8(a) Firms May Feel the Heat from Recent Small Disadvantaged Business Goal Reset

Published: February 06, 2025

Federal Market Analysis8(a) ProgramFirst 100 DaysPresident TrumpSmall Business

Elimination of Diversity, Equity and Inclusion (DEI) programs and requirements is changing the federal contracting landscape for Small Disadvantaged Businesses (SDB).

The recent revocation of executive order (EO) 13985 Advancing Racial Equity and Support for Underserved Communities through the Federal Government and other Diversity, Equity and Inclusion (DEI) programs threatens substantially impacts for Small Disadvantaged Businesses (SDB).

All SDBs must be socially and economically disadvantaged, owned by one or more disadvantaged persons and considered small according to the SBA’s size standards. The federally recognized disadvantaged groups are Indian-Tribally Owned Concerns, Community Development Corporations (CDC), Native Hawaiian Organizations (NHC) and Alaskan Native-Owned Corporations (NHO). Because all 8(a) entrants must meet the SDB criteria for entry into the program, it is often confused with SDBs. However, not all SDBs are 8(a) firms. Therefore, changes impacting SDBs also impacts the 8(a) program.

During the last five years, the majority of 8(a) firms consisted of Black American and Hispanic American firms. Although all 8(a) firms will be affected by recent administration activities, these firms will likely be impacted the most. 

 

 

 

 

 

 

 

 

 

 

 

 

8(a) Program History

Prior to 2021, prime contracting goals for SDB firms remained constant at 5%. Under EO 13985, those goals experienced aggressive growth over the next five years gradually increasing 8(a) over the next year. In 2024, the previous administration mandated an SDB goal increase to an all-time “planned” 15% high. Had it been implemented, this may have significantly increased new 8(a) opportunities and encouraged firms to enroll in the program. 

 

 

 

 

 

 

 

 

 

 

 

 

The number of 8(a) entrants surged in FY 2016 due to dedicated efforts to build the program. Multiple program issues caused declines in FY 2017 and 2018, but participation picked up again between FY 2019 and 2021. New program enrollments dipped again in FY 2023 due the SBA’s temporary hold on new applications due to the Ultima Services Corp. vs USDA/SBA decision regarding the SDB eligibility rebuttable presumption criteria. Enrollments bounced back in FY 2024 when the SBA reopened the application process under the new rebuttable presumption guidelines, but this still did not offset the overall active participant counts.

 

 

 

 

 

 

 

 

 

 

 

 

As with enrollment levels, active 8(a) firm numbers fluctuate based on new entrants, withdrawals and graduations from the program during a firm’s nine-year participation. Deltek reports the number of active 8(a) firms based on these activities during its annual trends in 8(a) contracting webinars. In FY 2023 and 2024 the number of active 8(a) firms declined partially due to the graduation of participants that enrolled during the 2015-2016 surge. Furthermore, the increases experienced in FY 2021 and 2024 were not enough to offset the previously mentioned enrollments reductions. This resulted in a significantly lower number of active 8(a) firms during the past two fiscal years. While numbers for Q1 FY 2025 appear to imply possible growth compared to last year, this could prove to be a misnomer as the new administration implements activities related to recent DEI and efficiency-related EOs. 

 

 

 

 

 

 

 

 

 

 

 

 

8(a) Contracting Trends

A five-year review of federal contract activities shows steadily increasing awards to 8(a) firms to a five-year high of $25.9B in FY 2024 and 4% (~$1B) over FY 2023. However, it’s unlikely the trend will continue, again considering recent DEI and efficiency-related EOs and possible outcomes.

 

 

 

 

 

 

 

 

 

 

 

 

Current Landscape

On January 20, the President issued EO 14148 Initial Rescissions of Harmful Executive Orders and Actions driving the SBA reset SDB federal contracting goals. And while that lines up with the other socio-economic goals except the 3% HUBZone target, it likely impacts the broadest range of small business firms. The reduced goal may effectively decrease the number of contracting opportunities available to 8(a) firms since the government is required to award only a minimum 5% of contract dollars versus the 13% in FY 2024. This along with changes implemented from Ultima Corporation case and other recent SBA changes such as the “Rule of Two” and Defense Federal Regulation Supplment (DFARS) updates will significantly alter the 8(a) federal contracting landscape. Expected impacts from these changes include:

  • Agency-wide budget reductions and socio-economic program changes
  • Reduced DEI-related services and programs
  • Potential shift away from 8(a) set-asides to underachieving socio-economic programs
  • Possible revised qualification and compliance criteria
  • Reduced number of set-aside contracts and contract funding
  • Increased exits from the 8(a) program before graduation
  • Increased competition among surviving 8(a) contractors
  • Increased joint venture and mentor protégé programs to help surviving companies to remain in the market

Conclusions:

Contractors can expect continuing changes as the new administration advised by the Department of Government Efficiency (DOGE) seeks improved government spending and efficiencies. This makes it imperative that 8(a) firms strategically position themselves in areas related to contract performance, scheduling, cost management and compliance. Staying abreast of evolving compliance requirements can reduce potential eligibility risks. Establishing new and strengthening existing teaming relationships including Joint Ventures and Mentor Protégé partnerships can strengthen firm competitiveness and can help small businesses not only survive but thrive in this new era of federal contracting.

For additional information on the 8(a) program and other small business changes, see the following articles and reports.

For a more in-depth look at the 8(a) program and contracting trends, access the free on-demand webinar, Maximize Your 8(a) Potential: Top Trends for 2025.

The SLED and Canadian teams are providing updates and analysis on key Trump Administration actions impacting state and local and Canadian contractors. Learn more about their insights through the following links:

Impacts on the Canadian public sector

Impacts on the State and Local markets