Defense Secretary Pete Hegseth on Jan. 16 lambasted a decades-old contracting program that provides business opportunities for small and disadvantaged businesses, calling it a breeding ground for fraud and disparaging it as a “DEI” effort.
But experts and an executive from a firm that uses such contracts say the level of fraud critics like Hegseth alleged has been greatly exaggerated.
Some fear the harsh rhetoric around the program signals a desire to eliminate it, which they say would hurt small businesses and the Pentagon’s ability to quickly respond to unfolding emergencies.
In a video posted on social media, Hegseth described the Small Business Administration’s 8(a) Business Development Program in harsh terms, connecting it with diversity programs he has strongly criticized and ordering a strict review.
“We’re actually taking a sledgehammer to the oldest DEI [diversity, equity and inclusion] program in the federal government,” Hegseth said. “A program few people outside of Washington have ever heard of, that I hadn’t heard of. It’s called the 8(a) program.”
Norm Abdallah, executive vice president of Honolulu-based Native Hawaiian organization Hui Huliau, said recent criticism of the program is based on a “mischaracterization.”
“I’d hate to see the baby thrown out with the bathwater [as the result of] a couple of bad actors,” he said in a Jan. 21 interview with Defense News.
SBA’s 8(a) program grew out of late-1960s efforts by the Johnson and Nixon administrations to try to increase economic opportunities for Black business owners, in the wake of riots and unrest during the Civil Rights Movement. Through the 1970s, those efforts broadened to other ethnicities who had been economically disadvantaged, such as Hispanic Americans and Native Americans.
Today, the 8(a) program provides federal contracting preferences to participating small businesses, such as set-aside awards — for which only a select pool of contractors may compete — and sole-source awards, according to a 2022 Congressional Research Service report. It also provides training and technical assistance to small businesses to help them compete in the private marketplace.
Sam Le — a former SBA attorney and director of policy planning, who now runs his own law firm and writes a Substack on small businesses and government contracting — said the 8(a) program covers about $25 billion in contracts governmentwide each year. Of that total, about $15.5 billion in contracts were awarded by the Defense Department in 2025.
Businesses can only participate for up to nine years while they grow, and then they must graduate out of the 8(a) program. And there are firm requirements on how much work they must perform on a contract versus subcontracting it out, and reviews for compliance.
‘Breeding ground for fraud’ or small-business boon?
In his video, Hegseth said the 8(a) program may have started with good intentions but has become “a breeding ground for fraud.”
“Over the decades, as it happens, the 8(a) program has morphed into swamp code words for DEI, race-based contracting,” Hegseth said. “And here’s the worst part: In many, many instances, these socially disadvantaged businesses, they don’t even do work.”
Some recent high-profile cases of fraud have cast a shadow over the 8(a) program. In December, Sen. Joni Ernst, R-Iowa, called on all federal agencies to stop issuing new sole-source contracts through the 8(a) program until a thorough review is held.
In her release, Ernst pointed to a June 2025 Justice Department case in which four men — including a U.S. Agency for International Development contracting officer and three owners and presidents of companies — pleaded guilty to bribery-related charges in what prosecutors called “a decade-long bribery scheme” involving 14 contracts worth more than $550 million. Two of those companies, Justice said, were small businesses certified under the 8(a) program.
She also highlighted an October hidden camera video by conservative activist James O’Keefe, who caught a contracting director from a firm called ATI Government Solutions admitting 80% of her company’s 8(a) program work was actually done by subcontractors. SBA swiftly suspended ATI Government Solutions, a Native American tribally owned firm, from the program a day after that video’s release.
In his Jan. 16 video, Hegseth alleged that many businesses with 8(a) contracts take fees ranging from 10% to 50% off the top and then hire “a giant consulting firm, commonly known as Beltway bandits,” to do the actual work required by the contract.
“We’re not doing this anymore,” Hegseth said. He announced a line-by-line review of all small-business sole-source 8(a) contracts worth more than $20 million, and said smaller contracts will also be subject to review.
