On January 16, 2026, the Secretary of War Pete Hegseth posted a video on social media announcing that the Department of War will conduct a “line‑by‑line review of every small business, sole source, 8(a) contract that is over $20 million,” focusing on impermissible pass‑throughs to large businesses. This action by the DoW aligns with broader federal investigations and audits of the 8(a) program.
Federal oversight of the Small Business Administration’s 8(a) Business Development Program has increased significantly over the past six months, with the SBA, Congress, and various federal agencies actively investigating 8(a) fraud. A key focus of such efforts has been impermissible 8(a) pass-through schemes where the 8(a) entity does not perform the minimum amount of work required by SBA regulations, instead subcontracting a large portion of the scope of work to a non-8(a) business. This audit–and now enforcement–posture includes the SBA’s program‑wide document request to more than 4,300 firms, Treasury’s department‑wide audit of preference‑based awards, and congressional requests that agencies pause certain 8(a) sole‑source awards, in addition to the recently announced DoW line-by-line review.
Timeline of 8(a) Program Audits and Investigations:
- On June 12, 2025, the DOJ entered into a settlement resolving allegations of fraud by former and current participants in SBA’s 8(a) business development program and a USAID contracting officer. As noted in the DOJ press release, $550 million in government contracts were fraudulently awarded through bribery of a USAID contracting officer.
- On June 27, 2025, SBA Administrator Kelly Loeffler announced an audit of the 8(a) program due to what SBA described as “rampant fraud—and increasingly egregious instances of abuse.”
- On July 30, 2025, the SBA Administrator directed the SBA’s Office of General Contracting and Business Development to launch “a full-scale audit of the program to stop bad actors from making the kind of backroom deals that have already cost taxpayers hundreds of millions of dollars.” Per SBA’s press release, SBA intends to collaborate with federal agencies that award contracts to 8(a) participants and began its investigation “with high-dollar and limited-competition contracts and going back over a period of fifteen years.” Id.
- On October 21, 2025, SBA suspended ATI Government Solutions (a tribal owned business by the Susanville Indian Rancheria) and three of its executives following allegations that ATI acted as a pass-through entity. SBA Administrator Kelly Loeffler used the social media site X (formerly Twitter) to announce the probe, which focuses on allegations that ATI operated as a pass-through entity, using its status as a tribally owned 8(a) firm to win sole-source contracts while subcontracting most of the work to other companies, including Accenture and other significant large federal contractors (emphasis added). Under SBA regulations, 8(a) contractors must perform a specific percentage of work themselves rather than passing it to subcontractors.
- As a result of the ATI suspension, the SBA Administrator subsequently explained in a post on X that SBA would conduct “an audit of the program to review every 8(a) contract for the last 15 years.”
- On November 6, 2025, Treasury’s concerns with ATI prompted the agency to roll out plans to conduct a “comprehensive audit of all contracts and task orders awarded under preference-based contracting, totaling approximately $9 billion in contract value across Treasury and its bureaus.” Per the announcement, the audit “will examine potential misuse of the Small Business Administration’s 8(a) Business Development Program,” and also “other initiatives that provide federal contracting preferences to certain eligible businesses.” Treasury’s focus appears to be the “use of contracting preferences that fall outside normal procurement rules” that “may have enabled large companies to use pass-through arrangements where an eligible small business retains fees for minimal participation, while subcontracting nearly all work.” Id. (emphasis added).
- On November 8, 2025, SBA subsequently announced that as part of its “ongoing investigation into ATI Government Solutions, SBA has uncovered and now suspended a network of SEVEN additional companies connected to its CEO Firmadge Crutchfield.”
- On December 5, 2025, the SBA Office of General Counsel sent letters to 4,300 contractors, mostly 8(a) program participants requesting production of three years of financial records, contracting and subcontracting agreements, and employee records by January 5, 2026. SBA’s news release describes the request as part of SBA’s ongoing effort to expose fraud, waste, and abuse. The release quotes SBA’s Administrator as describing the 8(a) Program as “a pass-through vehicle for rampant abuse and fraud.” Id. (emphasis added).
- On December 8, 2025, Senator Joni Ernst, in her role as Chair of the U.S. Senate Committee on Small Business & Entrepreneurship, sent individual letters to 24 federal agencies calling on them to pause issuance of sole source awards to 8(a) participants. In addition to halting 8(a) sole source awards, Senator Ernst called for the examination of “all sole-source 8(a) contracts awarded” and “all 8(a) set-aside contracts awarded” by each agency “since FY [20]20 for any violation of laws and regulations pertaining to 8(a) program eligibility, potential offenses as established in 15 U.S. Code § 645, and any other fraudulent or improper activity.” Id. Senator Ernst’s letter specifically mentions Department of Homeland Security (DHS) contracts held by Brice Engineering, LLC and affiliates of Calista Corporation, as being subject to investigation by her committee, and referring further enforcement action. Id.
