New Congress, New Scrutiny: Oversight Risks for Government Contractors – and How to Prepare

The 2026 midterm elections gave Democrats control of both chambers of the U.S. Congress for the final two years of President Donald Trump's term, and the practical consequence is a sharp rise in congressional oversight. Democratic committee chairs will now hold the subpoena power, control the hearing calendar and possess the bulk of the committees' financial resources to hire oversight staff. They have every incentive to use those tools against an administration they cannot otherwise check. When executive branch officials invoke privilege or slow-walk document demands, committees often turn to the contractors, grantees and industry participants whose records tell the same story.

For government contractors, the practical point is simple: Inquiries that drew limited or no responses during the minority period can now be enforced by subpoena, and companies named in earlier letters, watchdog reports and press coverage should expect renewed attention. That shift is already underway.

On November 4, 2026, incoming U.S. House of Representatives Committee on Armed Services (HASC) Chair Adam Smith announced his intention to restore the Oversight and Investigations Subcommittee to support the committee's top priority of "vigorous oversight[,]" listing "sweetheart deals and favoritism to certain entities and individuals" as "top of mind[,]" and noting that the committee would "dive into … waste, fraud, and abuse by examining contracts and other financial support awarded to private companies." On November 5, 2026, incoming U.S. Senate Permanent Subcommittee on Investigations Chair Richard Blumenthal (D-Conn.) warned recipients of outstanding investigative requests that failure to produce information by January 4, 2027, could prompt compulsory measures.

Nor will scrutiny be limited to contractors suspected of wrongdoing. Companies may be drawn into investigations because they possess records of agency decision-making, communications with administration officials or transactions involving other businesses under review. For some contractors, the principal challenge will be responding to Congress without compromising sensitive information or relationships with the agencies they continue to serve.

Key Oversight Priorities for Government Contractors

Government contractors should consider the following risk factors when assessing potential congressional investigations exposure.

No-Bid, Sole-Source and Non-Competitive Awards

Oversight committees are likely to start with departures from full and open competition during the current administration. Areas of focus include sole-source awards and their justification-and-approval documents, undefinitized contract actions, awards to companies with no prior federal contracting history, and unusual cost growth or contract modifications after award. Two matters already in the public record are likely to frame this work: reports that the White House ballroom is being built under a no-bid contract worth up to $500 million, routed through the Executive Residence, and urgency-based awards for munitions, drones and other materiel tied to the Iran conflict.

What to Expect: Requests for justification-and-approval documents, market research, unsolicited proposals, modification histories and communications with political appointees, along with questions about any role intermediaries or lobbyists played in securing awards

Ties to Politically Connected Investors and Affiliates

Committees are likely to examine contractors whose investors, directors, advisors or business partners have close ties to senior administration officials or their families. Since the 2024 election, politically connected individuals and investment funds have taken director, advisory and investor roles across a growing group of companies, many of them in defense and dual-use technology. One oversight focus is on venture-backed defense technology companies and their partners, suppliers and acquirers rather than large prime contractors, but that may change as investigations move forward.

• Senators have identified tens of millions of dollars in U.S. Department of War (DOW) contracts awarded to portfolio companies of politically connected investment funds.
• Large Pentagon loans and financing awards to these companies, including from DOW's Office of Strategic Capital, have prompted questions from members of Congress about whether White House officials intervened in funding decisions.
• The incoming Oversight Chair has asked the DOW Inspector General to investigate contracts awarded to companies after politically connected individuals became affiliated with them.
• Press analyses report that some companies with politically connected backers have received substantial federal funds since January 2025, including companies with no prior federal contracting history.
• Business ventures tied to administration officials or their families, including in the crypto sector, have been named as a priority. Contractors with commercial relationships to these businesses, such as technology services, financing, joint ventures, token or stablecoin arrangements, hosting, licensing or real estate, could also receive requests.

What to Expect: Requests for capitalization tables, board and advisory agreements, investor communications and records of any contact with government officials about awards; primes that team with, subcontract to or invest in these companies may also receive requests

Awards Involving Special Government Employees with Potential Conflicts of Interest

Special government employees, including private-sector figures brought in through the Department of Government Efficiency and similar initiatives, worked inside agencies while keeping outside business interests. Committees are likely to examine whether those individuals took part in or influenced awards, terminations or policy decisions affecting companies in which they or their affiliates held interests and whether ethics agreements, recusals and financial disclosures were followed. Contractors that competed against, partnered with or benefited from decisions shaped by these officials may be asked to describe their contacts.

