SBA published proposed size standards that raise small-business limits by 15x in some important industries. As I explained in my live stream earlier, the across-the-board increases flow from SBA’s interpretation of the “dominance” provision in the Small Business Act. SBA explains that, for $20 billion industries, a $500 million business “would not be dominant.” That’s why the proposed size standards go up to $531 million in significant government contracting industries, and even higher in others.
An auto-generated transcript of the live stream follows.
Links
Google Sheet comparing the proposed standards to current standards and previously proposed standards https://docs.google.com/spreadsheets/d/1lY83yT6T-THskHao-Vf28JrryhKay-XP
SBA Proposed Rule on Small Business Size Standards https://www.federalregister.gov/documents/2026/08/20/2026-17042/small-business-size-standards
SBA Proposed Size Standards Methodology https://www.federalregister.gov/documents/2026/08/20/2026-17039/small-business-size-standards-revised-size-standards-methodology
Prior SBA proposed changes from August 2024 https://www.govinfo.gov/content/pkg/FR-2025-08-22/pdf/2025-16142.pdf
Prior SBA Size Standard Methodology https://legacy.sba.gov/sites/default/files/2024-09/Updated_Size_Standard_Methodology_WhitePaper_2024_Proposed_508_v0.pdf
Link for Submitting comments by September 21, 2026 https://www.regulations.gov/commenton/SBA-2026-0199-0001
How Big is Small? The Economic Effects of Access to Small Business Government Support by Matthew Denes et. al. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3451424
Chapters
0:00 Breaking News: SBA Proposes a Sweeping Overhaul of Size Standards
1:17 Sam’s Background at SBA
3:02 What the Law Requires: Defining “Small”
5:49 Two Types of Size Standards: Employees vs. Receipts
8:52 Procedural Requirements: NAICS Codes and Public Hearings
11:44 Walking Through the Proposed Numbers
18:12 How These Numbers Got So Big: The Old Methodology
21:19 The New Methodology and the $500 Million Anchor
26:08 Footnotes and Sub-Industries Eliminated
30:42 What This Means: Mid-Sized Companies Become Small
33:05 Second-Order Effects: The Rule of Two and Set-Asides
36:52 Contract Consolidation, M&A, and the Mentor-Protégé Program
41:23 Timeline: The Comment Period and Path to a Final Rule
47:57 Audience Q&A: SBIR, Loan Programs, and Multi-Award IDIQs
50:33 The Old Maximum Cap, and Research on Raising Size Standards
54:07 Effects on Subcontracting and Certification Programs
56:07 The Dominance Standard and How to Submit Comments
58:41 Closing Thoughts: Sam’s Take
Transcript
Breaking News: SBA Proposes a Sweeping Overhaul of Size Standards
Thank you for joining this GovCon Intelligence live stream. Big news from SBA. We had some idea that this was coming because SBA had said that they were going to redo the size standards. They had sent something to the White House to say that they were redoing the size standards. This is a surprise to a lot of people because SBA had just proposed size standards under this administration. And we’re working on a complete remaking of size standards. We’re talking about... Size standards that are 10x, 10 times the existing size standards. And a lot of important industries. Every industry gets affected. And there are going to be, if this is finalized, a lot of businesses that one day previously were a small, were a large business, were a mid-sized business, and the next day wake up and they’re suddenly a small business that gets finalized.
So really monumental business. Massive increases, all increases across the board in SBA size standards.
Sam’s Background at SBA
I’ll give you my perspective on this and where it comes from. I was the director of policy planning and liaison at SBA for about five years, starting in 2020 and then going through 2025. And that office was responsible for releasing the size standards. If you look back at the SBA size standards methodology, it has the name of the office I used to work for on that. So I worked really closely on the size standards, worked on the methodology, worked on the table that is currently still in effect. And I’ve taken a look over the past 24 hours at what SBA has put out here in proposed form for the new methodology that they’re using.
That’s what they call it. Their process for calculating the size standards and their table. It’s kind of going on the fly here. It’s been... About 30 hours since SBA published this on the Federal Register site. It’s hundreds of pages to go through, but we’ve got about 150 people online.
I’m going to try to walk you through where size standards come from. What is happening right now, what you can do about it, what we should expect to see in the next month or two from SBA in this regard, and then try to make some guesses at what might happen if these size standards, as proposed, are finalized. So before I get into the actual concept of the size standards, I just want to give you some of the background from my experience managing the size standards process at SBA, as I said, for the latter part of, or for most of the part of this current decade.
What the Law Requires: Defining “Small”
SBA is required by law to set size standards in the Small Business Act And the size standards apply primarily to government contracting, but they’re really used for other purposes as well. They can apply to loans. They can apply to the provision of small business assistance. That’s the entrepreneurial development programs. And there’s really just one requirement that Congress puts on SBA for setting the actual number for size standards. There’s a lot of procedural requirements that I’ll talk about in a moment. But the one requirement in terms of setting the number is that A small business is one that is not dominant in its field of operation.
