Research

From Development to Dependency: The Corporate Welfare Economy Behind the 8(a) Program

September 8, 2026

Will Thibeau

Director, American Military Project

Jakob Brown

Research Assistant

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Introduction

The Small Business Administration’s 8(a) Business Development Program—a federal contracting program designed to help disadvantaged small businesses achieve a competitive position—has come under intense scrutiny in recent months. The program provides small businesses with access to federal contracts through noncompetitive sole-source awards and set-asides reserved for program participants. This preferential treatment is limited to a nine-year period, at the end of which 8(a) firms are expected to compete independently.

In 1967, amid the social and racial disturbances of the civil rights era, President Lyndon B. Johnson invoked Section 8(a) of the Small Business Act to extend contracting preferences to firms located in urban areas with high unemployment.^[1] This effort was among the many policy efforts that sought to provide economic opportunity to black Americans in the aftermath of Jim Crow.^[2] In 1978, Congress amended Section 8(a) to formally establish the 8(a) program that exists today and defined eligibility in terms of “socially and economically disadvantaged individuals.”^[3] Shortly thereafter, the Small Business Administration (SBA) promulgated a definition of this term that included not only black Americans but also nearly all racial and ethnic minorities, to the exclusion of white Americans.^[4] At present, this definition remains largely unchanged.^[5]

A 2023 U.S. District Court ruling found that the SBA’s practice of admitting firms to the program based on a presumed social disadvantage linked to identity violated the Fifth Amendment’s guarantee of equal protection.^[6] The Biden SBA responded to the ruling by requiring firm owners to establish social disadvantage through personal narratives documenting identity-based discrimination.^[7] In June 2026, the SBA under President Trump proposed a new rule to replace this framework with a single evidentiary standard for all applicants.^[8] Under the new standard, any American citizen could establish social disadvantage by demonstrating that discriminatory policies imposed by a government or private entity caused them material harm.^[9] This would include white Americans who were previously barred from the program because they were not presumed to be socially disadvantaged. As of this writing, the new rule has not yet been finalized.

The Department of Defense (DoD) is the largest user of the 8(a) program. In fiscal year 2025 alone, the DoD awarded $8.2 billion in 8(a) contracts.^[10] The next largest agency was the Department of Health and Human Services, at $921.8 million.^[11] This disparity partly reflects the more permissive contracting thresholds applied to the DoD. For example, most federal agencies must justify and obtain additional approval to award 8(a) sole-source contracts valued at more than $25 million.^[12] By contrast, the DoD’s threshold is $100 million.^[13]

In January 2026, Defense Secretary Pete Hegseth ordered an investigation of the 8(a) program at the DoD to terminate diversity, equity, and inclusion (DEI) contracts and curb pass-through abuses.^[14] Pass-through contracting, a persistent defect of the 8(a) program, refers to situations in which 8(a) firms receive high-value contracts and subcontract a substantial share of the work to major defense contractors. These firms retain a portion of the contract value, perform little to no substantive work, and function as conduits through which major defense contractors secure 8(a) contracts. This report’s analysis of USASpending.gov data on DoD contracts found that, between 2009 and 2025, numerous 8(a) firms subcontracted more than 80 percent, and in many cases 90 percent of the contract value to major defense contractors such as General Dynamics, Lockheed Martin, and L3Harris.^[15]

Secretary Hegseth’s investigation is part of a broader effort led by the SBA to curtail DEI contracting and pass-through abuses across the 8(a) program.^[16] In December 2025, the SBA requested three fiscal years’ worth of financial data from all 4,300 8(a) firms.^[17] By March 2026, the SBA moved to terminate 628 of those firms for failing to submit the required documentation.^[18]

These developments reflect a deeper structural problem within the program.

Though individual actors are responsible for pass-through abuses, the program’s structure incentivizes such arrangements rather than the development of competitive capabilities. Specifically, the program’s regulatory framework and enforcement gaps make it rational for small 8(a) firms to subcontract highly technical work to large defense contractors. This structure has resulted in the program operating not merely as a DEI tool, but as a form of corporate welfare that undermines small business growth.

In principle, the program’s original intent was to help socially and economically disadvantaged small businesses independently compete in the marketplace. Even if one disagrees with the means by which Congress sought to achieve this, small business development is nonetheless a commendable goal. The problem is that, in practice, these policies have been largely ineffective. Rather than fostering the small business growth it sought to promote among socially disadvantaged groups, the program has weakened participating firms that now serve as pass-throughs. This report examines the classic tension between intentions and outcomes that has come to define modern progressive policy.

For nearly a decade, the SBA has used contract-value-based subcontracting limitations that require 8(a) firms to retain at least 50 percent of the contract value across both service and supply contracts.^[19] This allows 8(a) firms to subcontract most of the substantive work while performing overhead tasks such as management and logistics. Moreover, there is a special carve-out for supply contracts that excludes the cost of materials from the SBA’s subcontracting calculations.^[20] This enables 8(a) firms to subcontract finished goods under the “materials” classification that are effectively the final product, leaving them with little substantive work to perform. These structural flaws have been exacerbated by contracting officers’ failure to monitor compliance with subcontracting limitations, diminishing any utility the contract-value-based regime might have.^[21] With such poorly structured limitations, compounded by poor oversight, pervasive pass-through abuse becomes the predictable outcome.

Understanding the 8(a) pass-through issue requires a careful examination of the key actors involved in such arrangements and the incentives shaping their behavior. Three actors are central to pass-through contracting: the 8(a) prime contractor, the large defense subcontractor, and the federal contracting agency. The 8(a) program’s structure, combined with small business contracting rules more broadly, incentivizes each actor to engage in pass-through practices. The 8(a) prime contractor faces minimal regulatory pressure to build capacity for contract execution; the large defense subcontractor maximizes profits by securing 8(a) set-aside and sole-source contracts; and the contracting agency must meet the SBA’s small business contracting goals or incur heavy administrative burdens. Taken together, these incentives create a system in which pass-through arrangements are the path of least resistance for all three actors. Yet the 8(a) firm, the program’s intended beneficiary, delays the hard work of capacity building, thereby undermining the program’s stated purpose.

