Buried in a March 2026 SBA administrative notice was a significant change to how federal agencies are graded on small business contracting performance — a change that could have downstream effects on every small contractor that depends on set-aside work. Federal News Network broke the story in April, and as of May 2026, most firms in the 8(a), HUBZone, WOSB, and SDVOSB programs remain unaware of what changed and why it matters.
What the grading system is and why it matters
Every year, the SBA scorecard grades each federal agency on how well it met its small business contracting goals — the statutory requirement that roughly 23% of federal prime contract dollars flow to small businesses, with sub-goals for 8(a) firms (5%), small disadvantaged businesses (5%), women-owned small businesses (5%), HUBZone firms (3%), and service-disabled veteran-owned small businesses (3%). Agencies that perform poorly face political and administrative pressure. Contracting officers who miss goals face scrutiny in performance reviews. The scorecard is, in practice, one of the key mechanisms that compels contracting officers to actually use set-asides.
What changed in March 2026
| Factor | Before March 2026 | After March 2026 | Practical Effect |
|---|---|---|---|
| 8(a) sole-source awards | Counted fully toward SDB goal | Weighted down in grading | COs have less incentive to use 8(a) sole-source |
| SDB category name | "Small Disadvantaged Business" | "Economically Disadvantaged Business" | Framing shift; unclear legal effect |
| SDVOSB/VOSB emphasis | Standard sub-goal weighting | Elevated in grading methodology | More incentive to use veteran-owned businesses |
| 8(a) new firm admissions | 2,100+ annually (prior admin) | 65 firms in all of 2025 | Program is effectively in slow-motion suspension |
The 8(a) collapse in numbers
The 8(a) Business Development Program — which provides sole-source contract authority and competitive set-aside access for socially and economically disadvantaged small businesses — is experiencing the sharpest contraction in its history under the current administration. In January 2026, the SBA suspended approximately 1,000 firms that had not submitted required annual review data. In 2025, only 65 new firms were admitted to the program, versus 2,100+ annually in the prior administration. The cumulative effect is a rapidly shrinking pool of 8(a)-eligible firms, which in turn affects subcontracting flow under 8(a) vehicles across the government.
The Rule of Two: technically intact, practically softening
The FAR's Rule of Two — which requires contracting officers to set aside any acquisition for small business if there are at least two small businesses that can perform the work at a fair market price — remains in statute and regulation. But industry sources consulted by Federal News Network report that enforcement is softening: contracting officers at some agencies are conducting less rigorous market research to establish whether the Rule of Two is triggered, and set-aside waivers are being approved more readily. This is difficult to quantify in aggregate data but is consistent with the broader de-emphasis on small business programs across the administration.
Representative Velázquez's 34 questions
Rep. Nydia Velázquez (D-NY), ranking member of the House Small Business Committee, sent a 34-question letter to SBA Administrator Kelly Loeffler on April 1 demanding justification for the methodology changes, the 8(a) suspension wave, and the near-zero new firm admissions. As of May 7, the SBA has not publicly responded. The letter is worth reading for any small contractor seeking to understand the regulatory record — it documents the specific changes clearly and in sequence.
What small contractors should do
- 8(a) firms: Verify your annual review submissions are current — the 1,000 suspensions in January were almost entirely for missing documentation, not program violations. If you received any SBA notices, respond immediately
- Firms near 8(a) eligibility: The application backlog means entry could take 18+ months even if you qualify today. Apply now if you meet the criteria
- SDVOSB/VOSB firms: The elevated grading weight for veteran contracting is an explicit opportunity — agencies under pressure to hit SDVOSB goals will actively seek veteran-owned contractors
- All small contractors: Document every set-aside opportunity you are excluded from. If you believe an agency failed to apply the Rule of Two, the protest mechanism via SBA's Office of Hearings and Appeals remains available