SBA’s Proposed Size Standard Changes Could Reshape Federal Contracting for Small Businesses

The definition of a “small business” in federal contracting could soon look very different. The U.S. Small Business Administration (SBA) has proposed significant changes to its small business size standards that could expand the number and size of companies eligible to compete for federal small business opportunities.

According to the SBA, the proposed changes could result in more than 110,000 additional employer firms qualifying as small businesses. For growing government contractors, that could mean more room to grow while retaining small business status. For smaller firms, however, it could also mean competing against substantially larger companies for the same set-aside opportunities.

That concern is gaining attention among small business advocates, including Women Impacting Public Policy (WIPP), which held a briefing last week to discuss the proposal and its potential impact on women-owned and other small businesses in the federal marketplace.

What Are SBA Size Standards?

SBA size standards determine how large a company can be and still qualify as a small business for federal contracting and certain SBA programs. Depending on the industry, size is generally measured by a company’s average annual receipts or number of employees. The applicable standard is tied to the North American Industry Classification System (NAICS) code associated with the industry and procurement.

These standards are particularly important for government contractors because small business status can determine eligibility for set-aside contracts and programs such as the Women-Owned Small Business (WOSB), Economically Disadvantaged Women-Owned Small Business (EDWOSB), 8(a), HUBZone and Service-Disabled Veteran-Owned Small Business programs.

What Is SBA Proposing?

SBA is proposing to consolidate nearly 1,000 size-standard categories into approximately 338 broader industry groupings, reducing the number of categories by roughly 65%. Where appropriate, SBA would move from standards established for individual six-digit NAICS industries to broader four-digit industry categories.

SBA is also proposing substantial increases to size thresholds in some industries.

For example, the employee-based standard for semiconductor manufacturing could increase from 1,250 employees to 2,800, while shipbuilding could increase from 1,300 employees to 2,300. Revenue-based standards would also increase significantly in certain industries. For businesses approaching their current size limits, those changes could provide additional room to grow without immediately losing access to small business contracting opportunities.

WIPP Raises Concerns About the Competitive Impact

While expanding eligibility may sound like good news for small businesses, WIPP is urging small businesses to look more closely at what the changes could mean. During its briefing last week, WIPP discussed concerns about the competitive impact of dramatically increasing certain size standards, particularly for women-owned businesses and smaller firms already competing in the federal marketplace.

Under some proposed thresholds, a company with approximately $20 million in revenue could potentially find itself competing for a small business opportunity against a company approaching $300 million in revenue.Both may technically qualify as small, but their resources, staffing, past performance and proposal capacity could be dramatically different.

WIPP has also raised concerns about the potential impact on the WOSB and EDWOSB programs. Because businesses must meet applicable SBA size standards to participate in these programs, substantially increasing those standards could expand the pool of eligible competitors.

WIPP’s position is not simply that size standards should never increase. Rather, the organization is calling attention to whether the proposed changes will truly expand opportunities for small businesses or unintentionally make it more difficult for smaller firms to win federal contracts.

More Eligibility Could Mean More Competition

Expanding the number of businesses classified as small does not automatically expand the number of federal contracts available. If the pool of eligible businesses grows substantially while the number and value of small business opportunities do not grow proportionately, competition for those contracts could become more intense. A business may still qualify as small but find itself competing against companies with significantly greater resources.

What Should Small Businesses Do Now?

The proposed changes are not yet final, so businesses should continue using the SBA size standards currently in effect when determining and representing their small business status.

However, now is the time to evaluate how the proposal could affect your company. Start by reviewing your primary and secondary NAICS codes and identifying the current size standards associated with them. Then compare those thresholds with the proposed standards.

Growing businesses nearing their current size limits should determine whether the proposal could extend their small business eligibility. Smaller businesses should consider the opposite question: Could the proposed standard introduce substantially larger competitors into your market?

Businesses should also review their federal contracting pipeline. Look at the agencies you target, the NAICS codes commonly assigned to their opportunities, the types of set-asides being issued and the competitors already winning those contracts.

WIPP is also encouraging businesses to participate in the federal rulemaking process and communicate how the proposed changes could affect their ability to compete.

At Aventi, we help small businesses understand the contracting marketplace, identify the right opportunities and build a deliberate contract growth strategy. For more information about contract growth support, visit www.aventienterprises.com.