Hegseth said that if the department concludes any 8(a) contracts don’t “make us more lethal, it’s gone. We have no room in our budget for wasteful DEI contracts that don’t help us win wars, period. Full stop.”
Hegseth also pledged to get rid of “pass-through schemes” that he said allow a “shell company” to pose as a small business and then fob the work off on a big consulting firm.
Alan Chvotkin, an attorney and government contracting expert, said Hegseth’s assertion that 8(a) companies often do as little as 10% of the work required by contracts is inaccurate. 8(a) companies are allowed to subcontract out some work, but in most cases are required to do at least 50% of the work themselves.
Abdallah said construction contracts on the 8(a) program allow as much as 85% of the dollar amount to be subcontracted out, but that is because materials make up so much of the expense on such projects.
Ernst in December sent letters to Hegseth and other agency leaders that were critical of the 8(a) program and former President Joe Biden’s contracting policies. In its first year, the Biden administration announced a goal to grow small, disadvantaged businesses’ government contracts from 5% of agency contracts to 15% by 2025.
“While there’s no doubt that the Biden administration’s indifference toward 8(a) program integrity enabled swindlers and fraudsters to treat federal contracting programs like personal piggy banks, 8(a) program flaws have raised alarm bells for decades,” Ernst wrote to agency leaders. “Sloppy oversight and weak enforcement measures allow 8(a) participants to act as pass-through entities, snagging unlimited no-bid deals with little transparency. Every loophole guts public trust and rigs the system against honest competitors.”
Le said the accusations of widespread fraud within the 8(a) program are inaccurate. When Le dug into the $550 million bribery case Ernst cited, he said, he found that amount was the total of all government contracts involved. Le could only confirm a single sole-source 8(a) contract in that group, and that deal — to build a website for government lawyers — was worth $22,000. Another $13 million sole-source contract coded as an 8(a) deal may have been incorrectly categorized, he wrote on his website, and was awarded under the first Trump administration, not Biden’s.
In her letters to agency heads, Ernst repeated O’Keefe’s assertion that he had uncovered a $100 billion fraud scheme in the 8(a) program. Le said that given the 8(a) program awards at most $25 billion in total each year, O’Keefe’s claim isn’t realistic.
“That would have to be a multiyear scheme involving every single 8(a) contract,” Le said. “$100 billion is much beyond what is plausible in this program. The 8(a) program only accounts for about 4% of federal contract spending, and an even smaller amount of that is sole-source contracts.”
A ‘chilling effect’ — or worse — feared
Chvotkin said the government and contracting officers certainly need to be watchful for fraud and bad actors in the 8(a) program, no different than other government contracting programs. And while the review of contracts worth $20 million or more will be labor intensive, Chvotkin said it will be worthwhile if it catches more wrongdoing.
But, he said, isolated examples of fraud should not be used as a reason to shut down the entire program.
“There are cheaters everywhere,” Chvotkin said. “I’m not so naive to suggest there’s not the risk of fraud, or actual fraud, taking place in the 8(a) program. The Defense Department, just like every other agency, is right to be looking at those aggressively. But that’s different than characterizing this program as a DEI program that should be terminated simply because it’s benefiting socially and economically disadvantaged companies.”
Abdallah said he expects Hui Huliau — a nonprofit 501(c)(3) Native Hawaiian organization that owns small businesses enrolled in the 8(a) program — to be looked at as part the review Hegseth ordered, and welcomes the scrutiny. His company already submits a compliance package to the SBA each year to remain in the program, and he said good contracting officers are the first line of defense against fraud.
“Getting audited is part of the process,” Abdallah said. “We welcome it, especially if it ferrets out bad actors. … There are going to be people who take advantage of the system, and those actors, we would love to be rooted out.”
Hui Huliau’s for-profit subsidiaries provide logistics, construction, disaster remediation and other capabilities to support government agencies and military units, often overseas. Abdallah said Hui Huliau firms have operated in locations worldwide including the Middle East, South Central Asia, North Africa and the Pacific.