PART 1: Pass-Through Contracting in the 8(a) Program

In far too many cases, firms participating in the 8(a) program engage in what is called “pass-through contracting.” Rather than performing the contracted work themselves, these small businesses often operate as shell companies, receiving multimillion-dollar federal contracts and then subcontracting much of the work to well-established firms. The Defense Department, being far and away the largest user of the program, has not been immune from this phenomenon. As Secretary Hegseth put it, many of these 8(a) firms “take a 10 percent, 20 percent, sometimes 50 percent fee off the top and then pass the contract off to a giant consulting firm.”^[22]

In light of this, the program becomes doubly problematic. Properly understood, it cannot be reduced solely to a manifestation of the civil rights regime’s racial preferences. It must also be viewed as a form of corporate welfare, insofar as some of these “small, disadvantaged businesses” merely collect a fee off the top and serve as intermediaries for the world’s wealthiest defense contractors.

When Congress first codified the 8(a) program decades ago, its intent was laudable. According to a 1981 Government Accountability Office (GAO) report, the program’s original purpose was “to help socially and economically disadvantaged small businesses achieve a competitive position in the financial marketplace.”^[23]

However, the allure of pass-through schemes created a powerful incentive for 8(a) firms to underinvest in developing competitive capabilities. Thus, the SBA imposed “Limitations on Subcontracting” (LoS) in the late 1980s to curb such abuses. Under these rules, 8(a) prime contractors were required to incur at least half the cost of performing service or supply contracts. For service contracts, firms had to incur 50 percent of personnel costs; for supply contracts, 50 percent of manufacturing costs, excluding the cost of materials.^[24] Although firms could still subcontract a portion of the work, they were required to develop the capacity needed to meet the cost thresholds. For nearly three decades, this cost-based LoS regime remained largely unchanged.

That was the case until Congress passed the National Defense Authorization Act for Fiscal Year 2013 (NDAA), replacing the cost-based regime with a contract-value-based one.^[25] The distinction between the two is subtle but crucial. While the cost-based regime tied compliance to performance costs, the contract-value-based regime tied compliance to the share of contract value that is subcontracted. In other words, the old rule was designed to prevent firms from subcontracting a majority of the actual labor—and thus from underinvesting in the development of competitive capabilities—while the new rule merely prevented them from subcontracting most of the contract’s dollar value. The new system was codified in Section 1651 of the NDAA, prohibiting 8(a) prime contractors from expending more than 50 percent of the contract value on subcontractors for both service and supply contracts, with the cost of materials excluded for supply contracts.^[26]

That said, the contract-value-based regime creates an obvious structural issue: it shifts compliance from who performs the actual labor to how the contract’s value is distributed. Under this system, 8(a) prime contractors are permitted to subcontract labor-intensive tasks, such as engineering and manufacturing, while performing administrative functions, such as management and logistics, so long as they retain 50 percent of the contract value. This incentivizes 8(a) firms not to “achieve a competitive position in the financial marketplace,” but instead to check boxes while a more established firm performs the work.^[27] But the problems do not end there.

Both the cost-based and contract-value-based regimes share a common defect: the “excluding the cost of materials” exception for supply contracts. On its face, such an exception seems reasonable. After all, when subcontractors supply “materials,” they are not performing substantive work; they are supplying components essential to manufacturing the final product. For this reason, the cost of materials should not count toward LoS compliance, as it does not reflect outsourced substantive work. The flaw in this logic, however, is its assumption that the distinction between material costs and contract performance is consistently clear in practice. The reality is that “materials” often substitute for performance, with the subcontracted “materials” constituting the final product and leaving the 8(a) prime contractor with little labor to perform.

Defense Department contracts awarded to 8(a) participants illustrate how the “materials” exception incentivizes pass-through arrangements. When finished goods can be classified as “materials” for LoS purposes, this classification enables 8(a) firms to subcontract those goods while remaining compliant with LoS rules. In many cases, the goods amount to the final product, and the 8(a) firm is reduced to a mere reseller. An analysis of DoD contracts awarded between 2009 and 2025 revealed that several 8(a) firms subcontracted more than 90 percent of the prime award value to large defense contractors, with vague subaward descriptions like “finished goods in support of the prime contract,” according to data from USASpending.gov.^[28] This dynamic creates a clear divide between formal LoS compliance and actual contract performance—a divide that is further deepened by weak enforcement.

Beyond these structural issues, a persistent failure to monitor compliance has compounded the LoS regime’s inability to curb pass-through abuses. In a 2014 report, GAO reviewed ten 8(a) contracts at three federal agencies and found that “contracting officers are generally not collecting information on the amount of subcontracted work performed under the 8(a) contracts reviewed, as required.”^[29] GAO identified three primary reasons for this lack of monitoring: contracting officers were unaware of their responsibilities under agency agreements with the SBA, were unable to access information regarding the extent of subcontracted work, or were more concerned with satisfactory contract performance than compliance with subcontracting limitations.^[30] For some officers, these reasons overlapped. GAO made three recommendations to the Obama administration’s Office of Federal Procurement Policy (OFPP) to help address these deficiencies. OFPP agreed with all three recommendations, but for some reason never implemented them.^[31]

Since the Obama era, successive administrations have failed to enforce the LoS rules. This has allowed 8(a) firms, along with their large defense subcontractors, to abuse the program.

The following analysis of USASpending.gov data on DoD contracts awarded from 2009 through 2025 includes both direct 8(a) awards and awards to 8(a) participants through other procurement channels. Over this period, L3Harris Technologies—a top-ten global defense contractor that generated $21.9 billion in 2025 revenue^[32]—received 47 subcontracts from 8(a) participants through the DoD.^[33] Those subcontracts were issued under prime contracts that together totaled nearly $1 billion, according to USASpending.gov.^[34]

But the problem with pass-through arrangements is not the practice of subcontracting in and of itself. Firms sometimes lack the specialized expertise needed to perform a contract and must rely on assistance from another contractor. The problem arises when prime contractors pass off a majority of the work to subcontractors while performing little of the contract themselves.

