On January 24, the SBA announced updated small business contracting goals for fiscal year 2025, significantly decreasing some goals and standardizing targets across federal agencies. These changes bring the small business targets more closely in line with historic targets.
While new administrations frequently tweak small business subcontracting goals, these changes follow the Trump Administration’s approach to programs that seek to advance diversity, equity, and inclusion (DEI). The Biden Administration’s fiscal year 2024 goals can be found here.
Impact on Small Disadvantaged Businesses: Revised Goals and Targets
The revised goals lower the target for prime awards to small, disadvantaged businesses. While the Biden Administration set a goal that 15% of all federal prime contracts would be awarded to small, disadvantaged businesses, the new small business contracting goals would lower that target by 10% to 5%–the statutory floor.
In addition, the revised metrics standardize goals across every agency and socioeconomic category. Previously, agencies set agency-specific goals that, in some cases, significantly exceeded statutory and administration-wide targets for awards of more contracts to small, disadvantaged businesses. These new uniform requirements may make it harder to achieve governmentwide targets.
Future Implications for 8(a) Firms and Other Small Business Categories
As these reduced targets take effect, 8(a) businesses will likely be awarded fewer contracts as agencies will be less inclined to set aside contracts for small, disadvantaged businesses. In 2024, the government awarded 12% of all contracts to small, disadvantaged business contracts. A 7% decrease from last year’s number could have a substantial impact on 8(a) firms.
The revised goals are just the most recent obstacle facing 8(a) firms. Two years ago, in the wake of the Supreme Court’s Students for Fair Admissions decision, a U.S. District Court judge found the 8(a) program’s rebuttable presumption—the supposition that individuals from certain racial groups are socially disadvantaged–violates the Fourteenth Amendment’s Equal Protection clause as “the presumption does not further a compelling governmental interest and is not narrowly tailored to achieve that interest.” This led to a revision of the program and additional requirements placed on 8(a) participants. We wrote about those changes here.
In addition, other small business categories could benefit from the revised goals. More specifically, agencies may shift their priorities to socioeconomic categories where they have struggled to achieve their goals. For example, the government has never met its 3% contract goal for the HUBZone program.
Please contact the author if you have any questions about small business programs or how the new small business goals may affect your business.