So that’s SBA’s perspective in this methodology. You see throughout the... The new process, the methodology that they’ve used and the size standards themselves, that SBA is taking that very seriously as to setting the size standard at a level that is not necessarily consistent with many people’s expectations of what small is, but instead at a level where it’s just low enough so that it does not cover those that are dominant in its field of operation. The specific number of firms that would be above that and adjust the size standards if there was a firm that was dominant. I don’t know that I’ve seen that here, but I think the call out from Congress as to what small is is not necessarily what you would think.
It’s not, you know, uh, People sometimes talk about a mom and pop business, a Main Street business. The definition really just says that it’s one that’s not dominant in its field of operation. For those of you who are following on the statute, there’s also a part that says that a small business must be independently owned and operated separately. SBA usually does not use that part, that independently owned and operated in the size standard table. Instead, that’s an affiliation question that they get into rather than the size standard. So when SBA is looking at this, they’re looking at the question of, is a business that is below that size standard, that maximum amount dominant in its field of operation, if that’s the case, then the size standard is...
And it seems like here SBA is taking the position that if you have too many firms that are above the size standards that are not dominant, then the size standard is too low. And that’s why you see a lot of these increases. I think a lot of it also is driven by the theory that they have about productivity.
Two Types of Size Standards: Employees vs. Receipts
The other thing to know about Setting size standards from the statute is there’s primarily two types of size standards. There’s employee based size standards and there are revenue based size standards, what SBA refers to as receipts. Most services companies are covered by receipts based size standards. Those are dollar based size standards. And most manufacturing companies, as well as other important industries like IT value added resellers are covered by employee based size standards. That is a creature of statute. The Congress has told SBA that services should be receipts, manufacturing should be employees. There’s a whole bunch of cases about what that statute means. There is a hole there for construction and construction costs.
In the current size standards, it is in dollars, and SBA switched that to employees. So SBA has the choice there on construction because it’s neither services nor manufacturing. That’s a third category. In this latest proposal, the one that came out today, SBA is switching some of the industries from one category to another. So importantly, IT value-added reseller switches from employee-based standard to employees. Part of it is the collapsing of the number of standards, but that switches from employee base to dollar base. And there are a few, construction is importantly one of them, that switches from dollar base to employee base. And that makes a big difference because We always thought at SBA, gosh, that’s really lucky for the companies that are on employee-based size standards because they can usually be much larger.
If you’re talking about a 500-person employee, we usually say maybe $100,000, $200,000 of revenue per employee. That becomes much larger. That’s a much higher number than the receipts-based size standards, which historically had been maximum $40 million, even up to $50 million.
So SBA is switching some of those size standards from employees to receipts and then vice versa, from receipts to employees. There are a few other procedural statutory requirements that SBA has gotten kind of close to the line on. And this may be an area for comments or for people who are unhappy with these side standards to challenge them on.
Procedural Requirements: NAICS Codes and Public Hearings
One important one is that SBA is required by the law to... Assign a size standard to every NAICS code. So, you know, if you’ve been in government contracting, every contract gets a NAICS code, six-digit code. And there’s a law that says SBA has to assign a code, I’m sorry, assign a size standard to every code unless there’s an explanation as to why they’re not doing that. SBA has decided in this proposed rule to... Have a more flexible approach on that. They have a lot of size standards. You look through it that are just reflected with four numbers. NAICS codes are six numbers, but they’ve decided to do a lot of these based on four numbers, which is the first four.
I think that’s at the sector of industry group level instead of the industry level, something like that. And there’s some explanation that say it’s easier for contracting officers to pick out the four digit number rather than the six digit number. They have not done that for every single six digit number. Some of the 541 categories have gone all the way to the six digit number. But you have to have an explanation for why you’re using the four digit number rather than the six digit number under the statute and You can probably differ in whether SBA has actually gone through and had a fulsome enough analysis as to why they’re using the four digit number instead of the six digit number.
One more important Statutory requirement that I think SBA has missed here that certainly can come back and fix in the next week or two is they do have a requirement to hold public hearings on size standards. You have to hold two public hearings at different places in the country, the statute says, when you issue new size standards for proposed comments.
So SBA has not announced these hearings yet. I’m sure they’re getting ready for it. But that’s something to look out for if you are interested in these size standards. You see your IT industry has gone from $34 million to $531 million. You have something to say about it? You can comment. If you go into the proposed rule, there is an opportunity to comment at regulations.gov at the top of the rule. Or... You can go to this public hearing, which is presumably that since they’re at different places in the country, presumably it’ll be live or available in a hybrid basis. When we did it five years ago, that was during COVID.
So we had virtual public hearings, but anticipate that SBA will at some point be doing public hearings on this because that’s a requirement under the statute to continue. To hold at least two public hearings on size standards. And I imagine, given the changes, this will be an issue of significant public concern.
Walking Through the Proposed Numbers
I’m going to go into the size standards themselves. I spent much of the part of today basically transcribing the size standards and trying to get them into a spreadsheet. So let me see if I can get this one here. All right. So I’m going to share this Google Doc when I send it out to everybody. But what I’ve done here is I’m just sorting these based on FY25 numbers. And this is the NAICS code. This is the industry description. Here’s the current size standard. So other computer-related services, the number one NAICS code for... And I’ll talk a bit about that because that has a caveat to it.