In the case of L3Harris, sixteen of the 47 subcontracts exceeded 50 percent of the prime contract value, including eight exceeding 90 percent and six exceeding 80 percent.^[35]

Most of these subcontracts were issued by subsidiaries of Arctic Slope Regional Corporation (ASRC), a for-profit Alaska Native 8(a) entity.^[36] In August 2023, the Defense Logistics Agency (DLA) awarded a $1.2 million prime contract to ASRC Federal Facilities Logistics, LLC, an 8(a) participant, to supply “miscellaneous construction materials,” and it subcontracted $1.1 million (95 percent of the contract value) to L3Harris for “Harris Radios.”^[37] In June 2020, the Defense Contract Management Agency awarded the firm a separate $3.4 million prime contract to supply spare parts for a combat net radio system, and the firm subcontracted $3.1 million (91 percent of the contract value) to L3Harris for “finished goods.”^[38]

This pattern of high-value subcontracting predates the Biden administration.

In 2011, under President Obama, EYAK Technology, LLC issued at least two subcontracts to L3Harris under separate 8(a) prime contracts. Those subcontracts accounted for 91 percent and 85 percent of their respective prime contract values.^[39] The 91 percent subcontract is especially notable. The Department of the Army awarded a $2.9 million 8(a) prime contract to EYAK for electronic computer manufacturing, but the firm subcontracted $2.6 million (91 percent of the contract value) to L3Harris.^[40]

General Dynamics, Lockheed Martin, and other large defense contractors have likewise received high-value subcontracts from 8(a) participants, according to USASpending.gov data.^[41]

PART 2: Alaska Native Corporations and “Super 8(a)” Status

Large defense contractors are not the program’s only bad actors. A particular subset of 8(a) firms, known as Alaska Native Corporations (ANCs), may be even more problematic. Congress, through a series of unfortunate legislative decisions, has effectively granted ANCs free rein to abuse the program.

In 1971, Congress passed the Alaska Native Claims Settlement Act, establishing 12 regional ANCs as for-profit companies to settle land claims and promote economic development. ^[42] However, the act did not formally incorporate ANCs into the 8(a) program. At the time, ANCs were expected to use profits from their newly acquired lands to fund shareholder dividends and create jobs for Alaska Natives.^[43]

Initially, the 8(a) program was limited to small businesses owned by socially disadvantaged individuals. ANCs did not become eligible 8(a) participants until 1986, when Congress expanded the program to include businesses owned by socially disadvantaged entities.^[44] In the years following this expansion, Congress “extended special procurement advantages to 8(a) ANC firms, such as the ability to receive sole-source contracts for any dollar amount and to own multiple subsidiaries.”^[45] ANCs are thus often referred to as “super 8(a)s.”^[46]

These special advantages provide at least three structural benefits to 8(a) ANC firms. First, they allow ANC parent entities to operate multiple subsidiaries simultaneously, enabling those subsidiaries to consume a disproportionate share of 8(a) contracts, as each can pursue contracts independently.

Second, they allow ANCs to bypass the nine-year participation limit that applies to most other 8(a) firms. The limit was originally established because 8(a) designation was never intended to confer a permanent contracting preference. The program was meant to provide a temporary developmental opportunity for small businesses. Though ANC subsidiaries are technically subject to the nine-year participation limit, ANC parent entities can simply bypass it by creating new subsidiaries as existing ones expire. This loophole allows ANCs, through their subsidiaries, to participate in the program indefinitely.

Third, they allow 8(a) ANC firms to undermine the role of competition in government contracting. The competitive bidding process helps ensure that government agencies receive the best value when awarding contracts and incentivizes firms to maximize efficiency and performance. For this reason, most other 8(a) firms are subject to sole-source dollar caps of $7 million for manufacturing contracts and $4.5 million for all other contracts, above which 8(a) set-asides generally become competitive.^[47] ANC-owned firms, however, are exempt from these caps. Consequently, multiple subsidiaries of a single ANC can receive large noncompetitive government contracts simultaneously, reducing opportunities for other 8(a) firms.

The Defense Department, in particular, has served as a conduit through which ANCs capitalize on their “super 8(a)” privileges. Following the SBA’s announcement that it would investigate 8(a) fraud, Senators Lisa Murkowski and Dan Sullivan wrote in a letter to federal agencies obtained by the Daily Wire:

The program reduces administrative burden, shortens acquisition timelines, and avoids delays and litigation risks that often accompany large-scale procurements. Further, as two Senators who care about the readiness of our military, we consistently hear from top Pentagon officials that the 8(a) Program provides flexibility and timeliness in procuring weapons systems that strengthen our country.^[48]

Notably, both Murkowski and Sullivan represent Alaska in the U.S. Senate. Some observers argue that their advocacy for the 8(a) program may reflect constituency needs rather than a broader assessment of the program’s effectiveness.^[49]

Even so, their letter points to a strong institutional incentive for contracting agencies to award large 8(a) sole-source contracts to ANC firms.

As investigative journalist Luke Rosiak notes: “The letter highlighted that Pentagon officials enjoy taking advantage of Alaskan law because although the competitive bidding process is designed to get the most qualified company and the best price, it is also a bureaucratic slog.”^[50] Consistent with this logic, the Pentagon has awarded over a million separate contracts totaling $46.3 billion to “Alaskan Native” companies since fiscal year 2021, according to USASpending.gov.^[51]

Despite these favorable conditions, ANC-owned 8(a) firms continue to engage in pass-through arrangements. A notable example is ASRC. From 2009 through 2025, ASRC, through its subsidiaries, issued numerous subcontracts to major defense contractors, including 3 to Lockheed Martin totaling $19.9 million, 15 to L3Harris totaling at least $9.4 million, 25 to Science Applications International Corporation totaling $8 million, and 3 to General Dynamics totaling roughly $300,000, according to USASpending.gov.^[52] Other ANC entities, such as Chugach Alaska Corporation and NANA Regional Corporation, have engaged in similar practices.^[53]

Like their ANC counterparts, tribal entities also hold “super 8(a)” status.^[54] They can receive 8(a) sole-source contracts for any dollar amount, own multiple subsidiaries that operate simultaneously, and establish new subsidiaries as existing ones reach their nine-year participation limits. In practice, these subsidiaries, like those of ANC parent entities, regularly subcontract their work to large defense contractors.

