Senator Edward Markey (D-MA) released a report in June 2026 titled "The Small Business Contracting Catastrophe" documenting what the report characterizes as a $47 billion decline in federal contracting awards to small businesses during the first 18 months of the current administration, according to the report published by the Senator's office. The report draws on USASpending.gov data and Small Business Administration program metrics to argue that administration policies including DOGE-driven agency contracting cutbacks, mass contract cancellations, and regulatory changes to small business certification programs have combined to produce the largest decline in small business federal contracting in recent history. The Markey report received significant attention from small business advocacy groups and the defense contracting community, where small business set-aside programs represent a major revenue source for thousands of firms.
The federal government has long maintained a policy goal of directing a specific percentage of total federal contracting dollars to small businesses, with the current statutory goal set at 23 percent of total prime contract dollars. The Small Business Administration reports annually on the government's achievement of this goal and has consistently reported overall achievement in recent years — though critics have noted that the 23 percent figure can be achieved even as total spending declines, and that reaching the percentage goal does not mean individual small businesses are receiving equivalent dollars. The Markey report focuses on total dollars and the number of unique small business vendors rather than percentage achievement, measures it argues are more meaningful indicators of actual small business participation in federal contracting.
Key Findings of the Markey Report
The report's central finding is a $47 billion year-over-year decline in prime contracting awards to small businesses during fiscal year 2026 compared to fiscal year 2025, based on data extracted from USASpending.gov for the period through April 2026. This decline is attributed primarily to the broad contract cancellations and scope reductions executed by the Department of Government Efficiency initiative across federal agencies, which disproportionately affected service contracts where small businesses have historically been well represented. DEI-related contract eliminations, reduction of USAID programs, and cuts to grants and cooperative agreements that flow to small research firms are cited as contributing factors to the overall decline.
A secondary finding examines the number of unique small business vendors receiving federal prime contract awards, which the report argues has declined substantially from historical levels. The report argues this vendor count decline is more concerning than the dollar figure, because a reduction in the number of participating firms represents a genuine contraction of the small business contracting industrial base — companies that have lost their federal revenue stream may not reconstitute their government contracting capabilities when the policy environment changes, creating a permanent loss of industrial base diversity that takes years to rebuild.
The report also examines specific small business program categories, finding particular declines in awards under the 8(a) Business Development program, the Women-Owned Small Business program, and the Historically Underutilized Business Zone program. These declines are attributed to both the general reduction in agency contracting activity and to specific policy changes affecting eligibility requirements and certification processes for these set-aside programs. The Service-Disabled Veteran-Owned Small Business program showed smaller relative declines, which the report attributes to stronger political support for veteran programs providing some protection against the broader contraction.
Administration Response and Alternative Perspective
The administration has disputed characterizations of the contracting decline as harmful, arguing that the reductions in federal contracting reflect the successful elimination of wasteful spending rather than harm to legitimate small businesses. Administration officials have pointed to specific categories of eliminated spending — DEI programs, consulting arrangements, and soft-services contracts — as examples of government waste that should not be equated with the loss of meaningful small business opportunity. The administration's position is that a smaller, more efficient government that buys only what it genuinely needs is compatible with a healthy small business contracting base for legitimate defense and technical requirements.
The debate over the Markey report's findings reflects a broader policy disagreement about the role of federal contracting in the small business economy. Proponents of the current administration's approach argue that the 23 percent small business goal has often been achieved through set-asides for services that could be performed more economically by government employees or that represent low-value contracted activities. Critics argue that the set-aside programs have been effective tools for building diverse industrial capacity and that the current declines will have lasting effects on the small business government contracting ecosystem that are not easily reversed when priorities change.
What It Means for Contractors
For small businesses that have built significant revenue streams from federal contracting, the Markey report's data points represent a challenging market environment that requires strategic reassessment. The specific sectors most affected — professional services, IT support, program management, and research and analysis — are the categories where small businesses have historically had the strongest presence in federal contracting. Firms in these sectors should analyze their own revenue trends against the broader data, assess their contract renewal pipeline, and develop contingency plans for reduced federal revenue in the near term.
Small businesses that have relied heavily on agency-specific relationships for contract renewals and follow-on work should consider diversifying their agency customer base to reduce concentration risk. Agencies whose contracting has contracted most sharply represent higher renewal risk, while agencies with mission requirements that are more protected from DOGE-style cuts — defense agencies, national security programs, law enforcement — may represent better near-term opportunity. Building relationships with defense prime contractors as a subcontractor is also a viable diversification path for small businesses with relevant technical capabilities.
For small businesses that have not yet engaged with the Small Business Administration's resource network — including Small Business Development Centers, SCORE mentors, and the SBA's procurement technical assistance centers — this is an important time to make those connections. PTAC advisors can provide specific intelligence on agency contracting trends in local markets, help identify set-aside opportunities on upcoming solicitations, and assist with developing teaming arrangements that can extend a small firm's competitive reach beyond what it can pursue independently in a tighter contracting environment.