Here is the proposed size standard from last August. And here’s the proposed size standard from today. And then I’ve done a couple of just quick calculation, divide one by the other. And then here’s some extra information about the dollars to small businesses. So you can see, here you go, 541519. The main code goes from $34 million to $531 million, which is a multiple of 15. You can see other ones. Engineering services goes from $29 million. I’m sorry, $25.5. It was proposed to go to $29 million. So a bump up of $3.5 million. Well, they get a bump up of almost 10x, 9.8 times. Even the R&D code, which is already fairly large at 1,000 employees, gets a 2.8x bump up to 2,800.
I will share this spreadsheet. In fact, for people who are online now, I’ll go ahead and copy a link and put it into the chat for people who might want to follow along here. And then when I send this out, I’ll also put the spreadsheet up.
Now, I did a lot of this manually. So I have a comment here that if you see errors in the spreadsheet, please let me know and tag it. There’s like thousands of size standards. I probably did not get all of them in this sheet. But as you go along, you can see some of these very Very significant size standards where many small businesses operate. 541511, Computer Programming, Administrative in general. These are 15x, 12x increases to $295 million, $500 million, $100 million on them. Even on the employee ones, Electronic Computer Manufacturing, those go up 2x. For those businesses, the aircraft parts, that goes up 2x as well on the employee base.
So on the revenue-based size standards, the size standards are proposed to increase in many cases 10 to 15 times. And then for the employee-based size standards, most of those go up. All of them go up, but the increases are about I’ll see you next time. These increases are 15 times for some of the major small business industries like custom computer programming services, 15 times computer system design services, engineering services. People were quibbling over, should we go $29, $32? Well, now you go up to $252 million on engineering services. Even R&D goes up to 2,800.
I wanted to pick out If I can find it, software in here, because that was mentioned in the proposed rule, software. There’s something about, well, software companies, this is not a dollar amount. This is a, I don’t know if I can do this. Well, this is actually a employee number. So software is, Which was actually specifically called out in the proposed rule or the methodology goes from $47 million to 3600, which is just a raw number of employees. So I didn’t actually put here the ones that are, that for the most part don’t have dollar signs on them are employees rather than receipts based. And 3,600 employees is, first of all, one of the higher employee-based standards.
You can see there’s not another one, at least on the screen that we’re looking at, that is as high as 3,600. But it occurred to me, there are probably some pretty famous companies that are at 3,600. And as I was looking it up, there’s inconsistent reports on whether this is true. But I saw some material online that suggested that Anthropic, the company that creates Claude, is at So, they seem to be growing, but at least if you looked at them last year, and these numbers are 24-month averages, Anthropic could have been a small business based on this new analysis.
One note for people who might be confused by how large these numbers are, these are annual figures. So, if you’re going from $15.5 to $127 million for office administrative services. That is an annual figure. The way SBA calculates that in actuality based on the statute is you take a five-year average. It’s a five-year average for receipts-based. It’s a two-year average or 24-month average. You go month by month for employee-based. But this is not some sort of aggregate number over a certain number of years. This is annual average. But you have a five-year look back and you go back to your, it’s the five years that ends with your most recent fiscal year.
So if you are in 2026, you’re probably doing 2025 and the four years before that time. I wanted to, oh, the spreadsheet link is up there in the chat and I will share it when I go and Email this out to people as well.
How These Numbers Got So Big: The Old Methodology
Let me now talk a bit about how these numbers got so big. I’m going to stop sharing here. And I’m going to go to the methodology. So you have an idea of, first of all, how SBA calculated these in the past and how they have just gotten so much bigger. 10, 15x on the receipts-based, twice on the employee. I’m probably not going to go into as much on the employee, but I will on the receipts-based. So let’s go to... So what I am looking at here is the old methodology. This is the one that SBA issued in 2024. I’m on page 44, so I’m going to just show you what this is.
This is size standards methodology. Very conveniently. SBA has not put their new, they have not replaced this old methodology, so it’s still available online at sba.gov/size. But you can see here, this is the office, the Office of Policy and Planning Liaison, Economist from the Office of Size Standards. And the way SBA used to do size standards was some variation of what you see on this graph. This is linear interpolation. And this is how SBA calculated receipts-based size standards. There’s a line that connects two dots on two points on a graph. And this graph, the x-axis is the industry factor. In this case, we’re looking at average firm size, the y-axis.
The y-axis is the size standard. So you can see here, the y-axis goes here from $13.5 to $40 million. And then you put an industry factor somewhere between P20 and P80. Those are percentiles. So the low size standard, the low percentile size standard is $13.5. The high percentile size standard is $40 million. You can go over $40 million. There was a maximum. I’ll talk about that in a bit of, I think, $48 million or maybe it went up to $50 million. And there was a low point as well. So you can go below $13.5, but for the most part, the size standards are going to be below $13.5 and $40 million.