In 2025, undercover journalist James O’Keefe investigated ATI Government Solutions,^[55] a subsidiary of the Susanville Indian Rancheria (SIR) tribe that claims to provide innovative technology services.^[56] O’Keefe published footage in which ATI’s director of contracts admitted the company leverages its tribal status to secure 8(a) sole-source contracts and allows major defense contractors to perform “80 percent of the work,” while ATI collects a fee off the top and performs only “about 20 percent of the work.”^[57]

The investigation found that ATI’s executive leadership was entirely nontribal, despite the firm’s status as a tribal subsidiary.^[58] One SIR tribal member described her grandmother’s poor living conditions on the reservation and criticized nontribal executives at ATI for “making millions off us.”^[59]

“All the things that were created for us, we don’t benefit from,” she said.^[60]

PART 3: Structural Incentives for Pass-Through Arrangements

While misconduct among 8(a) firms contributes significantly to such pervasive pass-through abuse, the structure of the program itself appears to encourage it. For a moment, consider a scenario in which an inexperienced 8(a) firm is awarded a highly technical defense contract involving capabilities that are vital to the nation’s defense. The firm can either attempt to deliver the complex system without prior experience or subcontract the work to a more experienced contractor with the expertise to perform it. The latter is the only rational response. This indicates that malign actors are not the sole issue. The 8(a) program, in its current form, has serious structural flaws.

When thinking about pass-through arrangements in the 8(a) program, three actors are central: the 8(a) prime contractor, the large defense subcontractor, and the contracting agency. Each actor has distinct, though sometimes overlapping, incentives shaping its behavior. The large defense subcontractor is the easiest actor to understand because its primary concern is maximizing profits and 8(a) sole-source and set-aside contracts are useful tools for that purpose. The more nuanced, structural incentives—which are inherent to the program and to small business contracting more broadly—most directly affect the prime contractor and the contracting agency.

The 8(a) program’s low entry standards allow inexperienced firms to qualify, and once admitted, these firms face little regulatory pressure to develop competitive capabilities. This creates an environment in which inexperienced firms are incentivized to profit as pass-throughs on high-value contracts without building the capacity needed to execute the work themselves. The contracting agency, for its part, must endure bureaucratic corrective measures and additional congressional scrutiny should it fail to meet the SBA’s small business contracting goals. To avoid such pressures, agencies like the Defense Department are more than willing to award contracts to inexperienced firms who engage in pass-through practices, so long as they deliver the capability.

Low Entry Standards Produce Inexperienced Contractors

Under SBA regulations, the core eligibility standard for entry into the 8(a) program is “potential for success.” To meet this standard, the SBA must determine that a firm “is able to perform 8(a) contracts and possesses reasonable prospects for success.”^[61] Applicants are required to submit documentation to demonstrate they have operated and received contracts in their primary industry for at least two years.^[62] These criteria are designed to confer objectivity upon an otherwise subjective standard of “potential for success.” But even with these objective indicators (e.g., prior contracts and operating revenue), the final determination of “reasonable prospects for success” still requires a degree of subjective judgment by the SBA.

The regulation also allows the SBA to waive the two-year requirement under certain conditions, which necessarily implies that firms with limited operating experience can qualify for the program and receive federal contracts.^[63]

With the subjective “potential for success” standard and conditional waivers, it becomes difficult to prevent inexperienced firms from gaining entry.

Weak enforcement has significantly diminished whatever utility the existing eligibility criteria may have. Certification fraud—that is, unqualified firms submitting false documentation to either receive or retain 8(a) certification—has historically plagued the program. A 2010 GAO report identified $325 million in set-aside and sole-source contracts awarded to ineligible firms, most of which “were obtained through fraudulent schemes.”^[64] To assess the SBA’s screening process for 8(a) applicants, GAO created four “bogus” firms and applied for certification. One of these firms qualified for the program despite its submission of “fabricated documentation and owner information.”^[65] The SBA did not independently verify any of the information, it did not verify the firm’s contracting history, nor did it verify whether the firm actually had the office space it claimed to possess. Put simply, the agency failed to enforce its own standards at every level, thereby allowing an unqualified firm to enter the program.

In March 2026, the SBA terminated 628 firms for refusing to turn over three years’ worth of financial data, signaling that the problem still persists.^[66]

Low entry standards, coupled with weak enforcement, are likely to attract firms—whether malicious or benign—with limited operating experience, many of which will serve as pass-throughs for large defense contractors due to a lack of capacity to perform the work.

Weak Developmental Oversight Incentivizes Pass-Through Contracting

Furthermore, once inexperienced firms enter the program there is little regulatory pressure placed on them to develop their businesses. A 2023 report from the SBA’s Office of the Inspector General found that the SBA did not “establish an effective process for program officials to monitor 8(a) firms’ business development,” despite such a process being required by statute.^[67] The office reviewed 40 firms, and 15 did not have business plans outlining their goals, rendering them ineligible to receive 8(a) set-aside and sole-source contracts. Consequently, the office questioned $93 million in contracts awarded to four of those firms.^[68]

This kind of weak developmental oversight can result in inexperienced firms receiving high-value and highly technical defense contracts, but not developing the capacity needed to deliver those capabilities. In such instances, subcontracting to a more established firm with the capacity to execute the contract becomes the most sensible approach.

Federal Small Business Contracting Goals Incentivize DoD to Route Contracts Through 8(a)

The Defense Department, like most federal agencies, has a strong incentive to award contracts to 8(a) firms: federal law sets government-wide small business contracting goals that, while not legally binding, still carry consequences if agencies fail to meet them. Section 644 of Title 15 of the U.S. Code provides that at least 23 percent of the total value of all prime contract awards across the federal government are to be awarded to small businesses each fiscal year. ^[69] The statute also sets smaller targets for designated small business categories, such as a 5 percent goal for firms that are “owned and controlled by socially and economically disadvantaged groups,” a category that includes 8(a) firms.^[70] To reach these targets, the SBA annually negotiates small business contracting goals for individual agencies that collectively total 23 percent government-wide.

Although these goals are not legally binding, federal agencies such as the Defense Department take great pains to meet them for two primary reasons: performance evaluation and oversight, with the latter being inextricably linked to the former.

Every year, the SBA evaluates whether agencies achieve their small business contracting goals and publishes the results in annual Procurement Scorecards. While failure to reach these goals does not carry punitive consequences, it does lead to increased scrutiny from the SBA and Congress. Agencies that fall short must submit “corrective action reports” to the SBA, explaining why they fell short, and “corrective action plans,” detailing their plans for improvement.^[71] Moreover, Procurement Scorecards are used in congressional oversight to assess agency progress toward these goals.

