Senator Mike Lee introduced S. 4390 Ending Discrimination in Government Contracting Act on April 27, seeking to eliminate socioeconomic programs for socially and economically disadvantaged individuals (SEDI)/8(a) firms and WOSBs.  Firms within the designated categories would be forced to pivot their competitive approach to federal contracting and subcontracting.

I discussed Ongoing Changes Reshape 8(a) Small Business Contracting Program in March. This article analyzes the potential impacts on and reviews the history of WOSB program only.

S. 4390 is the latest attempt to advance the administration’s DEI-related executive orders 14151, 14173 and 14222. If passed, it would reduce the SBA’s socioeconomic set-aside programs to only HUBZone and Veteran-Owned Small Businesses (VOSB). WOSB and 8(a) firms would be forced to compete under the overall small business set-aside umbrella.

Background

For federal contracting purposes, the Small Business Act 15 U.S.C. 637, Section 8 defines SEDI/8(a) businesses as

• A small business controlled by one or more socially and economically disadvantaged individuals.
• Members of an economically disadvantaged Indian tribe or a wholly owned (100%) business entity of that tribe.
• Native Hawaiian Organization.

This includes firms owned by the following:

• Black Americans
• Hispanic Americans
• Native Americans (Alaska Natives, Native Hawaiians, or enrolled members of a Federally or State recognized Indian Tribe)
• Asian Pacific Americans
• Subcontinent Asian Americans
• Members of other groups designated as representatives of an identifiable group whose members believe that the group has suffered chronic racial or ethnic prejudice or cultural bias from time to time by SBA according to procedures set forth at paragraph (d) of this section.

The SBA defines a Woman-Owned Small Business as a small business that is at least 51% owned and controlled by one or more women who are U.S. citizens and have women managing the day-to-day operations and make long-term decisions. Economically Disadvantaged WOSBs have additional financial eligibility criteria.

Unlike SEDI eligibility, which turns on racial, ethnic and tribal identity, WOSB status is defined by gender and ownership structure.

S. 4390 Section Summary

Section 2: Ending Federal Contracting Preferences for Small Businesses Owned and Controlled by Socially and Economically Disadvantaged Individuals and Small Businesses Owned and Controlled by Women:

• Eliminates the WOSB Federal Contract Program entirely.
• Strips statutory references, definitions and requirements for SEDI and WOSBs from the Small Business Act and six other federal statutes including the American Rescue Plan Act, the CARES Act, the Export-Import Bank Act and the Small Business Jobs Act and both Energy Policy Acts. This also includes the Small Business Innovation Research (SBIR) and Small Business Technology Transfer outreach programs, SB Development Center programs, and loan and export assistance sources.
• Repeals the Minority Business Development Act and NASA's minority business contracting program.
• Removes authorizations for SEDI and WOSB set-aside categories for contracting and subcontracting and eliminates the federal small business contracting goals for WOSB and 8(a) programs including the reporting requirements and eliminates the 8% annual goal for NASA contracts.

Section 3: Ending Certain Participation Goals for Department of Transportation Financial Assistance Programs:

• Reduces the requirement for airport improvement grants participation for disadvantaged business enterprises (DBE) from 10% of projected cost to 5% and removes the SEDI small business category from airport-related projects.

• Eliminates the DBE framework retaining only HUBZone small businesses as the remaining preference category.
• Removes the statutory requirement for EPA to award 8% of contract and subcontract dollars to DBEs in EPA-assisted programs.
• Removes all SEDI language and reporting breakdown for SEDI and WOSB limiting reports to “cooperatives” only.

Section 4: Ending Racial, Ethnic and Gender-Based Contracting Goals in Other Government Programs:

• Eliminates remaining Office of Federal Procurement Policy annual reporting and goal requirements for SEDI and WOSB.
• Eliminates the Department of Energy Minority Business Enterprise Program.

Section 5: Ending All Racial, Ethnic, and Sex-Based Discrimination in Government Contracting and Awards:

• Adds a new statutory ban on civilian and defense procurements, prohibiting government and contract awards preferences based on race, ethnic and sex, including flow-down requirements to contractors.
• Requires agencies with existing rules or regulations to propose rulemaking for removing those within 60 days from enactment, completion within 180 days and conforming guidance with 60 days after completion.

Historical Performance

Administration changes, budgetary, regulatory and policy revisions have driven declines in federal contracting for WOSB firms since FY 2024, with DOGE-related WOSB contract terminations accounting for 68% of all small business contract cancellations. Between FY 2021 and Q2 FY 2026, the federal government awarded $10.7B in WOSB prime contracts; civilian awards accounted for $5.6B and defense awards for $5.1B. Professional Service contracts represented nearly half ($5B) of all WOSB and IT contracts received $2.4B, an indication of sectors likely to be impacted the most.

From FY 2024 to Q2 FY 2026, overall WOSB prime contract spending fell by $1.7B. Defense contracts fell by 82% and civilian awards dropped by 78%. From FY 2024 to Q2 FY 2026, Professional service fell by 80% (-$808M), IT by 84% (-$404M) and AEC by 87% (-225M), indicating sectors that could be affected the most. Passage of S. 4390 would further constrain opportunities and awards.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractor Implications

Should the bill pass as written, the WOSB and 8(a) federal contracting landscape could be decimated by the elimination of new and recompete opportunities, including sole source awards. Additional contract cancellations may also result from agency consolidations or ongoing efficiency initiatives further constraining the prime contracting pipeline. Furthermore, WOSB and 8(a) firms would lose their competitive advantage by shifting them into a larger pool of small businesses with deeper pockets or larger workforces. The worst-case scenario could force some firms out of the federal market.

Given the devastating impact on the affected small businesses, S.4390 is unlikely to be enacted as written. However, ongoing pressure from DEI-related and efficiency executive orders suggests a possible compromise.

Opportunity Outlook

Over the next 18 months, the federal government opportunity forecast includes solicitations for an estimated $2B in WOSB contracts. This includes new and recompete opportunities based on federal acquisition forecasts, current contract data from USAspending.gov and agency publications.

 

 

 

 

 

 

 

 

 

 

Pivoting Strategies

Meanwhile, opportunities are growing in defense, energy, space and emerging technology sectors including artificial intelligence, quantum computing and cybersecurity. WOSB and other SEDI small businesses should prepare now to mitigate future changes and compete for the new opportunities. The chart below provides suggested pivoting strategies.

 

 

 

 

 

 

 

 

 

 

For more information, the Deltek on-demand report on the Women-Owned Small Business Contracting in a Changing Federal Landscape is available here.