On January 24, the Small Business Administration announced updated small business contracting goals for fiscal year 2025, significantly decreasing goals for small, disadvantaged businesses and standardizing targets across federal agencies for all categories except overall prime and subcontract small business goals. While the changes mostly bring the small business targets more closely in line with historic targets, they will have a considerable impact on the number of awards to small, disadvantaged businesses. In addition, there were some significant increases at some agencies to subcontract small business goals, which will impact large businesses required to submit small business subcontracting plans pursuant to Federal Acquisition Regulations 52.219-9.
New administrations frequently tweak small business subcontracting goals to align closer to their overall policy objectives, and these changes are in line with the Trump administration's broader push against programs seeking to advance diversity, equity and inclusion (DEI). These revisions, coupled with an overarching objective to lower overall federal contract spend, will likely have significant effects on certain small businesses that contract with the federal government.
Impact on 8(a) businesses
The changes in small business contracting goals predominately impact prime awards to small, disadvantaged businesses where the goal was lowered to the statutory floor of 5%, down by 10% from the Biden administration's target of 15%.
These changes will likely result in fewer contracts awarded to 8(a) small businesses, which are owned and controlled by socially and economically disadvantaged individuals. The Biden administration made it a priority to increase federal contract awards to 8(a) businesses, to the maximum extent possible. In fiscal year 2024 alone, 12% of all federal contracts were awarded to small, disadvantaged businesses, totaling approximately $40 billion. A 7% decrease from last year's awards could call into question the continued viability of many 8(a) small businesses.
In addition, the FY 2025 goals standardize the targets across agencies and socioeconomic categories. Again, this will predominantly affect 8(a) small businesses. Previously, agencies could set their own goals, and in many cases, they exceeded their goals, as well as administration-wide targets for small, disadvantaged businesses. For example, in FY 2024, the Biden administration reached the 12% metric for small, disadvantaged businesses, in part due to higher goals for specific agencies that had the resources and types of contracts on which 8(a) businesses could compete and win. Indeed, the SBA had a FY 2024 goal of 60.5% for prime small, disadvantaged businesses, and the Department of Labor had a 30% goal. Undoubtedly, the new uniform 5% requirement will make it harder for 8(a) businesses to win work.
The lower goals are just the latest obstacle for 8(a) small businesses. Two years ago, following the Supreme Court's decision in Students for Fair Admissions v. President and Fellows of Harvard College, 600 U.S. 181 (2023), the U.S. District Court for the Eastern District of Tennessee held that the 8(a) program's rebuttable presumption that individuals from certain racial groups are socially disadvantaged violated the 14th Amendment's equal protection clause. Ultima Servs. Corp. v. U.S. Dept. of Agric., 683 F. Supp. 3d (E.D. Tenn. 2023). The district court concluded that "the presumption does not further a compelling governmental interest and is not narrowly tailored to achieve that interest." Following the decision, the SBA revised the 8(a) program to require 8(a) participants "whose program eligibility is based upon one or more individuals who relied upon the presumption of social disadvantage to establish their individual social disadvantage" to complete a narrative to establish that disadvantage.
Other socioeconomic categories could gain larger piece of the pie
Veteran-Owned Small Businesses (VOSB), Service-Disabled Veteran-Owned Small Businesses (SDVOSB), Women Owned Small Businesses (WOSB) and HUBZone small businesses, as well as small businesses generally, will likely not be harmed by the revised goals. In fact, outside the small, disadvantaged socioeconomic category, small businesses may benefit, at least in terms of their ability to capture a larger percentage of overall small business contract spend. As of FY 2024, the small, disadvantaged business category reached the 12% threshold, largely because it was a priority of the Biden administration. Agency-specific small business goals for the most part increased under the new guidance. For example, the SBA's general goal for awards to small businesses increased from 70% in FY 2024 to 72% in 2025, and the Department of Veterans Affairs' goal increased from 27% to 29%. (Some agencies' small business goals decreased modestly, such as the Treasury Department, which moved from 37% to 36.75%.) The combination of significantly lower 8(a) small business goals and an increase in general small business goals may lead to other types of small businesses filling that gap.
Large businesses may also be impacted
Although the primary impact of the revised small business goals will undoubtedly be felt by small, disadvantaged businesses, there will be some impact on large businesses. For most federal contracts awarded to large businesses that are expected to exceed $750,000 ($1.5 million for construction of any public facility), the large business is required to submit a small business subcontracting plan in accordance with FAR 52.219-9 establishing its targets for small business subcontracting spend for small businesses generally and the various socioeconomic categories of small businesses. While the subcontract targets for the socioeconomic categories — WOSB, 8(a), SDVOSB, and HUBZone — are the same across all agencies, each agency has its own general subcontract small business goals.
In the new FY 2025 goals, that goal has increased for a number of agencies. For example, the subcontract small business goals for the Defense Department have increased from 28% to 30%, Labor Department from 60% to 65.38% and the State Department from 38% to 50.83%. Some agency targets remained constant while a handful decreased — the SBA from 45% to 44% and the Department of Health and Human Services from 31% to 23%. When preparing or updating small business subcontracting plans, contractors should be careful to review these updated targets and ensure their plans align with the new agency goals.
Going forward
While the new goals will likely result in fewer contracts being awarded to 8(a) small businesses, outside the small, disadvantaged small business socioeconomic category, the sky is not falling. The new SBA small business goals reflect a larger shift away from affirmative action and DEI initiatives, and fewer awards to 8(a) small businesses could even benefit a broader set of socioeconomic categories.
This will, however, largely depend on overall federal government contract spend. The Trump administration has signaled through the efforts of the Department of Government Efficiency and a raft of executive orders that it intends to significantly reduce federal spending. In addition, a rewrite of the procurement regulations could bring another layer of changes that could impact with whom the government contracts. While the world is not ending, small businesses should be prepared to adapt as the procurement landscape shifts.
Originally published by Federal News Network.
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