It is not difficult to understand why agencies wish to avoid such hassle. The DoD exceeded its small business contracting goal in each fiscal year from 2021 through 2024.^[72]

Taken together, these structural features—low entry standards, weak developmental oversight, and small business contracting goals—create powerful incentives for pass-through contracting in the 8(a) program. Under the SBA’s “potential for success” criterion, firms with limited operating experience can qualify for the program. Once admitted, weak developmental oversight incentivizes these firms to delay developing the capacity to compete as independent contractors for high-value, complex projects. At the same time, if agencies fail to reach their small business contracting goals, they expose themselves to the SBA’s corrective measures and heightened congressional scrutiny—an outcome less attractive than awarding the contract to an inexperienced 8(a) firm that can simply transfer the work to a large defense contractor. Combined, these three factors create a system in which subcontracting large portions of 8(a) contracts to more experienced defense contractors is the path of least resistance.

Between fiscal years 2021 and 2025, the DoD awarded numerous prime contracts valued at more than $10 million to 8(a) firms. Among them, at least eight were awarded to firms that were five years old or younger at the time of award and subcontracted more than 50 percent of the prime contract value, according to data from USASpending.gov and SAM.gov.^[73]

Many of these 8(a) firms, lacking the operating experience and capacity needed to execute the contract, subcontracted the work to better-equipped firms. In doing so, the 8(a) firms financially benefited from the contract without performing the underlying work, while transferring much of the contract value to firms with greater capacity. The Biden Pentagon was more than willing to award these contracts so long as they could meet their small business contracting goals and avoid the additional oversight.

One such firm is ASRC Federal Facilities Logistics LLC—an ASRC subsidiary established in 2019.^[74] In May 2024, less than five years after its establishment, the DLA awarded the firm a $16.1 million prime contract to supply electromechanical actuators.^[75] It subcontracted $15.2 million (94 percent of the contract value) to DRS Naval Power Systems Inc.,^[76] a subsidiary of Leonardo DRS, a U.S. defense contractor that generated $3.6 billion in 2025 revenue.^[77] The next month, the firm received a separate $18.4 million prime contract for electronic component manufacturing, and it subcontracted $17.6 million (95 percent of the contract value) to Lockheed Martin.^[78]

These subcontracts suggest that the relatively young firm lacked the capacity to perform the work itself.

In this respect, the ASRC subsidiary was not alone. Koman Sustainable Solutions, LLC—a subsidiary of the Natives of Kodiak Inc., founded in 2020—followed a similar pattern.^[79] From late May through August 2023, the firm received at least two 8(a) construction contracts from the Department of the Navy.^[80] In both cases, it subcontracted 88 percent of the prime contract value. The first contract was valued at $12.8 million, with $11.2 million subcontracted;^[81] and the second, $14.5 million, with $12.7 million subcontracted.^[82]

These firms are not outliers, but predictable outcomes of a system defined by low entry standards, weak developmental oversight, and federal small business contracting goals that carry bureaucratic corrective measures and invite congressional scrutiny when agencies fall short.

PART 4: The 8(a) Program in the Context of Modern DEI Policy

Yet these structural features do not exist in isolation. Rather, they exist within the context of the 8(a) program—a program which grew out of the racial and social upheaval of the civil rights era and was shaped by that period. As Lieutenant Commander Charles E. White wrote in his 1980 master’s thesis at the Naval Postgraduate School:

During this period of racial unrest and social upheaval, characterized by riots in most of the major cities, the Section 8(a) Program was pressed into service as one policy attempt to alter the opportunity structure available to minority group members.^[83]

At the time, those “minority group members” consisted almost entirely of black Americans. According to a 1960 U.S. Census report, black Americans accounted for “about 19 out of every 20 persons in the non-white group” four years prior to the Civil Rights Act’s passage.^[84] The program was thus intended to provide opportunities to black Americans in the aftermath of Jim Crow, not to every group that fits the modern conception of “socially and economically disadvantaged.” However, the program evolved into the latter over time.

In September 1967, the Southern Governors Conference—a regional association of state governors, dissolved in 2016—concluded that quality education and high-paying jobs in inner cities “were of paramount importance in meeting the needs of black Americans reaching for social equality.”^[85] The conference made several recommendations, prompting President Lyndon B. Johnson to launch the so-called “Test Cities Program” the following month.^[86] The program used Section 8(a) authority to award sole-source contracts to “firms that agreed to locate in or near ghetto areas and to provide jobs for the unemployed or underemployed.”^[87]

However, two years after Congress formally established the program in 1978 through an amendment to the Small Business Act, the SBA promulgated a definition of “socially disadvantaged” groups that extended beyond black Americans to include Hispanic Americans, Native Americans, Asian Pacific Americans, and other groups designated from “time to time” by the SBA.^[88] The rule also included a carve-out for individuals who did not belong to one of the designated groups. They were required to present “clear and convincing” evidence that they had personally suffered social disadvantage due to their color, national origin, gender, physical handicap, or long-term residency in an “environment isolated from the mainstream of American society.”^[89]

Since then, the only substantive change to the rule has been the designation of Subcontinent Asian Americans.^[90]

With this history in mind, it becomes difficult to describe the 8(a) program as just one DEI project among others. The program’s history reflects the progressive movement’s sustained push to embed identity-based preferences across federal contracting—particularly within the defense sector—while imposing higher eligibility burdens on white Americans.

But transforming the 8(a) program into a DEI enterprise was only one half of a broader effort. Today, the program also serves as a contract vehicle to support DEI initiatives within the armed forces.

During the Biden years, multiple million-dollar 8(a) contracts related to DEI were awarded within the Defense Department, according to USASpending.gov.^[91] In September 2023, the Department of the Navy awarded a $2.1 million 8(a) prime contract to Teehee Engineering Inc. to construct a “Gender Integration Facility.”^[92] In March 2023, the Defense Threat Reduction Agency awarded a $1.1 million 8(a) prime contract to the Organizational Development Research Group, LLC to support a diversity and inclusion training program.^[93] In August 2022, the Defense Human Resources Activity awarded a $1.2 million 8(a) prime contract to Chirality Capital Consulting, LLC for a “Diversity and Inclusion Center of Excellence.”^[94]

The Biden Pentagon’s embrace of DEI initiatives coincided with a severe military recruitment crisis, raising questions about whether and how these initiatives may have affected recruiting outcomes.