The way SBA used this graph when I was there as director of the office that managed size standards is SBA would calculate the size standard based on Four factors. Average firm size is one of them. Assets is another one. Four firm concentration ratio. And then Gini coefficient. And then we add in a government contracting factor. So you basically look at the size standard based on four graphs. But the important part to show is that the graph goes here from $13.5 to $40 million. It was calculated based on a number of different factors. And then those factors were averaged together. And then you have a government contracting factor.
So that’s the old way. That’s the 2024 factor. Methodology, still available at sba.gov/size because they haven’t taken it down. But you can go and confirm this on SBA’s website.
The New Methodology and the $500 Million Anchor
I’m going to stop sharing and do the next, the current methodology. All right. And I’m going to go over to the new graph now. So here is SBA’s new graph. This is actually employees. Let me see if I can find receipts. Here’s receipts. All right. This is SBA’s new graph.
Now, SBA is not using all four factors anymore. Their main factor with some adjustments is called average market size. Average market size is essentially the entire market, the entire national market for that industry. In millions or billions, divided by the number of markets, geographic markets. And geographic markets seems to be based on some sort of methodology that USDA uses. And market size is just how much revenue do all the companies in that industry make. But you can see here, it’s a graph. It’s not linear. This is a logarithmic graph. So the x-axis is not, I think they say it down here, it’s not evenly dispersed.
X-axis is not to scale. But what’s important to note here is that there are, again, two points on the graph. And SBA selects a size standard based on these two points. I think it can go over because we saw some of the size standards that are above $500 million. But the important thing to note is now the size standards where previously we were, what, at $13 or $15 and $40.
Now the size standards range, this is $30, $30.6, it says. This low point is $30.6. And this high point here is 500 million. So the large, the higher end of the size standard, it can go above that, is now 500 million dollars. Why did they pick $500 million? Well, SBA explains that. It says, it’s actually on this previous page, SBA chose this high anchor point because it believes that a firm with $500 million in receipts would not be dominant in a market with $20 billion in receipts since it would have a low market share of 2.5%. So that seems to me to be the whole analysis.
There may be more, but it seems like $500 million is a nice round number. $20 billion, also a nice round number. And SBA came in with the assumption in this proposed rule that came out today, August 20th, that a small business would be one that is consistent with the principle that a $500 million company, $500 million in annual receipts, is small in a market that That makes $20 billion because the market share is 2.5%. And then you set a minimum number of $30 million. That’s the lowest size standard, and they get there because of productivity. I think you can quibble with that as well. Previously, it was more like nine, and SBA said, well, $9 million doesn’t, even though it’s adjusting for inflation, it doesn’t reflect changes in productivity.
But they said a minimum of $30, and then not a maximum, but another anchor point at #500 million. And everything seems to derive from this belief right here, this statement. “SBA believes that a firm with $500 million in receipts would not be dominant in a market with $20 billion in receipts.”
Now, note the language there. Interesting to me that they do not use the word, it would be a small business. It would be a small business. They’re saying it would not be dominant in a market with $20 billion in receipts. So you can see there how SBA has interpreted the statute to say a small business is one that’s not dominant in its industry. And then the rest of the actual calculation of the size standards between the That’s $531 million or so, and $30 million is just based on this graph. But the important part is there are these two points now, $500 million at the high end, $30 million at the low end, that set the range for something.
Footnotes and Sub-Industries Eliminated
One other part I wanted to note on the size standards table, which I’ll bring up again, is the switching from one method to another. Let me get that here. And if you scroll up in the chat for people who have joined recently, I am going to put this spreadsheet on... on Google Drive and send it out with the email. There are exceptions. I think they’re all the way at the bottom of this.
I’m going to have to scroll for a minute. But there are exceptions somewhere in here. There are footnotes to SBA’s current size standards. This would probably be easier for me to actually show on the SBA regulation here. So there are footnotes in SBA size standards. 519541. Here we go. So here’s one. You can see this footnote 18. SBA has a main size standard of $34 million for other computer-related services. And then there’s a footnote 541519, information technology value-added resellers. And the footnote means there’s another size standard. There’s essentially a sub-industry, or they call it here an exception, for companies that are in computer-related services, but also match description of information technology value-added resellers, and that Footnote industry gets a separate size standard.
So 150 employees instead of $34. I think in practice, what that means is these companies tend to be larger. 150 employee company probably gets more revenue than a $34 million company. Or if you look at it the other way, the $34 million company probably has fewer employees than a $150 million company. In the new table, in the new methodology, SBA has no footnotes. So here we’re on footnote 18. How many footnotes are there altogether? Let’s see, we got, is 18 the last one?
18 is the last one. So there are 18 of these specialty industries. Some of the footnotes are not necessarily specialty industries, but nevertheless, there’s maybe about 18 of these specialty industries that have now been subsumed by their larger size standards. So 541519 here, that is reflected on the table with $34 million, but a lot of those companies are actually using the 150 employee size standard. And if you eliminate that 150 employee size standard of the footnote, then they all go into this bucket with $531 million. That’s important for companies that are engineering as well. That has a number of footnotes.