What to Expect: Requests for communications with special government employees, records of meetings or data-access requests, and documents showing how awards, terminations or contract restructurings came about

Emergency, OTA Authority and Non-FAR Procurement Vehicles

Committees are likely to ask whether emergency authorities, other-transaction agreements (OTAs) and other non-Federal Acquisition Regulation (FAR) vehicles were used to get around competition requirements. Areas of focus include urgency and national security exceptions, OTA prototype awards that moved into follow-on production without competition and new Pentagon financing vehicles. The DOW's Economic Defense Unit was created by memo without specific congressional authorization and makes equity-style investments. It has already drawn scrutiny, as has a reported $350 million DOW consulting contract connected to the official now running that unit. Financing from the Office of Strategic Capital is likely to be reviewed alongside these vehicles.

What to Expect: Requests for urgency and national security determinations, OTA agreements and the documentation supporting follow-on production decisions, records of how the government chose the vehicle, investment and financing applications, and communications with officials who approved or championed non-FAR awards

Unusually Large Profit Margins

Requests for supplemental appropriations tied to the Iran conflict will make defense spending a major oversight subject, and incoming majorities have promised close scrutiny of DOW Secretary Pete Hegseth's leadership. Contractors should expect questions about pricing and profit on urgency-based and sole-source awards, especially where certified cost or pricing data was waived, commercial-item determinations limited the government's visibility into costs or margins rose well above historical levels. Committees can compare internal pricing documents with what was disclosed to contracting officers, which can also give rise to defective pricing and Truthful Cost or Pricing Data Act (formerly Truth in Negotiations Act, or TINA) theories.

Scrutiny may also extend beyond contract-level pricing to how defense contractors deploy their profits, including stock repurchases, dividends, executive compensation and investments in production capacity. Recent debate over proposed restrictions on contractor stock buybacks suggests that corporate capital allocation could become another measure of whether federal defense spending is delivering sufficient value to taxpayers.

What to Expect: Requests for internal pricing models, cost buildups, margin analyses, certified cost or pricing data waivers, commercial-item determinations and proposal submissions, as well as comparisons of pricing across similar awards and earlier contract periods

Enforcement and Regulatory Matters Closed, Suspended or Dropped

Investigators are likely to examine whether government benefits followed donations, deals or relationships. One consumer advocacy research organization found that 16 of 27 identified corporate donors to the White House ballroom faced federal enforcement matters or had such matters suspended, and it has catalogued antitrust, labor consumer protection and other enforcement matters involving those donors that were suspended or resolved. Closures by the Consumer Financial Protection Bureau and other agencies involving Trump-linked companies have also been reported. Contractors whose investigations, suspension and debarment proceedings, audits or qui tam declination decisions were resolved favorably during this period should assume that the agency record may be requested and reviewed.

What to Expect: Requests for correspondence with enforcement agencies, settlement and closure documents, records of contacts with political appointees while matters were pending and any internal analysis of how resolutions related in time to donations, investments or other relationships with the administration

Legal Risks and Exposure for Government Contractors

Document Preservation Protocols and Obligations

A congressional inquiry does not by itself trigger every litigation-hold obligation. Once an investigation is reasonably anticipated, however, destroying relevant records creates serious risk, including potential obstruction exposure under 18 U.S.C. § 1505 and § 1519.

Contractors would be wise to review and assess any company data preservation and destruction policies, as well as any contract requirements regarding data prevention and destruction to identify any policies that could run afoul of potential litigation hold obligations.

Contractors reasonably anticipating a congressional inquiry (e.g., in the risk areas described above) should consider issuing targeted holds now. Holds should cover ephemeral messaging, personal devices used for business, and records held by consultants, lobbyists and teaming partners.

Subpoena Response and Negotiation

Congressional subpoenas are not governed by the Federal Rules of Civil Procedure, and courts give committees wide latitude. Most productive outcomes come from early negotiation with committee staff over scope, custodians, rolling productions and confidentiality. Noncompliance can lead to contempt proceedings, civil enforcement actions and public hearings. Testimony and transcribed interviews carry their own risks under 18 U.S.C. § 1001, regardless of whether a witness is sworn in.

Privilege Disputes and Government Customer Pushback

Congress has historically taken the position that it is not bound by common-law privileges, including attorney-client privilege and work product, and committees decide privilege claims for themselves. Different committees handle claims of privilege differently. It is important to identify the policies and protocols applicable to the committees that may issue inquiries to your government contractor.

Contractors may also face resistance from contracting agencies or contrary instructions from federal agencies regarding procedures for document production in compliance with congressional subpoenas. Contracting agencies may instruct contractors to route productions through the agency, withhold or redact certain categories of documents, or delay until the agency completes its own review. The administration may also assert executive privilege over communications the contractor shares with the government. Such an assertion can leave the contractor caught between a committee demanding compliance and an agency demanding restraint. Contractors should work closely with counsel experienced in both congressional investigations and government contracts to navigate these tricky legal and relationship issues.

