In a livestream, I answered the two questions I get most about SBA’s proposal on size standards: Why is SBA doing this? And when might it happen? I also broke down how SBA could leave just 360 small businesses left in Federal contracting.
Graphs
Links
Proposed Rule: Small Business Size Standards https://www.federalregister.gov/documents/2026/08/20/2026-17042/small-business-size-standards
Regulations.gov docket https://www.regulations.gov/document/SBA-2026-0199-0001/comment
Google Sheet of Size Standard Proposals https://docs.google.com/spreadsheets/d/1lY83yT6T-THskHao-Vf28JrryhKay-XP
Text of all 2,723 comments as of 9/21 https://drive.google.com/file/d/1mhbiHWMVFWqfbUhYwd1H4LTNoBtG1oAN
Courtney Modecki’s post on LinkedIn https://www.linkedin.com/posts/courtneymodecki_govcon-smallbusiness-sba-share-7506740781034930176-vVAs
Wolverine Group Size Standard Impact Tool https://wolverine-group.com/tooling-size-standard.html
Project 2025 Presidential Transition Project (Heritage Foundation) https://static.heritage.org/project2025/2025_MandateForLeadership_FULL.pdf
Statement of FCC Chairman Brendan Carr Re: Amendment of Section 73.3555(e) of the Commission’s Rules, National Television Multiple Ownership Rule, MB Docket No. 17-318, Report and Order (August 6, 2026) https://docs.fcc.gov/public/attachments/DOC-424076A2.pdf
FY26 SBA Scorecard Methodology Update https://legacy.sba.gov/sites/default/files/2026-09/FY26%20SBA%20Scorecard%20Methodology%20Update-1.pdf
Press Release: Advocacy Supports SBA Size Standards Update https://advocacy.sba.gov/2026/09/17/advocacy-supports-sba-size-standards-update/
Small Business Innovation Measure by Patenting Activity https://advocacy.sba.gov/wp-content/uploads/2022/09/Fact-Sheet_Small-Business-Innovation-Measured-by-Patenting-Activity-1.pdf
Department of Defense Small Business Strategy https://media.defense.gov/2023/Jan/26/2003150429/-1/-1/0/SMALL-BUSINESS-STRATEGY.PDF
Bending the Rules by Rachel Augustine Potter https://www.augustinepotter.com/books.html
Denes et al., How Big is Small? The Economic Effects of Access to Small Business Government Support https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3451424
Feinstein, Small Business Favoritism https://faculty.wharton.upenn.edu/wp-content/uploads/2026/06/Small-Business-Favoritism.pdf
Size Appeal of Brice Solutions, LLC https://govt.westlaw.com/sbaoha/Document/I36932e89aba311f195c6ba05d03f86cf
HUBZone Appeal of DT Professional Services LLC https://govt.westlaw.com/sbaoha/Document/I1e9a0d5ab5d111f19a6dae822e4bdc94
Chapters
0:00 Introduction
1:25 The 60-Day Comment Extension
2:24 Two Dockets and 2,723 Comments
3:28 Why the 60,000 Comment Figure Is Wrong
4:46 87 Percent Against
8:35 Comments by NAICS Code
10:29 Why Is SBA Doing This? Project 2025
14:14 The FCC Ownership Cap Parallel
18:37 Why SBA Uses Four-Digit NAICS Codes
19:57 The Mid-Size Business Problem Since the 1980s
20:48 37,000 or 4,200 Mid-Size Firms?
23:20 Companies Grow Up to the Cap
24:18 The Math: 60,000 Small Businesses or 360?
29:23 The Short Answer on Why
30:02 When Will SBA Finalize? Rachel Potter’s Three Tools
33:46 Timing as a Tool and the Midterm Elections
36:31 Roadblocks: Opposition and Organization
37:49 Legal Challenges
39:19 The Scorecard and New Entrants
40:17 What the Research Says About Raising Size Standards
42:45 Small Businesses and Innovation
45:29 Audience Questions
52:40 HUBZone Appeal: DT Professional Services
53:54 Size Appeal: Brice Solutions
55:34 Closing
Transcript
Introduction
Welcome to GovCon Intelligence. Happy end of the fiscal year to everybody who celebrates. It’s September 30th, the New Year’s Eve for those of us in government contracting. I’m coming on today not to talk about the end of the fiscal year, but to go through where we are on SBA size standards. SBA proposed to increase the size standards, in some cases 10 to 15 times what they are, to allow businesses up to $1 billion to qualify as small for SBA programs. And as the person that used to be in charge of the Size Standards office, I’ve gotten a lot of questions about SBA’s proposal, and I’m going to try to answer two of them. The two most common questions that I get are, first, why is SBA trying to increase size standards, and when might this happen? Just to catch you up on what’s happened in the last month and a half, SBA was going to close the comment period for public comments last Monday, which was the 21st of September.