I think IT valued reseller is probably the big one. And maybe facilities 561210 actually see a footnote in the text. That one has a footnote as well. Although that footnote is not a sub-industry. There are a few other ones that have sub-industries.
Let me look at engineering. So you can see dredging has a footnote. And I think there was a military one. Engineering here, 541330, Military and Aerospace Equipment and Weapons Contracts and Subcontracts for Engineering Services under National Energy Policy Act, Marine Engineering and Naval Architecture. Those footnotes have been subsumed into their larger categories. And SBA is saying there that these side standards are going up so much, you don’t need the footnote anymore. The footnotes are slightly higher, but the side standards are going up so much that The higher size standard is going to be larger from the largest firm under the footnote. That’s at least what SBA says.
I don’t know that to be true under IT value-added resellers because that has an employee-based size standard. You’re switching to revenue-based, and there’s not an equivalency there between employee and revenue. When you’re switching from one method to another, that has effects that I’m not sure that SBA has taken into account on eliminating the footnotes.
What This Means: Mid-Sized Companies Become Small
Okay, what does this mean? I’m seeing some questions in the chat. The number one thing that this does is it makes midsize companies small. A lot of companies in the $100 million, $200 million space, these are companies that may have recently been small businesses, but have been successful and have sized out. I think a lot of them are probably in the mentor-protege program. And there has been concern over... Certainly the whole time that I was in charge of size standards, but even going back before that, about what happens to mid-sized companies. What happens when you were a small business and you become more successful, but you’re not quite big enough to compete against the really big defense contractors, the Boeing and Lockheed and General Dynamics.
That mid-sized space is a difficult place to be in. One principal strategy is getting to the mentor-protege program as a mentor, and you can work with the protege to access some of your old contracts as a small business set aside. Another strategy is get into a niche where you really can work in full and open.
Another one is get onto these IDIQ contracts where size is determined as of the date of offer. So it could have been three, four years, you get a bit of a runway to be midsize. Part of the reason that SBA raised these size standards so much was to address that midsize concern. They say that the companies that are midsize should have more room to grow and stay stable. My observation on that is these are really big increases. These are humongous increases. And to say that a $100 million company, if you’re addressing the midsize, is the same as a $500 million company, is not consistent with the way the government contracting world works.
Where this really makes a difference is if you are on the smaller side too. If you’re a $1 million company, $2 million company, maybe you do have a shot of competing in some of these smaller size standards. Some of the size standards were as low as $9 million.
Now the size standards are in hundreds of million dollars. It’s going to be very difficult for those companies to compete. So this makes a lot of midsize companies small in that $531 million size standard. It probably makes most of those companies small now at the midsize level. And that makes now SBA, not just the Small Business Administration.
I think one of the things we used to say when this concern came up, certainly what I said is, look, we’re not called the SMBA. We’re not Small and Medium Size Business Administration. We’re the SBA. But with these increases in size standards, SBA is pulling in those mid-sized companies, a lot of them which had previously relied on small business set-asides. And SBA is now going to make those companies eligible for small business set-asides.
Second-Order Effects: The Rule of Two and Set-Asides
There’s going to be second-order effects to this as well from the contracting perspective that point in different directions. Number one is because of the rule of two, which is the rule that if you have two small businesses that can compete for a contract, the contract must be set aside for a small business. Because of the rule of two, there should be more contracts set aside. There are going to be a lot more small businesses. SBA says at one point that there will be about 30,000 more small business contractors based on these increases, which they calculate to be a $70 billion increase in small business dollars.
But if you do have 30,000 companies more, that should mean that for a lot of contracts where agencies might have had trouble satisfying the rule of two, now they can find two small businesses that can perform that. And you would have more small business set-asides. You have a higher number of small business set-asides.
The danger, of course, now is the companies that are going after the small business set-asides are not the same companies that would be going after them today, not the $20 million, $30 million companies. Now you’re talking about $200, $300 million, what we say, mid-sized companies that are going after those small business set-asides. So that is an important second-level effect. So you could actually see the number of small business dollars go up even higher than that $70 billion.
Now, one note on that, On that 30,000 company figure is... When I was doing the data for SBA, I calculated there’s about 60,000 small business vendors. And then on top of that, there’s another... So small business vendors are maybe 75% of all vendors. And the other 25% is only about 20,000. So I don’t know how you get 30,000 where there’s only 20,000 left. I think what they might be doing is... You can be small and large depending on your NAICS code. So maybe they’re counting some of those small businesses as additional small businesses when you add those in. But otherwise, you get to more than 100% if you add in 30,000.
So I think that 30,000 might have some methodological problems getting in there. So the one first second order effect is rule of two, more set-asides, but not necessarily the same companies that are winning those set-asides.
Contract Consolidation, M&A, and the Mentor-Protégé Program
The second order effect is that because now there are larger businesses going after contracts, agencies can... Combine those contracts, consolidate those contracts, and make larger contract awards. Before, if you have a $40 million company, it can only do so much. It only has capability to do so much. And of course, if it does too much, then it’s going to bust through its size standard.
