DOD Reviewing All Small Business Contracts Over $20M—Terminations Start February 28

Defense Secretary Pete Hegseth issued a directive on January 16 ordering a department-wide review of every small business set-aside contract over $20 million.

The stated goal: terminate contracts that don’t “enhance lethality” and eliminate “pass-through schemes” where small businesses act as shells for large consulting firms.

The Scope

The review covers:

  • All 8(a) set-aside awards over $20M (both sole-source and competitive)
  • All small business set-aside awards over $20M (HUBZone, SDVOSB, WOSB)
  • Secondary review of Limitation on Subcontracting (LOS) compliance

The Timeline

  • Phase 1 (by Feb 28, 2026): Review for “essentiality” and recommend terminations​
  • Phase 2 (by Feb 28, 2026): Audit subcontracting compliance (LOS requirements)

What “Essentiality” Means

Contracts deemed non-essential will be terminated for convenience to the maximum extent permitted by law.

If your contract doesn’t directly support a “lethal” DOD mission, you’re at risk.