The 60-Day Comment Extension
In a late-night move that was published at 6:01 p.m. (I got an email at 6:01 p.m.), SBA announced that it had extended that comment period by 60 days. So now it goes till November 20th. They could have done a 30-day extension, but they did a 60-day extension. And that’s important because November 20th comes after the November midterm election.
So SBA gets a chance to see if Congress will change hands, or the House of Representatives will change hands before it decides what to do on the size standards. SBA also gets to see how the comments looked at the end of the last comment period. The way this is actually worked in practice is SBA wasn’t really able to extend the comment period, at least online.
Two Dockets and 2,723 Comments
If you go to Regulations.gov, the comment period for the proposed rule says it’s closed for comments. It closed on that September 21st. But there’s another docket now. There’s a new docket related to the extension. So it’s really split up into two separate categories. The first docket had 2,700 plus comments. I’ll get an exact number here.
2,723 comments were filed by that September 21st deadline. Then on the other docket, there’s maybe like 40 comments that have been filed on that. I’ve gone through all the 2,700 comments, 2,723 comments, and I will bring up the graph right now.
Why the 60,000 Comment Figure Is Wrong
So here is the graph showing the breakdown of the 2,723 comments that were filed as of September 21st. Before I go through this, I just want to address the point that some people have made online about there being 60,000 plus comments. That number is wrong. It’s erroneous. When you file comments and you have an uploaded comment, say you file a PDF as a comment. Regulations.gov allows you to enter in the number of people that you’re representing with that comment, and you can enter in any number that you want. You can enter in a million if you wanted to, and the system will just add together all those numbers to come up with a number of comments.
That’s really just one comment. For whatever reason, Regulations.gov allows people to enter that in as an unreasonable number and you end up with it looking like there’s 60,000 comments. So we know for sure I’ve downloaded 2,723 comments and that’s the number I’m going with. I actually have all the comments in a text document. I can put it up as a link when I send this out by email to everybody from Google Drive.
87 Percent Against
So if you want to do your own analysis or see what people have said in the comments, you can use that text document to look through the 2,723 comments. But here’s the breakdown right now, the overall against number stays at 87%. That’s what I put out at the end of the comment period before: 87% against, 8% for. These numbers don’t add up to 100 because there are some comments that are neutral or they’re just asking for extensions. And pretty much any way you slice the comments, you end up with over 85%, in some cases over 90% of comments that are against. Now, by against here, I mean comments that oppose entirely, plus comments that have some mix of opposition and support.
So there are a lot of comments in there that say, oh, we support SBA modernizing size standard. Perhaps some comments that say we think size should go up, but they shouldn’t go up as much as SBA has said. We support some aspect of the modernization, the simplification, but they oppose sometimes for specific NAICS codes or they oppose SBA’s specific number. So when I’m looking at against here, that’s the oppose entirely, which by the way is about two thirds of the ones that are against. And then the mix is about another third of the ones that are against the overall is 87. There was a comment on one of my LinkedIn posts that said, there’s some people that are for that are commenting multiple times, and that’s lowering the number.
And I found that to be the case. If you take out the comments from duplicate commenters. So somebody that comments multiple times, the percentage against does go up. And in doing that, I also looked at anonymous comments as well. And I took out the anonymous comments. So for people who commented and identify themselves, and maybe if they come in multiple times, I’m putting them in just once, that raises that against number to 89%. SBA had a couple of public forums on this. There was a virtual one. Then on the Monday the comments closed. There was one in Denver. And one of the points that SBA’s Associate Administrator Ryan Lambert made at the public forum is people should refer to a particular code when they’re commenting.
And he also said to refer to a particular number as well. When you’re commenting, when I look through the comments and filtered just out those that are citing a particular NAICS code, then the percentage that’s against actually goes up a little bit to 90%. So those that follow that instruction that are citing a particular NAICS code, you get up to 90% that are against SBA’s proposal. Then you can also look at the different socioeconomic categories. SBA has really been emphasizing veteran-owned companies lately. The agency issued a scorecard process that gives a new allocation to veterans called Serving Our Veterans. That’s 15% of the scorecard it makes.