Now, if you have $400 million companies, they have broader capabilities. They have more employees. I think agencies will likely respond to this by maybe more set-asides, but also combining contracts so there are just fewer contracts to administer and awarding those larger contracts to these larger small businesses if this goes into effect.
There’s going to be a lot of talk and action on what this means for M&A activities. I’ve heard a few different viewpoints on this. My first viewpoint was in responding to that second-order effect that I talked about, these consolidated contracts. Companies are going to want to combine together so that they have the capability of companies that already exist under these larger size standards. So if you have companies that are small now that are $40 million each and you’re going up against a $400 million company, that $400 million company has a lot more different areas that it can do. It’s involved in different industries. It has different capabilities.
So those smaller companies can now combine together through merger and acquisition, I suppose they could also do joint ventures, but if you’re looking at it long haul, joint ventures are going to last two years as an SBA rule. You combine for the long haul, you’re still under the size standard. So you may see merger activity among the existing small businesses so that they can compete with the mid-sized businesses. And same thing from the mid-sized companies. We’re just above the size standard, maybe thinking, oh, next year, maybe we’ll go down, we’ll be able to compete again.
Now, they have a lot of room to run on the size standard. If you’re a $100 million company and the size standard is $500 million, you’ve got another $400 million that you can go. So you now could gobble up the small businesses and increase your capabilities to compete, maybe even at the high end of that size standard or for full and open. On the other end of it, though, I’ve also seen concerns that, well, there’s going to be less M&A activity because you’re not going to see as many companies that are going to graduate out from small business status. So they don’t really have a reason to exit the industry anymore.
And I’m interested in what M&A experts have to say about this. But you can go either way on how is this going to affect M&A. I think one important point, and I’ve mentioned this before, I touched on this before is what is this going to do to the mentor protege program at SBA? The mentor protege program has a few very large businesses. I know Booz Allen Hamilton is one of the mentors. I wrote an article about them.
But a lot of these mentors are companies that used to be small and have graduated out of small business, or maybe they’ve graduated out of the 8(a) program, and they want to reach back and work on some of the similar contracts they were working on before. So they team up with a protege that’s qualified.
If you’re small now, there’s not a reason to go into the mentor-protege program. So I think one of the effects of this is there may be less interest from companies wanting to be mentors in the mentor-protege program because you have that whole range between the 40 and 500 million of companies that might have interest in it, but their incentives to get into the mentor-protege program have now shifted.
Timeline: The Comment Period and Path to a Final Rule
What the chances are for this getting finalized, what the process is from here on out, and then I’ll shift into questions for the remainder of the hour. Let me put the comment link up if I can. But there is an opportunity for the public to go and file comments. I’ve got it right here, public comments, submit a public comment. Here is the link to go and do comments here.
It says 32 days. So the comment due date is September 21st. SBA could have done a 60-day comment period. And I think this would be one that would be appropriate to have a 60-day comment period. A couple reasons for that. One is traditionally SBA has published these in batches. They’ve done over 10 batches historically. And here they’re doing all the size standards at once. So everybody who has an opinion about size standards is going to be coming in at one time. That’s a lot for companies that are engaged in multiple industries. They can’t sequence out their comments on it.
The second reason is that SBA issued the methodology and the size standards at the same time. And they usually do those separately. You saw when I brought the methodology up, that’s the 2024 document. The proposed rule didn’t come out until 2025, giving people the opportunity to comment on the methodology. Methodology is really different because of that minimum and maximum and because of the factors that go in. It’s really driven, I think, from that statement about 500 million. And now with this 30-day comment period, the comments on the methodology are due the same time as the comments on the size standards.
If you have a comment on that $500 million point that I was making or the $30 million point I was making, then you have to prepare that comment at the same time that you might be preparing a comment on your industry in the other docket. These are two separate dockets. You’d have to do those separately. So I do think it does make sense for SBA, given this was such a big change, 10x, 15x on a lot of the industries, to allow the public more time to look at it. So we have comments. I mentioned at the outset that there is a statutory requirement for SBA to do two public hearings.
I have not heard that those have been scheduled yet, but that’s a requirement. So SBA doesn’t do it, then you and me can keep SBA to account to have those public hearings in it. And there are other opportunities for advocacy. Somebody just mentioned in here that Congresswoman Velasquez has sent a letter to SBA. There probably will be some congressional action on it. I think the administrator is headed for a hearing sometime soon. She may be asked about it. And just in the general public, this is such a big change. That I would imagine that press would be interested, you all would be interested in telling SBA what you think and getting your thoughts out there to the SBA officials who are most responsible for the administrator, the associate administrator, Office of Advocacy at SBA.
Those are elements to go through. There’s a lot of analysis in here about the impact on businesses. It does say smaller, small businesses will find it harder to compete on contracts. The comments are usually split, maybe 50-50, maybe a little bit more toward them being higher than lower. But the reason for that is there’s a lot more companies below the size standard than there are companies above the size standard. And the companies that are below are facing increased competition. Possibly it’s an existential threat for them as these size standards go up. So I would predict that SBA is going to see a lot of comments, as they have historically, Opposing the size standard and even more now because these size standards are going up so much.