Document Safeguarding and Dissemination Control Markings

Contractors also face issues involving government-furnished information, classified and controlled unclassified information (CUI), and procurement-sensitive and proprietary data, as well as personally identifiable information or personal health information that should not be released to the public. The congressional committee(s) issuing subpoenas may or may not have systems that are compliant with contract data protection and safeguarding requirements. Contractors should identify any potentially sensitive categories of documents or data in advance and work with counsel to vet methods of production in advance. Engage counsel with technical expertise early to identify data security concerns and resolve them with the relevant stakeholders before producing any documents

Whistleblower Protections and Retaliation Risk

Contractor and subcontractor employees have strong statutory protections when they report suspected misconduct, and those protections expressly cover disclosures to members of Congress and congressional committees. Under 10 U.S.C. § 4701 and 41 U.S.C. § 4712, employees who report gross mismanagement of a federal contract, gross waste of federal funds, abuse of authority, or violations of law related to a contract or grant may not be discharged, demoted or otherwise discriminated against. Their remedies can include reinstatement, back pay and attorneys' fees.

The False Claims Act (FCA) separately protects employees, contractors and agents from retaliation under 31 U.S.C. § 3730(h). The new committee majorities are expected to actively solicit whistleblower tips, publicize their intake channels and press for stronger statutory protections, so contractors should expect more employee disclosures to reach Congress directly, often before the company knows about them. Employment actions against employees who have raised compliance concerns now carry heightened risk. Contractors should review confidentiality, separation and non-disparagement agreements to confirm they do not restrict protected disclosures or reinforce internal reporting channels and route any adverse action involving a potential whistleblower through counsel.

FCA and Collateral Exposure

Congressional investigations often produce information that leads to FCA cases. Committee reports, released documents and testimony can supply the basis for qui tam complaints and theories involving defective pricing, TINA disclosures, undisclosed organizational conflicts of interest, improper gratuities or misrepresentations in proposals may follow. The FCA's statute of limitations, up to 10 years in some circumstances, means that conduct during this administration could be pursued by a future U.S. Department of Justice (DOJ). Related risks include:

• referrals to agency inspectors general and the DOJ
• suspension and debarment proceedings
• mandatory disclosure obligations under FAR 52.203-13
• Anti-Kickback Act and gratuities theories
• securities disclosure obligations for public companies
• shareholder derivative claims
• reputational harm from public hearings

Why Specialized Outside Counsel Matters and Why Now

Engaging outside counsel with deep congressional oversight, government contracts and enforcement experience is tantamount to navigating the minefield government contractors face when targeted by a congressional inquiry:

• Congressional Investigations. Knowledge of committee rules and policies, staff practices, negotiating norms and how investigative records become public
• Government Contracts. Fluency in the FAR and Defense Federal Acquisition Regulation Supplement, competition and sole-source requirements, organizational conflicts of interest, CUI control markings and other document classifications, mandatory disclosure, suspension and debarment and information technology compliance with relevant data security standards
• Litigation and Enforcement Defense. Experience with FCA defense, parallel DOJ and Office of Inspector General proceedings, privilege litigation and subpoena enforcement

Early engagement makes a real difference. Before a request arrives, counsel can run a privileged internal assessment, identify sensitive records and custodians, put defensible preservation and data control measures in place, prepare consistent public and government-facing messaging, and prepare executives for possible testimony. Companies that wait until a subpoena arrives often end up negotiating scope under deadline pressure, without a clear picture of their own record. This can lead to inconsistent statements, preventable privilege waivers and avoidable headlines.

Recommended Next Steps

1. Inventory exposure by examining donations, Trump family or affiliated-investor relationships, sole-source or other-transaction awards, Office of Strategic Capital or Economic Defense Unit financing, and favorably resolved enforcement matters since January 2025.
2. Assess applicable preservation obligations and existing retention practices, including automated deletion, ephemeral messaging and records maintained by third parties. Where an investigation is reasonably anticipated, implement appropriately scoped preservation measures and suspend routine deletion of potentially relevant information.
3. Where appropriate, issue or refresh targeted legal holds, including messaging apps and third-party agents.
4. Review potentially relevant contract(s) for confidentiality, notice and information-handling obligations, including any CUI or classified information requirements.
5. Review prior responses to congressional letters and watchdog inquiries for consistency.
6. Set up a response protocol covering the decision-makers, privilege review, document designation review, communications and board reporting.
7. Assess related FCA, mandatory disclosure and securities disclosure considerations under privilege.

How Holland & Knight Can Help

Holland & Knight's Congressional Investigations, Government Contracts and Litigation and Dispute Resolution teams work together to advise contractors through every stage of congressional oversight, from pre-inquiry readiness to subpoena negotiation, testimony preparation and related enforcement matters.

Our team conducts congressional investigations readiness assessments to help contractors identify potential areas of scrutiny, evaluate relevant records and communications, assess preservation obligations and establish protocols for responding to congressional inquiries while managing related contractual and enforcement risks.

To discuss your company's potential oversight risks or a congressional readiness assessment before the new Congress convenes in January, please contact your Holland & Knight relationship attorney or any of the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.