In fiscal years 2022 and 2023, the Army set recruitment goals of 60,000 and 65,000, respectively, but fell short by 15,000 recruits each year.^[95] The following year, the Army met its recruitment goal—but only after lowering it from 65,000 to 55,000.^[96] Other military branches experienced similar trends. In fiscal year 2023, the services collectively missed their targets by about 41,000 enlistees.^[97] Former Under Secretary of Defense for Personnel and Readiness Ashish Vazirani described the recruitment crisis as one of the “greatest challenges” the all-volunteer force had ever faced.^[98]

To the extent that diversity considerations are elevated above merit-based criteria, there is a risk that the most qualified service members may be overlooked for crucial roles. For potential recruits, the prospect of serving in a force where merit is secondary to immutable characteristics such as race and sex could undermine confidence in leadership and thereby deter enlistment. Recruitment shortfalls under the Biden administration highlight the potential risks of elevating identity-driven considerations in personnel decisions, even if the precise causes of the shortfalls were multifaceted.

Therefore, when the 8(a) program is used to award contracts that reinforce the perception that DEI is a central priority in the armed forces, it warrants additional scrutiny.

Conclusion

Regardless of intent, the 8(a) program has clearly diverged from its stated purpose: helping “socially and economically disadvantaged small businesses” compete in the market.^[99] As currently structured, the program incentivizes firms to rely on pass-through arrangements rather than develop competitive capabilities. This report does not attempt to absolve those who engage in such behavior. Instead, it reveals how the program is fundamentally flawed. Ineffective subcontracting limitations, low eligibility criteria, weak developmental oversight, and small business contracting goals that trigger bureaucratic corrective measures make pass-through arrangements more attractive for inexperienced 8(a) firms and contracting agencies alike. Meanwhile, large defense contractors boost profits through lucrative 8(a) subcontracting.

The 8(a) program is a civil rights-era initiative that once had noble intentions, but has since become a corporate welfare system rooted in identity-based contracting preferences. Large defense contractors, via subcontracts awarded by 8(a) firms, can extract most of the value from sole-source and set-aside contracts, while the 8(a) firm retains a fee and performs little substantive work. Moreover, the three central actors incentivized to use pass-through arrangements—the 8(a) prime contractor, the large defense subcontractor, and the contracting agency—all benefit at the taxpayer’s expense.

The Trump administration has taken a crucial first step in terminating 8(a) firms unable to provide three years of financial data.^[100] But additional action is necessary. While enforcement gaps exacerbate pass-through abuses in the program, the incentives embedded in its structure are the primary drivers of those abuses. For decades, different administrations and sessions of Congress have attempted to reform subcontracting rules and strengthen oversight, but these efforts have not altered the incentives at play and therefore the behavior they produce. So long as the relevant actors—chief among them the large defense contractors—seek pass-through arrangements, they will find a way to obtain them. For those who insist that improved LoS enforcement is the solution, consider how resource-intensive and administratively burdensome monitoring 8(a) subcontracting has proven to be.

In the final estimation, the 8(a) program is beyond reform. Its incentive structure rewards dependency over capability, an intrinsic feature that cannot be rectified by amendment. Although well-intentioned at its inception, the program has decisively fallen short of its stated purpose. Before any more resources are wasted, the administration should move to “shut it down.”

^[1] U.S. General Accounting Office, Questionable Effectiveness of the 8(a) Procurement Program, GGD-75-57 (Washington, DC: U.S. General Accounting Office, 1975), 1, https://www.gao.gov/assets/ggd-75-57.pdf.

^[2] Ibid.

^[3] An Act to Amend the Small Business Act and the Small Business Investment Act of 1958, Pub. L. No. 95-507, 92 Stat. 1757 (1978).

^[4] U.S. Small Business Administration, “Minority Small Business and Capital Ownership Development Program,” Federal Register 45, no. 232 (December 1, 1980): 79415, https://archives.federalregister.gov/issue_slice/1980/12/1/79415-79425.pdf.

^[5] 13 C.F.R. § 124.103 (2026).

^[6] Ultima Services Corp. v. U.S. Department of Agriculture, 683 F. Supp. 3d 745 (E.D. Tenn. 2023).

^[7] U.S. Small Business Administration, Impact of Recent Court Decision (Ultima Servs. Corp. v. Dep’t of Ag. (E.D. Tenn.)) on the Use of the 8(a) Program, memorandum, August 18, 2023, 2, https://www.sba.gov/sites/default/files/2023-09/Ultima%20Guidance%20to%20Agencies%20-%208.18%20Final%20-%20508.pdf.

^[8] U.S. Small Business Administration, “SBA Reforms 8(a) Business Development Program to End Racial Discrimination in Federal Contracting,” news release no. 26-58, June 11, 2026, https://www.sba.gov/article/2026/06/11/sba-reforms-8a-business-development-program-end-racial-discrimination-federal-contracting.

^[9] U.S. Small Business Administration, “Reforms To Remove SBA’s 8(a) Program’s Rebuttable Presumption of Social Disadvantage for Individually Owned Firms Only; Reforms Do Not Impact Entity-Owned Firms,” Federal Register 91, no. 111 (June 11, 2026): 35433–37, https://www.federalregister.gov/documents/2026/06/11/2026-11765/reforms-to-remove-sbas-8a-programs-rebuttable-presumption-of-social-disadvantage-for-individually.

^[10] USASpending.gov, “Federal Award Search,” accessed April 24, 2026, https://www.usaspending.gov/search?hash=499e1467cae9b8e002e65e38565d55cc.

^[11] Ibid.

^[12] 13 C.F.R. § 124.506(b)(5) (2026).

^[13] Ibid.

^[14] Pete Hegseth (@SecWar), “We are taking a sledgehammer to the oldest DEI program in the federal government—the 8(a) program,” X (formerly Twitter), January 16, 2026, https://x.com/SecWar/status/2012302240594170106.

^[15] Author’s analysis of data from USASpending.gov on DoD contracts awarded to 8(a) firms, 2009–2025.

^[16] U.S. Small Business Administration, “SBA Orders All 8(a) Participants to Provide Financial Records,” news release no. 26-12, December 5, 2025, https://www.sba.gov/article/2025/12/05/sba-orders-all-8a-participants-provide-financial-records.