So companies that, even companies that are at the high end of the size standard, maybe you’re a $40 million company, you’re doing great because you’re at the very edge of the size standard. Maybe it would have been okay if SBA multiplied the size standard by two, maybe even go to 80. But the fact now that you’re going to 200 or 500, that even for you could be an existential threat.
So I think there will be And hundreds, if not thousands of comments filed on this. What does that do to timeline? Well, 30 days right now is the deadline for comments. SBA had a recent 30-day comment period on the 8(a) social disadvantage rule. That rule came out in June. Comments were collected in July. Final rule came out in August. It was like two months between the proposed rule and the final. It looks like SBA is going to try to finish this quickly based on that 30-day comment period.
Now, if everybody comments, and these comments are really substantive, they include data, they include detailed analysis, maybe they go into the methodology, maybe they go into some of these statutory points that I’ve made, that I think would... I don’t know that I’d look for two months from now, as we saw on the 8(a) social disadvantage rule. But just the fact that SBA has put this out with a 30-day comment period suggests that they do want to move quickly on this. So you have a couple of points in time. You have the end of the fiscal year that’s coming up in a month and a half.
Seems like they wouldn’t be able to do it by then. But, you know, who knows? Put AI in the comments. Maybe you get it out by October 1st. You have an election that’s coming up. And, of course, you have the end of the calendar year or two.
Audience Q&A: SBIR, Loan Programs, and Multi-Award IDIQs
Okay, I have about 10 minutes left, so I’m gonna look through some of the questions here and address what I can. I’ve seen a couple of comments, one from Kevin Hickey about the non-manufacturer rule size standard at 500. That’s a good point to bring up in the comments. Are there even size standards that are at 500 now? I imagine they’re few and far between at this point. And these manufacturing standards are now up to 2,800 in some of the cases. So 500 would be one of the lower size standards on...
Now, that’s a regulation. SBIR, by the way, is another one that’s by regulation. And what has been published by SBA so far is just the table. The table in 121.201, the manufacturer rules in a separate part of SBA’s regulations. And Aditi Dussault asks, are these size standards applied to programs outside of small business contracting? They are. They’re applied in the loan programs as well. SBA goes through some of the analysis of what might happen in the loan program. So you’re going to have much, much larger businesses eligible for SBA loans. So if there were ever to be another PPP or COVID era, you’re going to have a lot more businesses that are eligible for those loans.
And even now, With the 7(a) and 504 loan programs, this will allow businesses that are under those standards to apply for SBA-backed loans. Good question from Chris about multi-award IDIQs. An agency has an IDIQ that was a $25 million size standard. Now it’s $250 million. What happens to the IDIQ-level size standards that they still hold? I have to go back and look at that. I know for a new contract, you’d want to, do you represent at the time that you get the contract? I think so. I think you represent based on the size standard that’s in effect at the time. I’ll have to look back at that, but I think that’s the rule. [It is, 13 CFR 125.12(a)(4).]
Because if there was an inflation adjustment, you would represent based on the size standard that’s in effect at the time of the re-representation. I will wrap that up. I’ll try to put a note on that when I send this out.
The Old Maximum Cap, and Research on Raising Size Standards
Let’s see here. Don Smith, I wanted to address this. The definitions of small business at your Business School did not suggest that lack of dominance in a market would equal a small business. I want to zoom in on the point that Don makes because there was a reason that SBA had that maximum under the previous methodology. Remember, I saw that chart. It was $40 million, but actually SBA had a maximum size standard. I think it was about $50. It was like $47.5 that said there’s going to be no size standards that go over this maximum. And the reason SBA had that maximum is there was some thought that at a certain point, you just can’t make the case to the public that a $100 million company, for example, is a small business.
There’s some point at which these businesses, no matter what industry they’re in, no matter what market they’re in, that you could even have an inkling that these companies would be small. SBA kept that maximum value. Size standard policy in, I’m looking to believe it’s $47 million based on this, that SBA would have a maximum level for any small business. And of course now that’s adjusted from $47 million to in this document you have size standards that I think you have some that are Even higher than $531 million. There’s not that maximum anymore of setting. And certainly not at that level. There’s not that maximum that says, hey, we can’t sell this to the public anymore.
So that was always the danger with raising size standards too much that, first of all, you just can’t come out and say, oh, SBA is now helping companies that are making upwards of $500 million, maybe in some of these cases, $700 billion. You just can’t make that case to the public as a good use of their small business administration. That was the reason for the maximum. Also on Don’s point, I want to note, and I’ll put this link in the email that I sent out, there is limited academic research on what happens when SBA raises size standards.
One thing I should say is SBA never lowers size standards. There’s been a policy throughout the history of SBA that SBA does not lower size standards. So if this gets finalized, good luck trying to bring the size standards back. The But when SBA raises size standards, it raises them at different times. I mentioned that there’s been batching and there was a study done on what are the effects in these industries when SBA raises size standards through batching. And the researcher from Carnegie Mellon, Matt Dennes, found that the overall economic growth in those industries slow down when SBA raises size standards.