- On January 16, 2026, Secretary of War Pete Hegseth posted a video on X announcing that “[w]e are taking a sledgehammer to the oldest DEI program in the federal government-the 8(a) program.” In the nearly five minute recorded address, Secretary Hegseth explained his concern that “these socially disadvantaged businesses don’t even do work, they take a 10 percent, 20 percent, sometimes 50 percent fee off the top, then pass the contract off to a giant consulting firm” and that the 8(a) program was a “breeding ground for fraud.” Id. As a result, Secretary Hegseth ordered “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,” and indicated that the primary focus of this review was impermissible 8(a) pass-through schemes to large businesses.
Small Businesses with “Preference-Based” Contracts Should Evaluate Risk Before Government Outreach
These actions raise significant questions and considerations for all government contractors that participate in 8(a) program activities. For example, 8(a) participants that are currently performing-or that recently performed-set-aside or sole-source awards may want to consider developing a complete picture of their program-based portfolio, including awarding agency, contract value, period of performance, applicable small-business and socioeconomic requirements, and any recertification obligations. As part of that analysis, 8(a) participants may want to further assess where on the risk spectrum the company’s participation may sit and, if appropriate, prioritize review readiness. For example, the government’s activities and pronouncements strongly suggest that the likelihood of scrutiny is higher if that entity holds or recently held prime 8(a) sole-source or set-aside awards with the DoW, Treasury, and, given recent congressional activity, DHS.
Based on the obligations imposed by an 8(a) participant’s set-aside or sole-source awards, participants may further want to consider conducting a compliance assessment that addresses both threshold eligibility and ongoing performance requirements-such as limitations on subcontracting, performance-of-work metrics, nonmanufacturer rule (if applicable), and any program-specific conditions, with the goal of reconciling certifications with performance, identify red flags, and remediate gaps before any government outreach.
Should over the course of this review an 8(a) participant identify instances of program non-compliance it should consider whether it has any mandatory disclosure obligations under the FAR. The mandatory disclosure rule requires a contractor to disclose in a “timely” fashion “credible evidence” of certain violations of criminal law, violations of the False Claims Act (FCA), and significant overpayments. Failure to make a disclosure that is required by FAR 52.203-13 and FAR 9.406-2 could create additional civil, criminal, and administrative liability for the government contractor, including under the FCA, and could increase the chances of exclusion (suspension and debarment) from federal contracting.
OTSB’s Considerations and Potential Exposure
Other‑than‑small businesses (OTSBs) face potential exposure to ongoing 8(a) investigations, reviews, and audits, among other places, when they subcontract under 8(a) prime awards or participate in 8(a)‑qualified joint ventures (including under the SBA Mentor‑Protégé or All‑Small JV frameworks). As SBA and agency audits assess performance under 8(a) sole source and set aside contracts, OTSB involvement that suggests direction, control, or performance of primary and vital requirements by the non‑8(a) party elevates affiliation and FCA risks, particularly under the ostensible subcontractor rule and limitations on subcontracting.
Most specifically, the FAR’s limitations on subcontracting apply across small‑business set‑asides, including 8(a). See FAR 52.219-14. Under the current SBA rule, the small‑business prime may not pay more than 50 percent of the amount paid by the Government to non‑similarly situated entities for services and supplies contracts, with the threshold increasing to 75 percent for special trade construction and 85 percent for general construction. Violations undermine 8(a) eligibility, implicate FCA exposure when the actual performance allocations exceed the limitations on subcontracting imposed by FAR 52.219‑14, and raise significant exclusion risk.
Given this posture, we generally recommend that OTSBs consider inventorying their 8(a) subcontracting and JV portfolios and align representations, teaming, and performance records to demonstrate compliance with limitations on subcontracting, performance‑of‑work requirements, and JV performance allocations. Discrepancies between certifications and execution are a key trigger for enforcement in current audits.
Contractors should also be prepared for parallel inquiries beyond SBA’s data call, including Treasury’s audit of preference‑based contracting, the DoW line-by-line review, and congressional requests for historic award files. These deadlines are often short, non‑responses can trigger adverse inferences or program removals, and referrals to OIG/DOJ are expressly contemplated.
McGuireWoods’ government contracting team offers full-service counsel across the federal procurement lifecycle, drawing on deep experience in the Federal Acquisition Regulation and high-stakes contract negotiations. Backed by the firm’s nationally recognized government investigations and white collar litigation practice, we advise clients across diverse sectors—including defense, intelligence, technology, healthcare, and energy—on everything from day-to-day compliance to complex litigation, bid protests, investigations, and regulatory enforcement involving federal agencies and law enforcement. For questions about these investigations and audits of the 8(a) program, or small business contracting programs more generally, contact the authors or your McGuireWoods contact.