By Kevin Plexico, Deltek senior vice president of information solutions, a seven-time Wash100 awardee and a GovCon Expert
The federal small business market is in a state of flux. With sweeping SBA recertification rules, increased scrutiny on the 8(a) program and shifting agency priorities, the landscape has been fundamentally reshaped, tightening the compliance requirements small businesses must meet to remain competitive as the number of prime contract positions continues to shrink. These shifts are already visible in current acquisition trends and are influencing corporate decisions and investments.
Across agencies and programs, these developments point to a clear pattern in the evolution of the federal market. In this article, I’ll outline the regulatory, market and procurement changes driving this evolution, and show how small firms must adapt their growth, compliance and go-to-market strategies to stay competitive.
How Agency Buying Behavior is Evolving in FY 2026
The pattern defining the federal market becomes clearer when looking at how agencies are buying in FY 2026. Overall, contracting dollars grew in FY 2025, which may come as a surprise to some. Last year ended as a record year for the Defense sector, which grew by 8.9%. Civilian agency obligations, on the other hand, decreased by 2.3%.
However, despite the overall increase in FY 2025 contract spending, small business awards decreased $2.6 billion, or 1.5%. Multiple factors contributed to this decline, including contract terminations, agency reorganization and potentially increased scrutiny of certain socioeconomic programs. Also, there is a bit of bad math. In 2025, growth was largely driven by increased spending in aerospace and defense programs and in health care, while spending in professional services, IT, and architecture, engineering and construction remained flat or declined.
The areas that grew are dominated by large companies, while the areas that declined or went flat are hot spots for small-business contracting.
At the same time, as we’ve seen for several years, the volume of actual prime contract positions continues to shrink despite an increase in overall contracting dollars. With that, the number of primes has also dropped (the number of small businesses participating in the federal market is down 49% since FY 2010).
Opportunity Trends Within a Changing Environment
So, where is this spending actually happening? Deltek’s expert federal analysts have found that some small-business industry segments have seen a stronger boost than others, such as cloud products and services. Identifiable cloud spending with small business partners jumped to $4.4B in FY 2025, a total that rose $200M from FY 2024.
Our analysts have noticed an increase in requests for information, or RFIs, issued for recompetes of formerly sole-source contracts as the Administration pushes for more competition. Additionally, some RFIs may open the door for different competition types compared to the acquisition strategy used for the predecessor contract.
For small businesses, this shift elevates the importance of early engagement. Firms that actively participate in market research are better positioned to influence requirements development, competition structure and teaming strategies before solicitations are finalized.
Changes to SBA And Other Small Business Regulations
These acquisition trends are unfolding alongside a more constrained and increasingly complex regulatory environment.
While federal small business spending is up in some areas, spending cuts are on the horizon in others. Our initial findings on the recently released President’s Fiscal Year (FY) 2027 Budget Request showed a total of $329M in discretionary budget authority for the SBA, a 67% decrease from the FY 2026 enacted level. This includes a $309M drop in Entrepreneurial Development Programs, with several programs eliminated.
This is one wrinkle for GovCons working with the SBA or relying on the SBA for assistance. Another is the raft of recent eligibility and program changes, including:
- Mandatory recertification within 30 days of mergers, acquisitions, or ownership changes, with immediate loss of eligibility on multiple-award set-aside vehicles if the company can no longer certify as small
- Disqualifying recertification now uniformly affects all SBA programs (8(a), WOSB, SDVOSB, HUBZone)
- FAR / SBA rules now make size determination task-order specific on MACs, shifting what counts as “small” when bidding
- 8(a) recompetes no longer have to remain in the 8(a) program allowing them to be moved to other socioeconomic programs
Together, these developments signal that maintaining small business status increasingly depends on transaction timing, compliance discipline and internal coordination rather than initial certification alone.
How Increased Scrutiny Is Reshaping the 8(a) Program
These dynamics are most pronounced within the SBA’s 8(a) program. Joining other agencies in the review of the program, the Pentagon’s review stems from what it has alleged are fraud schemes. Its initial focus was on the last 15 years of high-dollar, limited-competition contracts. Coupled with stronger audit enforcement, policy changes and a raft of executive orders, the 8(a) program has reversed its year-over-year growth, with a 44% decline in program participants since FY 2023.
Policy changes occurred regularly in 2025 and have extended into 2026. In January of this year, the SBA issued policy guidance eliminating presumptive social disadvantage status based solely on race, requiring documented evidence of social disadvantage. The next week, the agency suspended more than 1,000 firms for noncompliance and terminated additional firms in February and March.
For companies remaining in—or seeking entry into—the program, success increasingly depends on maintaining audit readiness, responding quickly to data requests and sustaining close coordination with contracting officers and program managers.
5 Takeaways for Small Business Contractors
So, we’ve seen that overall contracting dollars are up, but the environment for many small businesses is full of changes and challenges. Contractors planning for the remainder of FY 2026 should consider the following implications:
- Increased oversight and compliance pressure are influencing how agencies use small business programs, underscoring the need for more deliberate, risk-aware contracting decisions.
- While 8(a) set-aside and sole-source procurements may shift to other competition types, such as WOSB, HUBZone, SDVOSB and potentially VOSB, this creates opportunities for firms certified in those socioeconomic categories. Responding to RFIs and market research can influence the resulting competition.
- Greater reliance on contract vehicles is shaping award activity, making it essential for firms to be positioned on the right GWACs and IDIQs. These vehicles also raise the bar on compliance capabilities, effectively pruning the competitive field to the most prepared firms.
- Rising competition and a continued decline in prime opportunities are putting greater pressure on incumbents to differentiate through past performance and strategic teaming.
- Data-driven business development is becoming a competitive advantage, as leading firms use market intelligence to identify opportunities earlier and target the most active agencies.
The small business landscape is in a state of rapid change, and there are opportunities out there for proactive businesses, but the rules and structures governing it are shifting rapidly. Set-asides remain central to federal procurement, although qualification, certification and competition look very different from even 12 months ago. Firms that balance compliance rigor with proactive market engagement and a diversified growth strategy will be best positioned for sustained success.