Now, you know, That was in raising size standards, a million, two million dollars. Now we’re raising size standards, a hundred million dollars. I don’t know that you can predict what will happen based on that, but there is academic research suggesting that, if you have higher size standards, it’s harder to enter. You’re going to have less innovation because you don’t have as many new firms. You could have that happen here if Matt Denes’s theory on why that economic phenomenon was correct.
Effects on Subcontracting and Certification Programs
Wayne Hinton mentions the subcontracting plans, women-owned, ED, women-owned programs. That’s a really important point. Another second-order effect of this, other than just making companies large or small, is that companies that are So not only are you going to have the smaller small businesses not be as competitive for set asides, but they’re also not going to have as many subcontracting opportunities because subcontracting plans are what create There’s not going to be as many small business subcontracting opportunities if there are fewer subcontracting plans.
And then the other point about certification is now you’re going to have upwards, I think they calculated at the bottom of their chart, 117,000 small businesses created based on these numbers. Those businesses, whether they’re... Oh, 114,000 is the number. 114,000 small businesses created or reclassified, I should probably say. A lot of those businesses are going to be interested in SBA certification programs. Those certification programs, they matter a lot in contracting, but they use them for other purposes too. I’ve heard of businesses using them to sell to states, sell to private corporations. So there will be a lot more interest... It seems like in the women-owned program, service-abled veteran program, maybe even the HUBZone program.
I don’t know about 8(a). That’s undergoing so many different changes right now as it is. But once you’re within the SBA umbrella, it seems like you would have an incentive now to go and look at those certifications or maybe companies that may wanted to get veteran-owned certification or interested in veteran certification. They think, oh, there’s no point in doing this because I’m not going to be a small business anyway.
The Dominance Standard and How to Submit Comments
Let me see if there are any other comments that I want to address here. I see a couple comments in here. I see Nick mentions that dominance point. There’s a couple other people that mentioned that dominance point. I think that is, to me, the most important sentence from the whole... The fact that they start with the assumption that a $500 million company is not dominant, and therefore it can be considered small. And where that comes from is Small Business Act, definition of small, saying a small business is one that’s independently owned and operated and not dominant in its industry. So if you just start from that.
And look at the size standard. That would be considered dominant, then SBA would adjust the size center, bring the size center down. SBA’s not done that. So I think it’s incumbent on people who are looking at this now. I mentioned Anthropic possibly as being a small company under software publishers. I don’t know if that’s still the case. I think they’ve grown a little bit. But if you’re in an industry and you look at that size center and you say, hey, I know company X is above, or I’m sorry, is below that. So if you have that information about a company you consider to be dominant, that is below the size standard, I think you should bring that up in comments and within the next 30 days.
Closing Thoughts: Sam’s Take
So Michael, can we pay you to write a very in-depth comment in support of small businesses and not making these changes? I mean, I am planning on writing something more in-depth next week. You know, I’ve had, what, 36 hours to read this. I was also on a long road trip yesterday. So I haven’t as much time to process this as I’d like, and I’m sure I’ll have new thoughts by next week. But certainly there are a lot of... People that will be interested in commenting, I’m happy to talk to anybody and reach out by my website or by email if you’d like to talk about the opportunity to submit comments.
And I can also refer you out to people who would like to write comments as well if you’d like a different perspective on this. My perspective on this, just to sum up as we get to the end of the hour is, look, I think I was more persuaded when I was in that position by the comments that said you should continue to raise size standards. The size standards are slightly too low. And I liked the position that SBA took to raise some of the important size standards, engineering services, for example, in its last proposal from August. So I’m on the side of size standards should be higher.
They should be raised. I think this is probably too much. I think that because of those second order effects that we talked about, maybe even because of the loan programs, some of the other things that happen when you raise size standards too much or that academic research that I mentioned, that I would have rather seen a more incremental proposal than 10x, 15x because now you’re talking about If the philosophy was you want small businesses to stay small businesses, now you’re talking about small businesses not even being businesses anymore. You’re talking about small businesses going out of business because they can’t compete with a company that’s 10 times the size of those.
I own a one person. You’re looking at it right now. I’m not going after the same work as businesses that have 500 lawyers or 1,000 lawyers. And I would imagine that the smaller, small businesses that are in government contracting... Feel similarly that, yes, they can grow a bit, but it’s not to the point that it’s 10 times, 15 times where they are right now.
So that’s where I come out on this. I look forward to hearing more from you. Feel free to contact me through the website. Also send this out by email and post it on GovCon Intelligence. Feel free to comment on that and I’ll have more on this. In the coming weeks as we come to the end of the comment period. Thanks very much for joining everybody. Have a great day.
With over 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. Sam received his law degree from the University of Virginia and formerly served as SBA’s director of procurement policy. His website is http://www.samlelaw.com.
This video is for informational purposes only and does not constitute legal advice.
