Why it Matters

The House Committee on Small Business held a hearing on Wednesday, June 3 examining the role of small businesses in national security, and the central tension was stark: the defense industrial base is shrinking precisely as defense budgets climb. The Trump administration has framed its procurement overhaul as opening doors for small firms, but Democratic members fired back that the administration's own actions, from gutting the Small Business Administration (SBA) workforce to Department of Defense (DOD contract terminations, are accelerating the exodus.

The Big Picture

The hearing came six weeks after Congress reauthorized the Small Business Innovation Research program following a six-month lapse that froze awards across federal agencies. That disruption, combined with the rollout of costly cybersecurity certification requirements and DOD's ongoing procurement consolidation, has contributed to a sharp decline in small business participation in the defense supply chain. According to data cited at the hearing, the number of small businesses contracting with DOD fell 43 percent between fiscal years 2011 and 2020, even as dollar obligations to those firms rose. The hearing also followed the release of the National Defense Industrial Association's Vital Signs 2026 report, which found that 66 percent of industry respondents cited complex procurement processes as their top barrier to participation.

What They're Saying

The divide between Williams and Velázquez set the tone for the full hearing. Williams argued that the current moment of historic defense investment creates an opening for small businesses, provided Congress removes bureaucratic obstacles. Velázquez was sharper, stating that the SBA has become "a wall" that has "gutted the workforce and diverted limited resources to a fishing expedition based on unsubstantiated accusations." She also charged that DOD produced a "slickly produced but factually inaccurate social media video designed to intimidate small firms."

Schwartz, testifying on behalf of the National Defense Industrial Association (NDIA), offered a data-heavy presentation that largely bridged the partisan divide. He cited an NDIA poll in which 56 percent of companies identified acquisition paperwork as their top obstacle. He also quoted Hegseth directly, noting the secretary's own acknowledgment that DOD has been "a bad customer who year after year changes our mind on what we want."

Daniel Jaworowski, President and COO, Infinity Systems Engineering LLC, described what he called a "second valley of death" for mid-sized firms. His Colorado Springs company, with fewer than 300 employees and no socioeconomic designations, is too large for set-aside programs but too small to compete against multi-billion-dollar primes on full and open contracts. "Forcing a growing mid-sized business to jump straight into the ring with defense giants is the antithesis of healthy competition," he said. He noted that in the past six years, nearly a dozen privately held defense firms in Colorado Springs sold to larger entities or private equity, shrinking the base further.

Angela Dingle, President and CEO, Women Impacting Public Policy, testified that the number of firms receiving prime contracts has been cut nearly in half, from roughly 121,000 in 2009 to about 63,000 in 2022, even as total dollars reached a record $183 billion in fiscal year 2024. "Record dollars are flowing to fewer and fewer companies," she said. "It is the opposite of a strong industrial base." She warned that losing the rule of two, the requirement that agencies consider at least two small businesses before awarding a contract, would be "disastrous."

Anthony Closson, Founder and CEO, Colossal Contracting LLC, a service-disabled veteran and Air Force veteran, offered a more optimistic but conditional picture. He praised the committee for passing H.R. 2804 to codify the rule of two and argued that removing justification and approval requirements for direct awards to veteran-owned firms could open meaningful new pathways. Still, he acknowledged the size standard problem directly: at 105 employees, Colossal is "constantly battling" a threshold that could force it to compete against multinational corporations.

Rep. Maggie Goodlander (D-NH-2) pressed Jaworowski on his "second valley of death" framing, noting that the U.S. went from 51 prime defense contractors in 1993 to five by 2000. "We're seeing this same movie once again," she said. She described coming to Congress from the antitrust division at the Justice Department and said she wanted to "write better rules of the road."

Rep. Tony Wied (R-WI-8) drilled into cybersecurity compliance costs, noting that Cybersecurity Maturity Model Certification (CMMC) can run upward of $100,000. Jaworowski said the real figure is "several hundred thousand dollars" and that the process took his firm five years. He also said overclassification is compounding the problem: "Anything that is unclassified is now being called CUI for the sake of CMMC. All we've really done is create another barrier to entry."

Velázquez pressed Dingle on a specific administrative action: documents showing the SBA changed its scorecard criteria and lowered agency spending targets, potentially directing $12 billion less toward small businesses. Dingle said the impact would be direct. "If you say to an agency, you only have to spend $12 billion less than you did, they will simply do that, and small businesses will be cut out."

Political Stakes

The hearing puts the Trump administration's industrial base rhetoric to the test. The White House's 2026 National Defense Strategy explicitly calls to "supercharge the U.S. defense industrial base," and an April 2025 executive order directed the streamlining of defense acquisitions. But Velázquez and other Democrats argued the administration's actions, including SBA workforce reductions and DOD contract terminations, contradict that framing. For the administration, the hearing is a moment to demonstrate that Federal Acquisitions Regulations System (FAR) overhaul and deregulation are producing results. For small businesses, the stakes are more immediate: whether the procurement system will remain viable for firms without the resources of corporate giants.

Yes, but: Not all witnesses were uniformly critical of the administration's direction. Closson said he believes removing justification requirements for sole-source awards to veteran-owned firms is a genuine improvement. Schwartz said the FAR rewrite sends an important cultural message to the acquisition workforce, empowering contracting officers to prioritize outcomes over compliance. Jaworowski said the Small Business Innovation Research extension, while welcome, needs to be made permanent to give small firms the planning certainty they need.

What's next: The committee's passage of the Protecting Small Business Competition Act, which codifies the rule of two, is pending full House action. Members have five legislative days to submit additional written questions to witnesses. The FY2027 National Defense Authorization Act process, already underway in the Armed Services committees, is the most likely vehicle for any legislative follow-through on the hearing's recommendations.

The Bottom Line

More defense dollars are flowing than ever, but the pool of small businesses capable of catching them keeps shrinking, and the hearing produced no consensus on whether the administration's reforms are effective enough to reverse that trend.

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