsibilities—21 in all—are required by law in the Small Business Act.

One area that is often overlooked is the role that OSDBUs and small business specialists play in addressing overly restrictive regulatory complexity and administrative burdens on small businesses.

The Small Business Regulatory Fairness Act requires each government agency to have an intake system for small businesses that are adversely affected by statutes and regulations. This is the executive branch’s equivalent of calling your local representative about a pothole. In the federal government, the person on the other side of the call is typically someone in the OSDBU.

Just last year, Congress required the Department of Defense to create a Small Business Bill of Rights. Under this Bill of Rights, small businesses can seek relief from DoD contracting agencies when facing unfair treatment. That gives OSDBUs even more responsibility to help new entrants.

But FAR Overhaul shrunk the role of OSDBU staff. FAR Part 19 had eight references to small business specialists, but that’s been cut to just one. The FAR Overhaul deleted a whole section dedicated to explaining what OSDBUs do. The FAR Overhaul also removed small-business specialists’ role in reviewing large procurements to make them more amenable to small business competition.

Meanwhile, some agencies are going even further. In April, HHS cut all but one of its OSDBU staff. The Air Force is planning to do the same. And news broke this week that the Department of the Treasury laid off its entire small-business staff. These actions strip away support for small businesses looking to get their start in contracting—tomorrow’s new entrants.

These actions might be premised on the perceived civil-rights origins of OSDBUs. There might also be a fundamental misunderstanding of what OSDBUs do—probably because the word “disadvantaged” appears in the title. Despite the title, OSDBUs have the statutory responsibility to assist all small businesses, regardless of socioeconomic status. They have been highly effective. Since their creation in the early 1980s, small business utilization has grown from less than 20% to 28.7% in 2024—a new record. But we’re already seeing that number trend down.

Required-use contracts and zombie BPAs

The other two pressure points are in the overhauled FAR Part 8 and FAR Part 16. Both of these continue a decades-long trend toward consolidating the contractor base.

The new FAR Part 8 creates the concept of a “required-use” contract. We don’t know yet exactly what that means or how it will work in practice. The new language also suggests that agencies look at government-wide contracts before they create their own contracts.

The change in FAR Part 16 is equally important. It allows blanket purchase agreements on multiple-award contracts. Agencies like this approach—they can limit competition to just the BPA holders. And it’s probably efficient if you win the BPA. But you’re just as likely to end up with “zombie BPAs”—a twist on a term popularized in a recent Congressional hearing. These are contract vehicles that everyone is competing for, but that never result in awards.

The bigger problem with this new process is that it creates another gatekeeper for potential new entrants. Now, not only do you have to spend years getting on an agency IDIQ contract with no certain return on investment, you also have to win a BPA before you can actually do work for the government.

That means more negotiations, more bid and proposal costs, and potentially another round of protests.

I’m also concerned about the loss of transparency as the government moves toward awarding primarily through BPAs on GWACs and GSA Schedules. There’s no visibility into the award process. That means there’s no way for a new entrant to tell the agency that they have a better, faster, newer way of doing things. Without that knowledge, the agency is just going to go back to the same contractors.

What can be done?

So what can we do to bring the level of new entrants back to at least where it was in 1989, if not closer to the highwater mark in 2005?

The first solution requires having dedicated people. The point of having small business specialists and OSDBUs was to have dedicated staff advocating for small businesses within agencies and serving as a designated contact point for small businesses. Eliminating those staff—as the Department of the Treasury reportedly did—encourages larger, more sophisticated firms to tilt the procurement system in their favor. This is sometimes called regulatory capture: the idea that the rules are twisted in a way to most benefit those who can comply with them. Having high-ranking OSDBUs and small business advocates serves as a bulwark against regulatory capture.

SBA needs to play a stronger role too. I’ve also always believed that SBA should be able to appeal set-aside decisions to a neutral party, like the Administrator for Federal Procurement Policy. Or at the very least, SBA’s appeals need to be heard directly by the agency head without delegation, and non-responses should be treated like an acceptance of SBA’s recommendation.

To attract new entrants, policymakers need to take regulatory burden seriously. The FAR Overhaul process rewrote the entire FAR without ever considering the additional costs on small businesses. Qualifying for required-use contracts is a cost; bidding on new BPAs is a cost; and competing for set-aside orders instead of receiving an 8(a) direct award is also a cost. The FAR Overhaul didn’t document any of these costs. Technically, under the White House’s own regulatory guidance, each one of those additional burdens should have been accompanied by ten offsetting deregulatory measures.

These aren’t new ideas, but the problem with creating policies that help new entrants is that new entrants aren’t part of the constituency yet. Tomorrow’s new entrants have little idea that today’s policies are going to make it harder for them. That’s why they need a voice. That’s why they need advocates. And that’s why the FAR and OFPP need to take deliberate steps to help them.

Or we’ll end up back in 1989.

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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.

1. Because of a data lag, the exact number of new entrants for FY 2025 won’t be available until January 2026. But given where the number is with the available data, it is extremely unlikely to end at above 8,300. The last year where the number of new entrants was below 8,300 was 1989.