An ongoing review by Secretary of Defense Pete Hegseth for fraud and abuse involving a key federal program could impact a number of local businesses that are beneficiaries of the program, raising concerns from the chair of the Legislature’s committee that oversees federal affairs, Sen. Jesse Lujan.
The Small Business Administration’s 8(a) Business Development Program provides set-aside and sole-source contracts designed to ensure that smaller, minority-owned businesses can compete for Defense Department work.
But in a recent post on the social media platform X, Hegseth said, “Providing these small businesses with opportunities is a laudable goal. … But over the decades, as it happens, the 8(a) program has morphed into swamp code words for (Diversity, Equity, and Inclusion) race-based contracting.”
Hegseth charged that in many instances the beneficiary businesses don’t actually do the work. “They take a 10%, 20%, (or) sometimes 50% fee off the top and then pass the contract off to a giant consulting firm.”
In a letter Wednesday to SBA regional administrator Steven Snow, Lujan wrote that such programs “have historically served as critical tools to ensure that locally owned, legitimately operating small businesses can meaningfully participate in federally funded work taking place on the island.”
“In markets like Guam, these tools are often the difference between local participation and the complete displacement of work to off-island firms,” he added.
Lujan outlined the importance of Guam-based 8(a) participants in employing residents, contributing to the tax base, and building long-term business capacity for the island.
“Reforms that do not adequately account for the structural realities of U.S. territories risk disproportionately impacting compliant and productive firms that the program was designed to support,” Lujan wrote. “Many federal policies, while effective in stateside markets, do not translate seamlessly to territorial economies and can result in unintended consequences if applied without adjustment.”
He has requested that the regional SBA office engage and consult territorial governments before the implementation of any material changes to the program.
“Preserving pathways for legitimate Guam businesses to compete for and perform federal work is essential not only for economic development but also for sustaining a resilient local workforce capable of supporting federal missions in the Pacific,” Lujan wrote.
“I fully support efforts to strengthen oversight, accountability, and program integrity. Any instances of fraud, abuse, or pass-through arrangements undermine the statutory purpose of small federal business programs and should be addressed decisively,” Lujan added.
According to national media reports, the SBA in December directed more than 4,000 participating firms to submit detailed financial records covering the past three fiscal years. This follows a Department of Justice investigation that uncovered a bribery and fraud scheme involving more than $550 million in improperly awarded contracts tied to 8(a) participants.
There have been no indications that any Guam firms are under investigation.