Pentagon Starts Terminating Small Business Contracts—Your $20M+ Set-Aside Is Under Review
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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.
