A Mandate for Neglect

In public, the U.S. Air Force celebrates a thriving partnership with its small business innovators. In private, a single memorandum reveals a policy of systematic neglect. A Department of the Air Force (DAF) memorandum dated September 4, 2025, issued under a "Workforce Acceleration & Recapitalization Initiative," contained a directive that, in one sentence, exposes a profound disregard for the industrial base the service claims to foster.

The Memo

Buried among directives to consolidate staff and eliminate organizational layers is this unambiguous order:

"Reduce the Office of Small Business (SAF/SB) to a single individual, maintaining the individual's direct reporting to the SecAF to comply with statute. Support for the SAF/SB will be provided by SAF/AQ."

The Meaning

This is not a simple staff reduction; it is a functional decapitation of small business advocacy within the Air Force. While technically adhering to the law by maintaining a direct reporting line to the Secretary, it completely violates the spirit and purpose of that law. An office of one cannot meaningfully influence policy or advocate for thousands of businesses across an enterprise with a contract spend that has exceeded $100 billion.

Furthermore, by placing this lone individual under the support of SAF/AQ (the acquisition directorate), the memo creates an irreconcilable conflict of interest. The small business office is meant to be an independent voice that can challenge acquisition strategies that favor large incumbents. By making it dependent on the very bureaucracy it's meant to hold accountable, its independence is eliminated, rendering it a toothless figurehead.

The Projection

This administrative action sends a powerful and chilling signal throughout the entire DAF acquisition workforce. The message is clear: Small business inclusion is no longer a command-level priority. This fosters a permissive environment for program managers and contracting officers to default to the largest, most established contractors, stifling competition and innovation at the source.

This single directive forces a critical re-examination of the Air Force's entire relationship with its small business partners. It compels us to look past the glowing press releases and record-breaking dollar figures and ask what is really going on.

The Illusion of Success

The policy of neglect detailed in the September 2025 memo is actively masked by a public relations narrative of resounding success. On the surface, the Department of Defense's performance in small business contracting appears to be a major accomplishment. This official story, however, is built on flawed metrics that reward the consolidation of contracts and conceal a dangerous, decade-long decay of the industrial base.

The Paradox of a Shrinking Base

The government celebrates record-breaking figures year after year. The Department of the Air Force, for example, obligated a record high of $15.58 billion to small businesses in FY2022. These glowing headlines hide a troubling reality confirmed by the Government Accountability Office. A 2021 GAO report found that while DoD contract dollars increased, the actual number of small businesses receiving contracts declined. This trend is severe, as the number of small suppliers in the defense industrial base has fallen by 40% over the past decade. The government is spending more money with significantly fewer companies.

The Flawed Scorecard

This paradox is a direct result of the Small Business Administration's own flawed methodology for grading federal agencies. According to the SBA's scorecard overview, an agency's ability to meet its dollar-based prime contracting goals accounts for a massive 50% of its final grade. In stark contrast, the metric tracking the year-over-year change in the number of small business prime contractors, which represents the actual health of the industrial base, accounts for only 10% of the grade. This structure creates a perverse incentive. An agency can achieve a high score by awarding larger, consolidated contracts to a smaller pool of established firms, easily meeting its dollar targets while simultaneously freezing out new entrants and eroding the diversity of the supplier base.

The Illusion of Growth

Even the perceived growth in spending is an illusion when viewed over a longer timeline. While annual figures appear to rise, they are not keeping pace with inflation, meaning the real purchasing power of these contracts is shrinking. The data is unambiguous on this point. DoD small business obligations grew from $90 billion in FY2009 to only $92 billion in FY2023. A nominal increase of just over two percent across fourteen years amounts to a significant decrease in real, inflation-adjusted terms.

The Internal Admission

The most powerful refutation of the public success narrative comes from the Air Force itself. An internal DAF memo from May 22, 2024, explicitly sets the department's primary goal to "Stem and reverse the decline in the number of small business contractors in the DAF industrial base". The memo's multi-year recovery plan details goals of managed decline, aiming for a contractor loss of no more than 5% in FY2025 before hoping to achieve stabilization in FY2026. This internal admission of a crisis, which requires a multi-year effort just to stop the bleeding, proves that the official success story is a carefully constructed fiction.

The Gatekeepers

The environment for small businesses is not shaped by government policy alone but by the handful of corporate giants that dominate the defense industry. Following the end of the Cold War, the sector underwent a massive wave of consolidation, shrinking the number of prime contractors from 51 in the 1990s to just a few legacy giants today. These firms form an oligopoly that acts as both a critical partner and a formidable barrier for small businesses.