^[17] Ibid.

^[18] U.S. Small Business Administration, “SBA Moves to Terminate Over 620 Firms in 8(a) Federal Contracting Program That Refused to Turn Over Financial Data,” news release no. 26-34, March 4, 2026, https://www.sba.gov/article/2026/03/04/sba-moves-terminate-over-620-firms-8a-federal-contracting-program-refused-turn-over-financial-data.

^[19] “Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments,” Federal Register 81, no. 104 (May 31, 2016): 34243, https://www.federalregister.gov/documents/2016/05/31/2016-12494/small-business-government-contracting-and-national-defense-authorization-act-of-2013-amendments; 13 C.F.R. § 125.6 (2026).

^[20] 13 C.F.R. § 125.6 (2026).

^[21] U.S. Government Accountability Office, 8(a) Subcontracting Limitations: Continued Noncompliance with Monitoring Requirements Signals Need for Regulatory Change, GAO-14-706 (Washington, DC: U.S. Government Accountability Office, 2014), https://www.gao.gov/assets/gao-14-706.pdf.

^[22] Hegseth, “We are taking a sledgehammer to the oldest DEI program.”

^[23] U.S. General Accounting Office, The 8(a) Pilot Program for Disadvantaged Small Businesses Has Not Been Effective, CED-81-22 (Washington, DC: U.S. General Accounting Office, 1981), 1, https://www.gao.gov/assets/ced-81-22.pdf.

^[24] “52.219-14 Limitations on Subcontracting,” Federal Register 52, no. 198 (October 14, 1987): 38190.

^[25] National Defense Authorization Act for Fiscal Year 2013, Pub. L. No. 112-239, § 1651, 126 Stat. 1632 (2013).

^[26] Ibid.

^[27] U.S. General Accounting Office, 8(a) Pilot Program, 1.

^[28] Author’s analysis of data from USASpending.gov, DoD contracts, 2009–2025.

^[29] GAO, 8(a) Subcontracting Limitations, highlights.

^[30] Ibid.

^[31] U.S. Government Accountability Office, 8(a) Subcontracting Limitations: Continued Noncompliance with Monitoring Requirements Signals Need for Regulatory Change, GAO-14-706 (Washington, DC: U.S. Government Accountability Office, 2014), https://www.gao.gov/products/gao-14-706.

^[32] L3Harris Technologies, “L3Harris Technologies Reports Strong Full Year and Fourth Quarter 2025 Results, Initiates 2026 Guidance,” news release, January 29, 2026, https://investors.l3harris.com/news/news-details/2026/L3Harris-Technologies-Reports-Strong-Full-Year-and-Fourth-Quarter-2025-Results-Initiates-2026-Guidance/default.aspx.

^[33] Author’s analysis of data from USASpending.gov, DoD contracts, 2009–2025.

^[34] Ibid.

^[35] Ibid.

^[36] Ibid.

^[37] USASpending.gov, “Award Summary: CONT_AWD_SPE8E323FBHTQ_9700_SPE8E323D0007_9700,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_SPE8E323FBHTQ_9700_SPE8E323D0007_9700.

^[38] Defense Logistics Agency, Justification for Other Than Full and Open Competition: Solicitation SPRBL1-20-Q-0060 (Aberdeen Proving Ground, MD: DLA Land and Maritime, May 2020), 1; USASpending.gov, “Award Summary: CONT_AWD_SPRBL120P0039_9700_-NONE-_-NONE-,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_SPRBL120P0039_9700_-NONE-_-NONE-.

^[39] Author’s analysis of data from USASpending.gov, DoD contracts, 2009–2025.

^[40] USASpending.gov, “Award Summary: CONT_AWD_0833_9700_W912HZ09D0003_9700,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_0833_9700_W912HZ09D0003_9700.

^[41] Author’s analysis of data from USASpending.gov.

^[42] Tana Fitzpatrick, Alaska Native Lands and the Alaska Native Claims Settlement Act (ANCSA): Overview and Selected Issues for Congress, CRS Report R46997 (Washington, DC: Congressional Research Service, December 22, 2021), https://www.congress.gov/crs-product/R46997.

^[43] Ibid.

^[44] Robert Jay Dilger, SBA’s “8(a) Program”: Overview, History, and Current Issues, CRS Report R44844 (Washington, DC: Congressional Research Service, September 16, 2024), 10–11, https://www.congress.gov/crs_external_products/R/PDF/R44844/R44844.37.pdf.

^[45] U.S. Government Accountability Office, Alaska Native Corporations: Increased Use of Special 8(a) Provisions Calls for Tailored Oversight, GAO-07-1251T (Washington, DC: U.S. Government Accountability Office, 2007), 1, https://www.gao.gov/assets/gao-07-1251t.pdf.

^[46] Luke Rosiak, “How a Top Pentagon Contractor Enriches DC Insiders Using a Law Intended to Help Eskimos,” Daily Wire, February 19, 2026, https://www.dailywire.com/news/how-a-top-pentagon-contractor-enriches-dc-insiders-using-a-law-intended-to-help-eskimos.

^[47] 13 C.F.R. § 124.506 (2026).

^[48] Luke Rosiak, “Alaska Republicans Secretly Working to Protect Fraud-Plagued DEI Program,” Daily Wire, January 12, 2026, https://www.dailywire.com/news/alaska-republicans-secretly-working-to-protect-fraud-plagued-dei-program.

^[49] Rosiak, “Alaska Republicans Secretly Working to Protect Fraud-Plagued DEI Program.”

^[50] Rosiak, “How a Top Pentagon Contractor Enriches DC Insiders.”

^[51] USASpending.gov, “Award Search Results,” accessed April 24, 2026, https://www.usaspending.gov/search?hash=c138c3b3102e4ead5777696955f0e871.

^[52] Author’s analysis of data from USASpending.gov, DoD contracts, 2009–2025.

^[53] Ibid.

^[54] Dilger, SBA’s “8(a) Program”, CRS Report R44844, 11.

^[55] James O’Keefe (@JamesOKeefeIII), “James O’Keefe Exposes Massive $100 Billion Federal Contracting Scam in Latest Undercover Video,” X (formerly Twitter), October 21, 2025, https://x.com/jamesokeefeiii/status/1980344367014429114.

