The Small Business Administration released its FY 2025 Annual Report on January 20, highlighting a 52-year high in small business optimism. This article examines the agency’s five-year contracting performance trends shaping the FY 2026 outlook for small businesses.

NOTE: Deltek's reported spending has been adjusted to reflect the reversal of $21.6B in Department of State 8(a) contract awards due to a reporting error in September 2025, then corrected in December 2025 (FY 2026). The error inflated FY 2025 spending and will also impact final FY 2026 data across multiple areas. Additionally, percentages reflect total contracting dollars, which differ from the SBA small business goals calculations, which exclude some contract activity such as Foreign Military Sales.

Five-Year Performance Trends Indicate a Positive Outlook

Small business contracting grew steadily to $826B over five years, representing 23% of total federal contract spending. The 8(a) Business Development Program, Historically Underutilized Business Zones (HUBZones) and Woman-Owned Small Businesses (WOSB) programs experienced modest growth between FY 2021 and FY 2024, while Service-Disabled Veteran-Owned Small Business (SDVOSB) fluctuated. Small business spending ($173B) dropped 3% in FY 2025 after the error adjustment, but performance is expected to rebound in FY 2026. Similarly, 8(a) obligations fell 8% while SDVOSB remained steady. HUBZone and WOSB spending held constant.

 

 

 

 

 

 

 

SBIR/STTR Program Performance Expected to Rise

The Small Business Innovative Research and Small Business Technology Transfer (SBIR/STTR) programs showed steady growth over five years with an overall combined 80% increase from FY 2021 to FY 2025. SBIR Phase III accounted for 13.2B (+119%) over the period, but increased only 6% ($3.4B) in FY 2025. SBIR Phase I awards fell behind with only a 14% five-year growth. FY 2025 spending increased by only $ 7M. STTR Phase I contracts declined by 34% from $88M in FY 2021 to $58M in FY 2025. Ongoing uncertainty among small firms seeking to enter the evolving federal marketplace and program restructuring were contributing factors in the decreased performance.

Nevertheless, in FY 2025, the SBA provided $45B financial assistance to 85,000 small businesses through agency loan programs, increased the Small Business Investment Center portfolio to $53B and funded an estimated $29B for small businesses through the Small Business Innovative Research and Small Business Technology Transfer Programs.

Agency Performance Shows Robust Defense Spending

Defense contracts outpaced civilian contracts by $182B, with defense agencies accounting for 27% of total obligations over five fiscal years. The Department of Veterans Affairs (VA) spending led civilian spending at 17% of the total, followed by the Department of Homeland Security (DHS) ($45.4B) and the Department of Health and Human Services (HHS) ($44.8B). In FY 2025, the Army accounted for 25% of small business contracts, more than the other military agencies.

 

 

 

 

 

 

 

Government-Wide Acquisition Contracts Show Strong Growth

Government efficiency efforts drove increased category management and Government-Wide Acquisition Contracts (GWACs). Between FY 2021 and FY 2025, these top ten vehicles achieved an average 8.1% five-year compound annual growth rate.

• General Services Administration Consolidated Multiple Award Schedule (GSA MAS): $35.5B
• One Acquisition Solution for Integrated Services Small Business (OASIS SB): $26B
• Defense Logistics Agency (DLA) Special Operations (SOE) Tailored Logistics Support (TLS): $12.6B
• Streamlined Technology Acquisition Resources for Services III (STARS III): $4.4B
• Chief Information Office Solutions and Partners 3 Small Business (CIO-SP3 SB): $4.1B
• Chief Information Office Solutions and Partners 3 On Ramp (CIO-Spe On Ramp): $3.6B
• Defense Health Agency (DHA) Medical Q Coded Services (MQS): $3.5B
• Streamlined Technology Acquisition Resources for Services II (STARS II): $2.8
• First Source Information Technology Commodity Solutions II (FirstSource II): $2.6B.

In FY 2025, SEWP V utilization increased by 5% while STARS II spending fell 111% as the government transitions to STARS III. Similarly, FirstSource II contracts expired. The government cancelled the FirstSource III follow-on solicitation per Executive Order 14240 and terminated all awarded contracts, opting to utilize other GWACs.

Information Technology Dominates Spending

During this time, Information Technology products and services accounted for $200.5B in small business spending. Among the socio-economic programs, SDVOSB and WOSB programs increased slightly year over year. However, HUBZone continued a two-year decline, and 8(a) spending dropped by 6% in FY 2025.

 

 

 

 

 

Defense IT ($105.3B) spending slightly exceeded civilian spending ($95.3B) over five years, but by only 8% in FY 2025. All defense agencies experienced gradual increases, except for the Army, which rebounded in FY 2024 after a two-year decline. Health and Human Services (HHS) and Homeland Security led civilian agencies over the five years, but both decreased in FY 2025. The Department of the Treasury and VA increased by 11% and 8%, respectively, in FY 2025.

 

 

 

 

 

 

 

Commercial and Institutional Building and Construction (NAICS 236220) accounted for $67.3B of Architecture, Engineering and Construction Services contracts. IT products and services maintained steady growth from FY 2021 to FY 2024, dropping slightly (3%) in FY 2025.

 

 

 

 

 

 

 

 

 

 

IT-Related Research and Development Shows Exponential Growth

Research and Development (R&D) in IT products and services surged over the past five fiscal years:

• NAICS 541715: Research and Development in the Physical, Engineering, and Life Sciences (except Nanotechnology and Biotechnology increased from $597K FY 2021 to $12.7B in FY 2025
• NAICS 541714: Research and Development in Biotechnology (except Nanobiotechnology) increased from $714M to $1.9B during the same period.

R&D pending is expected to level off as agencies transition to deployment, integration and implementation activities supporting AI and cybersecurity. The Top IT NAICS Codes (five-year totals) are:

• 541519 - Other Computer Related Services ($68.2B)
• 541512 - Computer Systems Design Services ($30.9B)
• 541330 - Engineering Services ($25.4B)
• 541511 - Custom Computer Programming Services ($18.4B).

Key Takeaways for Small Business Contractors

Despite a 3% decline in small business spending in FY 2026 (due in part to the data correction in December 2025), contracting is poised to rebound in FY 2026 with the Administration’s focus on AI, quantum computing, energy dominance and defense readiness. Increased contract consolidations under GWACs will continue, increasing the need for contractors to seek positions on these vehicles to remain competitive. Emerging opportunities will likely surface for both prime and subcontractors in defense and civilian shipbuilding, infrastructure construction supporting data center development and nuclear reactor facilities, and among the large energy management and operations contracts. Cybersecurity support related to these efforts will also drive increased IT opportunities.

Contractors can strengthen their competitive position by ensuring compliance and certification for the small business programs. Shifts from the 8(a) contracts to other socio-economic categories may arise due to heightened scrutiny of the program, particularly considering the recent 8(a) contractor suspensions. Agency deviations from the Revolutionary FAR Overhaul will also inform acquisition decisions along with increased contracting officer authority for small business set-asides. Agency reorganizations, workforce reductions and evolving requirements will create challenges, but firms able to pivot will position themselves for greater success. Finally, SBIR awards are expected to increase as evidenced by the recent $3.2M National Institute of Standards and Technology awards to small businesses developing artificial intelligence, quantum computing, semiconductors, and other technologies.

Additional information on small business contract trends are available in GovWin Market Analysis free webinars: Top 8(a) Contracting Trends for 2026, SDVOSB Contracting Outlook: Trends Shaping Tomorrow's Opportunities and Top 8(a) Contracting Trends for 2026.