DoW Joins SBA’s Fight Against Alleged Pass-Through Fraud in the 8(a) Program

On January 16, 2026, U.S. Secretary of War Pete Hegseth posted a video on social media outlining the U.S. Department of War’s (DoW) plan to combat fraud, waste, and abuse in the Small Business Administration’s (SBA) 8(a) Business Development Program. 

Secretary Hegseth laid out a three-part approach:

1. First, the DoW will prioritize “a line-by-line review of every small-business, sole-source 8(a) contract that is over $20 million.” The secretary suggests that the DoW will “look at everything smaller than [$20 million] too.” This proclamation raises numerous questions that we anticipate will be answered in the near future.  These include: will such review be of only active contracts? How is the $20 million applied — is it the potential contract value or merely the obligated value? What materials will be requested by the DoW, and will they be different than those SBA recently requested from active 8(a) participants? What is the timeline for commencement of audits, and what are the deadlines for responses to the DoW? Will audit requests be limited to prime contractors in the first instance? 
2. Second, the DoW will seemingly also review 8(a) contracts to ensure such contracts make the DoW “more lethal” or “help us win wars” — appearing to commit to canceling contracts if they do not.
3. Third, the DoW will review 8(a) contracts for indicia of “pass-through fraud,” to determine whether the prime contractor is “the one actually doing the work, and not just some shell company funneling [taxpayer] money to a giant consulting firm.” Secretary Hegseth claimed that, in these “pass-through schemes,” 8(a) primes “take a 10%, 20%, sometimes 50% fee off the top, and then pass the contract off to a giant consulting firm, commonly known as Beltway Bandits.” 

Secretary Hegseth’s suggestions that 8(a) primes are fraudulently passing through work to “giant consulting” firms was a theme throughout the video. The DoW’s Department of Government Efficiency (DOGE) account, which reposted Secretary Hegseth’s video, reiterated the messaging, stating that “[t]oo often” “disadvantaged small businesses” are “actually shells—keeping 50% and farming the work out to big consulting firms.”

SBA Administrator Kelly Loeffler also reposted Secretary Hegseth’s video, reiterating that, as the DoW and U.S. Department of the Treasury “pursue their audits,” SBA will continue to review its audit of all active 8(a) participants, “requiring them to PROVE that they are not operating one of the pass-through schemes or shell companies that have become all too common in DC.”

In December 2025, Crowell & Moring posted an analysis of the implications for both small and large contractors of the SBA’s and Treasury’s intent to audit small businesses and/or various types of small business set-aside awards. The takeaway continues to be that all government contractors should assess and review their risk profiles in relation to the U.S. government’s recent focus on compliance with the limitations on subcontracting. The announced backward-looking audits (e.g., SBA’s and DoW’s review of aspects of the SBA’s 8(a) Program or Treasury’s review of all preference-based contracts) and forward-looking compliance requirements (e.g., Treasury’s imposition of labor reporting requirements) likely do not reflect the universe of audit and enforcement actions that government contractors should expect. Secretary Hegseth’s video does stop short of echoing Senator Jodi Ernst who, in her role as chair of the U.S. Senate Committee on Small Business and Entrepreneurship, sent letters on December 8, 2025, to federal agencies calling on them to pause issuance of sole-source awards to 8(a) participants.