^[56] ATI Government Solutions, “About ATI,” accessed April 24, 2026, https://atisolutions.us/.

^[57] O’Keefe, “$100 Billion Federal Contracting Scam.”

^[58] Ibid.

^[59] James O’Keefe (@JamesOKeefeIII), “WATCH: Susanville Indian Rancheria Members Say Their Tribe Was Exploited in $100M Federal Contracting Scheme,” X (formerly Twitter), February 10, 2025, https://x.com/JamesOKeefeIII/status/1988770902243176767.

^[60] Ibid.

^[61] 13 C.F.R. § 124.107 (2026).

^[62] Ibid.

^[63] Ibid.

^[64] U.S. Government Accountability Office, 8(a) Program: Fourteen Ineligible Firms Received $325 Million in Sole-Source and Set-Aside Contracts, GAO-10-425 (Washington, DC: U.S. Government Accountability Office, 2010), highlights of GAO-10-42, https://www.gao.gov/assets/gao-10-425.pdf.

^[65] GAO, 8(a) Program, highlights of GAO-10-425.

^[66] U.S. Small Business Administration, “SBA Moves to Terminate Over 620 Firms.”

^[67] U.S. Small Business Administration, Office of Inspector General, SBA’s Business Development Assistance to 8(a) Program Participants, Report No. 22-08 (Washington, DC: U.S. Small Business Administration, February 14, 2022), 5, https://www.sba.gov/sites/default/files/2022-02/SBA%20OIG%20Report%2022-08.pdf.

^[68] Ibid.

^[69] 15 U.S.C. § 644 (2026).

^[70] Ibid.

^[71] R. Corinne Blackford, Federal Small Business Contracting Goals, CRS Insight No. IN12018 (Washington, DC: Congressional Research Service, May 14, 2024), 2, https://www.congress.gov/crs_external_products/IN/PDF/IN12018/IN12018.9.pdf.

^[72] U.S. Small Business Administration, “Small Business Procurement Scorecard: Scorecard Details (Department of Defense, FY 2021–FY 2024),” accessed April 24, 2026, https://www.sba.gov/federal-contracting/contracting-data/small-business-procurement-scorecard/scorecard-details?agency=DOD&year=2024.

^[73] Author’s analysis of data from USASpending.gov and SAM.gov on inexperienced 8(a) firms.

^[74] U.S. General Services Administration, “Entity Registration: NENSLR2C1VH9,” SAM.gov, accessed April 24, 2026, https://sam.gov/entities/view/NENSLR2C1VH9/coreData?status=Active&emrKeyValue=8982475~1770900210153399&regId=17080593.

^[75] USASpending.gov, “Award Summary: CONT_AWD_SPRMM124FRX00_9700_SPRBL123D0005_9700,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_SPRMM124FRX00_9700_SPRBL123D0005_9700/.

^[76] Ibid.

^[77] Leonardo DRS, Inc., “Leonardo DRS Announces Financial Results for Fourth Quarter and Full Year 2025,” press release, February 24, 2026, https://www.leonardodrs.com/news/press-releases/leonardo-drs-announces-financial-results-for-fourth-quarter-and-full-year-2025/.

^[78] USASpending.gov, “Award Summary: CONT_AWD_SPRBL124F0106_9700_SPRBL123D0005_9700,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_SPRBL124F0106_9700_SPRBL123D0005_9700/.

^[79] U.S. General Services Administration, “Entity Registration: YYHUS62QE615,” SAM.gov, accessed April 24, 2026, https://sam.gov/entities/view/YYHUS62QE615/coreData.

^[80] Author’s analysis of data from USASpending.gov and SAM.gov.

^[81] USASpending.gov, “Award Summary: CONT_AWD_N4008023F4828_9700_N4008023D0024_9700,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_N4008023F4828_9700_N4008023D0024_9700.

^[82] USASpending.gov, “Award Summary: CONT_AWD_N4008023F4842_9700_N4008023D0024_9700,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_N4008023F4842_9700_N4008023D0024_9700.

^[83] Charles E. White, An Assessment of Public Law 95-507 (M.S. thesis, Naval Postgraduate School, 1980), 21, https://apps.dtic.mil/sti/tr/pdf/ADA106093.pdf.

^[84] U.S. Bureau of the Census, 1960 Census of Population: Supplementary Reports—Race of the Population of the United States, by States: 1960, PC(S1)-10 (Washington, DC: U.S. Government Printing Office, 1961), 1, https://www2.census.gov/library/publications/decennial/1960/pc-s1-supplementary-reports/pc-s1-10.pdf.

^[85] U.S. General Accounting Office, Questionable Effectiveness, 1.

^[86] Ibid.

^[87] Ibid., 2.

^[88] U.S. Small Business Administration, “Minority Small Business and Capital Ownership Development Program.”

^[89] Ibid.

^[90] 13 C.F.R. § 124.103 (2026).

^[91] Author’s analysis of data from USASpending.gov on DEI-related 8(a) contracts.

^[92] USASpending.gov, “Award Summary: CONT_AWD_N6247323F4592_9700_N6247319D1225_9700,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_N6247323F4592_9700_N6247319D1225_9700.

^[93] USASpending.gov, “Award Summary: CONT_AWD_HDTRA123C0021_9700_-NONE-_-NONE-,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_HDTRA123C0021_9700_-NONE-_-NONE-.

^[94] USASpending.gov, “Award Summary: CONT_AWD_H9821022C0011_9700_-NONE-_-NONE-,” accessed April 24, 2026, https://www.usaspending.gov/award/CONT_AWD_H9821022C0011_9700_-NONE-_-NONE-.

^[95] U.S. Army Recruiting Command, “Facts and Figures,” accessed April 24, 2026, https://recruiting.army.mil/pao/facts_figures/.

^[96] Ibid.

^[97] David Vergun, “DOD Addresses Recruiting Shortfall Challenges,” DOD News, December 13, 2023, https://www.war.gov/News/News-Stories/Article/article/3616786/dod-addresses-recruiting-shortfall-challenges/.

^[98] Ibid.

^[99] U.S. General Accounting Office, 8(a) Pilot Program, 1.

^[100] U.S. Small Business Administration, “SBA Moves to Terminate Over 620 Firms.”