DOJ’s Recent Small Business Administration FCA Settlement Highlights Risks for Contractors

July 28, 2026 - 22:10

A $21.3 million settlement under the False Claims Act has put federal contractors on notice about the risks of misusing small business programs. The deal, reached between the Department of Justice and an electrical contractor along with its subsidiary, centers on allegations that the company misrepresented its status to win government work.

The case highlights the DOJ's growing focus on Small Business Administration set-aside programs. These programs are designed to steer federal contracts to qualifying small businesses. But the government is now looking closely at two types of abuse. First, companies that falsely claim to be small businesses themselves. Second, and perhaps more important for larger firms, companies that claim to use qualifying small businesses as subcontractors but do not actually follow through on those promises.

The settlement sends a clear message. Federal contractors must verify their eligibility and the eligibility of their partners. If a company says it will use a small business for a certain percentage of the work, it must actually do so. Failing to meet those obligations can lead to significant financial penalties under the False Claims Act.

Industry experts say the case is part of a broader trend. The DOJ has been increasing enforcement actions related to procurement fraud, especially where small business programs are involved. Contractors should review their compliance procedures and ensure they have accurate records of their small business relationships. The cost of a settlement, as this case shows, can run into the tens of millions of dollars.