“We became very good at learning how to support federal initiatives in hard places,” Abdallah said. “If there was a place that someone was shooting at someone, we probably had someone there.”
Hui Huliau’s revenue from state and federal government contracts fluctuates from year to year — sometimes spiking after major events such as the wildfires in Maui and Los Angeles — but Abdallah said it is typically around $200 million annually. The company employs about 300 people, and said some of its subsidiaries’ profits go to benefit educational, social, economic and cultural preservation programs for Native Hawaiians.
Abdallah said he was shocked to see Hegseth’s video — partly because the program isn’t that big when compared to the rest of government contracting, and partly because he doesn’t see it as rife with fraud as Hegseth and Ernst alleged.
“There are unfortunately bad actors in lots of places, but nothing comes close in this space to Medicare fraud or things like that,” Abdallah said. “It’s not rampant.”
Abdallah was also surprised to see the 8(a) program discussed so negatively by Hegseth and Ernst, without acknowledging the program’s positive aspects.
Being enrolled in the 8(a) program means Hui Huliau has been qualified and vetted as a legitimate small firm, Abdallah said, and the way the contracts are structured allows the company to quickly take on work and respond to emerging needs. In the case of rapidly unfolding disasters such as wildfires, he said, Hui Huliau can be hired and on the job within 48 hours using the 8(a) program.
“Rapid response is huge in national security,” Abdallah said.
8(a) contracts also provide a good way to bring manufacturing back to the United States, Abdallah said, since some deals go to small, local manufacturers that make things that were previously offshored.
Chvotkin agreed that the 8(a) program is greatly beneficial to the government and the military.
“These are really business development initiatives, not so much DEI initiatives,” Chvotkin said. “It’s true that the beneficiaries of [the 8(a) program] are socially and economically disadvantaged companies. But there are significant benefits that the government gets from this program. It’s not a giveaway; companies are required to provide goods or perform services … just like every other contract that’s awarded.”
The only difference, Chvotkin said, is the pool of companies allowed to bid on the proposals is limited to socially or economically disadvantaged firms.
Chvotkin predicted the high-profile and intense scrutiny from major figures such as Hegseth and Ernst will have a “chilling effect” on the 8(a) program, at least for now.
“The message to the acquisition officers in the Department of Defense, if the secretary is categorizing it as a DEI program, we know what the implications are of that,” Chvotkin said. “I suspect that companies and agencies’ buying activities will stay away from this program to the extent that they can, in the short term.”
Abdallah said he’s already seen such an effect, as contracts are paused “out of fear.” He’s seen some 8(a) contracts put on hold since Ernst’s early December memos on the program, and other DOD deals that were supposed to come out in January were delayed in the days after Hegseth’s video, he said.
“If I were a contracting officer in the U.S. government, especially the Department of Defense, I wouldn’t want to put out an 8(a) contract,” Abdallah said.
And Abdallah worries about what the administration’s next step might be.
“I’m concerned that this is a prelude to trying to do away with the program altogether under the guise of crushing DEI,” Abdallah said. “When in reality, the 8(a) program is an economic development program, and predates by decades any of the current DEI things that they claim to be fighting.”
If the 8(a) program went away, Abdallah predicted it would have multiple negative effects. The military would lose an important procurement tool that provides flexibility and the ability to act quickly, he said. It will hurt small-business growth and job creation. And in an age where the defense industrial base is already atrophying, as more companies drop out of doing business with the military, eliminating the 8(a) program would worsen that trend.
The set-aside contracts that make up the 8(a) program are, in many cases, the only way small companies can survive against mega-defense contractors.
“Going head-to-head with a Lockheed Martin — you’re just going to get crushed with [their] resources,” Abdallah said. “So having them set aside for competition — even with a smaller group of qualified people — puts you on a more level competitive field. Otherwise, you’re competing with multibillion dollar companies, and that’s just not realistic.”
Stephen Losey is the air warfare reporter for Defense News. He previously covered leadership and personnel issues at Air Force Times, and the Pentagon, special operations and air warfare at Military.com. He has traveled to the Middle East to cover U.S. Air Force operations.
