Government Contracts Intelligence Briefing

In a series of releases, the Department of Defense/War announced in writing and on social media that it is reviewing 8(a) and small businesses awarded contracts to ensure compliance with subcontracting requirements and current priorities. Contracts that do not comply will be terminated for convenience.

This follows recent efforts by the Small Business Administration (SBA) to review potential fraud within the 8(a) program through document requests from all contractors that are part of the 8(a) program. Following that, 1,000 8(a) contractors were suspended after apparently failing to provide the required documents.

Background

On January 16, 2026, Secretary Hegseth released a memorandum to senior Pentagon leadership declaring “a line-by-line review of all small business sole source and set aside awards above $20 million in contract value.” The review will have two stages: First, the Department will work to identify any contracts that are inconsistent with the Department’s warfighting capabilities. Second, the Department will review every set-aside and sole-source contract to determine whether the work is “illegally” being passed to larger ineligible business.

Additional Detail of the Review

The attachment to the memorandum provides more detail on how this initiative will be executed. To start, by January 31, 2026, each Department component is required to identify:

1. all sole source awards to an 8(a) firm in an amount over $20 million;
2. all set-aside awards to an 8(a) firm in an amount over $20 million; and
3. all set-aside awards to a small business in an amount over $20 million (identifying the type of set-aside).

Any identified contract that “is not critical to the Department’s warfighting capabilities” will be terminated for convenience.

For the above-identified contracts not terminated for convenience, a secondary review will take place by February 28, 2026. This secondary review will require Department components to review each contract’s performance data to ensure compliance with any limitations on subcontracting. Any evidence of non-compliant subcontracting will be sent to the Department’s Inspector General along with the SBA and (potentially) to the Department of Justice for review. The review requires examination of (1) invoice and payment records, (2) Contracting Officer Representative’s Logs/Reports, (3) points of contact information, and (4) contract deliverables and technical reports. It also requires that components ensure that the contracts are being performed at or below market rates, which may require prime contractors to provide additional information at the Department’s request.

Once the review is completed, the Undersecretary of War (Comptroller) and the Department’s DOGE team are to be provided:

1. a list of all sole-sourced or set-aside contracts identified in this review;
2. a list of all sole-sourced or set-aside contracts identified in this review that were terminated for convenience;
3. whether any sole-sourced contracts not terminated for convenience can be performed by other providers at a better value (irrespective of whether they are small businesses or not);[1]
4. a list of all contracts where the subcontractor performs more than 50% of the work;
5. a list of all contracts which are performed above market rate but cannot be terminated for convenience immediately (with a plan to terminate the contract within 90 days); and
6. an updated FY2027 budget in light of the changes identified above.

This initiative was amplified by more explicit direction from Secretary Hegseth. In a video posted on January 16^th, the Secretary announced that “[w]e are taking a sledgehammer to the oldest DEI program in the federal government—the 8(a) program.” The Secretary also stated that “[f]or decades, this program, 8(a) has been a breeding ground for fraud, and this administration is finally doing something about it.”

It is clear that the Secretary is approaching the 8(a) program with a belief it wastes taxpayer dollars and provides services or products not aligned with the core mission of ensuring that warfighters are given every opportunity to fulfill their mission. That being said, the 8(a) program (and small business set-asides) often provide a gateway for the federal Government to introduce innovative products and services. Because this administration has repeatedly expressed a desire to introduce nontraditional government contractors to the government marketplace, it will be interesting to see what other avenues the administration may open to do so.

Over the last couple of years, the Department has attempted to direct dollars away from the 8(a) program. According to data obtained by Federal News Radio, 8(a) companies have been awarded less in 2025 than in the previous few years. Even the last year of the Biden administration saw declines in 8(a) awards.

How Contractors Should Prepare

Contractors that will have contracts reviewed under this initiative should redouble efforts to ensure they are performing the work consistent with legal requirements. Further, companies may want to proactively develop a narrative as to why the work is critical to the Department’s mission in the event they are asked or believe that they’re at risk to be terminated for convenience. 

What to Do If a Contract Is Terminated

If a contract is terminated for convenience as a result of this initiative, it is important to keep in mind that the Government’s right to terminate is not unlimited. As noted above, termination may not be permitted where the Government is simply seeking a better bargain: “A contracting officer may not terminate for convenience in bad faith, for example, simply to acquire a better bargain from another source. “Krygoski Constr. Co. v. United States,” 94 F.3d 1537, 1541 (Fed. Cir. 1996). 

Should a termination be successful, however, companies have a right to seek termination costs. Depending on the applicable FAR clause, that could include profit, payment for work in progress and the costs of seeking termination payments, among other things.

If you have additional questions, please feel free to reach out to your Hunton government contracts attorney.

[1] It is important to note that the Government’s right to terminate is not absolute. For instance, termination may not be possible because the Government finds a lower price elsewhere.