The Subcontracting Black Box

Under the Federal Acquisition Regulation, large prime contractors awarded contracts exceeding $750,000 are required to establish and adhere to small business subcontracting plans. These plans are intended to ensure that small firms receive an equitable opportunity to participate in major government programs. In practice, however, these requirements are rendered nearly meaningless by a profound lack of transparency.

An analysis of multi-billion-dollar Air Force contracts on the government's own USASpending.gov database reveals the extent of this opacity. For major awards, such as Northrop Grumman's $13.3 billion contract for the Sentinel ICBM or Boeing's $29.5 billion contract for the KC-46A tanker, the "Subcontracting Plan" field is simply marked "H: DOD COMPREHENSIVE SUBCONTRACT PLAN". This designation refers to a plan negotiated at a corporate or divisional level, rather than for a specific contract. While this reduces the administrative burden on the prime contractor, it creates an accountability vacuum. It becomes impossible for the public, or even government watchdogs, to determine the specific small business goals for these colossal programs or to audit the prime's performance against them.

Buying Innovation to Reduce Competition

While subcontracting opportunities are shrouded in opacity, a far more visible trend is reshaping the industrial base: The systematic acquisition of innovative small and mid-sized companies by the largest prime contractors. Rather than competing with or fostering these innovators as long-term partners, the primes are increasingly opting to purchase them outright, absorbing their technology and eliminating a potential future competitor.

This pattern of behavior is not isolated but is a clear strategy being executed across the top tier of the defense industry, creating what can be described as an "innovation kill zone". Small firms are encouraged, often with government R&D funding, to develop novel technologies. However, once they prove successful and begin to scale, their most likely exit is not to become a sustainable, independent mid-tier company, but to be acquired by one of the giants. This dynamic stifles the long-term health of the industrial base and ensures the current hierarchy remains entrenched. Key examples of this trend include BAE Systems acquiring Ball Aerospace, Leidos acquiring Kudu Dynamics, and RTX acquiring the small satellite manufacturer Blue Canyon Technologies.

The Strategic Cost of Neglect

The convergence of a hollowed-out advocacy office, a shrinking supplier base, and a consolidating prime contractor market creates more than just a difficult environment for small businesses. It represents a significant strategic vulnerability for the U.S. Air Force and the nation's defense.

The Innovation Imperative

In an era of renewed great power competition, where technological superiority is fleeting, the speed and diversity of the innovation ecosystem are paramount. The current trajectory is actively degrading this ecosystem. A weakened SAF/SB lacks the authority to enforce policies designed to broaden competition, and the resulting decline in the number of contractors means the Air Force is sourcing ideas from a narrower pool, increasing the risk of technological stagnation. When this is combined with an oligopolistic market where the largest players acquire their most promising innovators, the result is an industrial base that is less competitive, less agile, and ultimately, less capable of producing the disruptive technologies needed to maintain an edge over adversaries. A brittle industrial base, dependent on a handful of massive primes, has single points of failure that create a national security risk far outweighing any administrative conveniences.

Tactical Fixes for a Strategic Problem

The DoD has attempted to counteract these trends through programs like the Air Force's Small Business Innovation Research "Open Topics" initiative. This program has been successful in attracting new companies to the defense market and dramatically reducing award timelines compared to conventional methods. However, these programs are tactical solutions to a strategic problem. SBIR awards are focused on early-stage research and development. They do not solve the infamous "valley of death," the critical gap between a successful prototype and its integration into a major program of record. It is precisely at this transition point that innovative small businesses are most vulnerable, either being acquired by a prime or outmaneuvered for the large-scale production and integration contracts that follow.

Recommendations

Congress should take two immediate legislative actions. First, it should mandate subcontracting transparency by amending the Small Business Act to require public, contract-by-contract reporting of subcontracting goals and achievements for all Major Defense Acquisition Programs. This would eliminate the opacity of the current "Comprehensive Subcontracting Plans." Second, Congress must strengthen and protect advocacy offices by passing legislation that statutorily defines minimum staffing and resource levels for offices like SAF/SB, pegging them to the agency's acquisition budget to protect them from administrative dismantling.

The Department of Defense must also pursue internal reforms. It should revise its oversight of mergers and acquisitions to move beyond traditional antitrust concerns and explicitly assess the impact of any acquisition on industrial base diversity and innovation. Furthermore, the DoD should lead the charge to reform the SBA scorecard, advocating for a significant increase in the weighting of the "number of small business prime contractors" metric from its current 10% to at least 25-30% of the total grade. This would create a genuine incentive for agencies to broaden their industrial base instead of just meeting dollar-based targets.