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Small Business Administration Proposes New Rule on Determining Eligibility for Federal Contracts

Today, the Small Business Administration (SBA) published a proposed rule to modify its method for calculating annual average receipts used to prescribe size standards for companies in various industries, including construction, to be deemed “small businesses” eligible for federal contracting preferences and set asides.  Specifically, the SBA proposes to change the three-year average annual receipts calculation period currently used for determining small business status eligibility to a five-year calculation period.

Under section 3(a)(2)(A) of the Small Business Act, the SBA typically uses two primary measures of business size for size standards purposes: (1) annual average gross receipts for businesses in the construction, services, retail trade, and agricultural industries; and (2) average number of employees for businesses in all manufacturing and most mining and utilities industries.  The SBA’s size standards establish eligibility for a variety of federal small business assistance programs, including federal government contracting and business development programs designed to assist small businesses in obtaining federal contracts and subcontracts, and for SBA’s loan guarantee programs, which provide access to capital for small businesses that are unable to qualify for conventional loans elsewhere.  The government contracting programs that use SBA’s size standards include the SBA’s 8(a) Business Development program, the Historically Underutilized Business Zones (HUBZone) program, the Service Disabled Veteran-Owned Small Business program, the Woman-Owned Small Business program, and the Economically Disadvantaged Woman-Owned Small Business program. 

The SBA notes that the five-year average receipts standard it is proposing to adopt will generally result in a lower threshold than the three-year average, thereby allowing: (1) mid-sized businesses that have just exceeded size standards to regain their small business status; and (2) advanced small businesses close to exceeding the size standard to retain their small business status for a longer period.

Comments are due by August 23, 2019 and can be submitted via the federal Rulemaking portal using RIN 3245-AH16 and you can find the proposed rule in its entirety here.