# Defense Industrial Base Faces Middle-Tier Contraction

The defense industrial base is experiencing a critical contraction in the mid-tier contractor segment, as small businesses struggle to scale into competitive mid-sized and large defense contractors. This trend threatens long-term competition, innovation, and resilience within the defense supply chain. While the Small Business Administration has raised small-business size standards to partially address this issue, broader acquisition policy reforms, improved capital access, and programmatic support are necessary to sustain a diverse and competitive industrial ecosystem.

- The Department of Defense and Small Business Administration must coordinate policy adjustments to facilitate growth pathways beyond small business entry.
- Procurement professionals should anticipate potential impacts on competition and supplier diversity as mid-tier firms face challenges scaling.
- Contractors and industry stakeholders can benefit from engaging in policy discussions and advocating for acquisition reforms that support sustainable industrial base growth.
- This situation underscores the importance of strategic sourcing and risk management to maintain innovation and resilience in defense supply chains.

**Jurisdictions:** federal
**Industries:** Defense & Military
**Topics:** Policy
**Published:** September 25, 2026

### Government Entities
- Small Business Administration (SBA)
- Department of Defense (DoD)

### Key Quotes
> If the federal government is serious about reducing vendor lock, increasing competition, accelerating innovation, and building a more resilient DIB, then it must think beyond small business entry.
> — Matthew Kasberg, CEO of Odyssey Systems

### Sources
- [The defense industrial base’s disappearing middle - Washington Technology](https://www.washingtontechnology.com/opinion/2026/09/defense-industrial-bases-disappearing-middle/416233) - Washington Technology