The disadvantaged portion includes veterans. So if you look just at veteran-owned firms, you go even higher. Now you’re going to 94% that are against the proposal. And then the other socioeconomic categories are right in there. Not a single HUBZone firm supports the SBA proposal according to the number of public comments. So 2,700 comments, 87% of them against every way you slice it, no matter how you do it. You look at veteran-owned firms, those [unclear], and those that identify themselves and are unique commenters. You get somewhere around that number or in some cases even higher than that.
Comments by NAICS Code
Based on the comments that were filed as of the Monday deadline. I just wanted to also bring up this is the same graph in a slightly different format if we look at the particular code. So these are by NAICS code and the number of comments and the percentage of those comments that were against. If we look at the NAICS code, the most commonly cited NAICS code is engineering services. That’s 541330. And 90% of the commenters on engineering services are against the SBA proposal. Again, here against means oppose it entirely, or some mix of opposition and support for things like modernization, streamlining, simplification, some sort of support for what SBA is doing.
The next one, 541611, that’s the administrative and consulting category. And that has an even higher percentage against, 96%. And if you go down I think this 541310, that’s architectural services. That’s 99% against SBA’s proposals. So as you go down these numbers pretty much everything is 90. You do see a few in there that are 70% where there’s a little bit more support. But even then you’re getting seven out of ten comments for that particular code that are against the SBA proposal. So it’s not just in some of the codes. It’s pretty broad across the NAICS codes that small businesses are involved in. All right. So I promised I would try to answer two questions. Why is SBA doing this and when might it happen.
Why Is SBA Doing This? Project 2025
So first for the why is SBA doing this? There’s a really good post on LinkedIn from Courtney Modecki. I’ll link to it that. It looks back at the Heritage Foundation’s Project 2025. And I don’t know that I captured this when Project 2025 first came out. Of course, I looked at the SBA section. There was something in there about ending direct disaster loans, about increasing to the Office of Advocacy. But there is a paragraph in Project 2025. Do I have it here? Let’s see. Here it is. And actually I’m going to go to Small Business Administration here. It’s a paragraph in Project 2025 about size standards and noting that SBA has a one-size-fits-all size standard process.
There’s no consideration of midsize businesses in that. So the actual recommendation in Project 2025 was size standard modernization. And it says that the SBA small business size standards reflect a one-size-fits-all approach, under which all businesses within its size standard are considered small businesses for all eligible purposes, from government contracting preferences to eligibility for SBA loans through private banks. SBA is an outlier among competing economies and not considering medium-sized businesses along with small businesses often referred to collectively as small and medium-sized enterprises. So remember, this is Project 2025, all the way back in 2023.
And the problem that Karen Kerrigan, the author of the SBA chapter, is identifying is there’s no support in the SBA standards for midsize businesses, and perhaps midsize businesses should receive some support as well. Now, the actual recommendation is to work with Congress to create a medium-sized business classification and program. That’s not what SBA did. Of course, SBA is proposing to raise the size standards. But the reason that SBA is unable to create a medium size business classification, which is the actual recommendation under Project 2025, is that the sole task for SBA under the statute is to issue size standards. The agency can’t go out and create a medium-sized business program.
This was actually mentioned at the virtual public forum. Ryan Lambert, the associate administrator at SBA, came on and said, I’ve heard from some people about potentially creating a mid-sized program. That’s not what we can do at SBA. Our only job is to look at size standards. But I do think there is a link here. As Courtney on LinkedIn pointed out, between the point in Project 2025, trying to expand benefits for medium-sized businesses and what SBA is doing through the proposed size standards. It’s noted in the proposed rule that the program would cover more companies that are at or just above the size standards. There was even a congressional hearing about that in 2025, about raising size standards so that more mid-sized businesses would get covered. And I think you see the link back now to Project 2025, the Heritage Foundation document in the SBA section, where it specifically says size standard modernization.
The FCC Ownership Cap Parallel
So it’s maybe something that SBA had been thinking of from the beginning of the administration as part of Project 2025. But even more to the point, outside of the SBA portion of the Project 2025 document, I wanted to go to the portion on the Federal Communications Commission, because that is written by an important conservative voice, Brendan Carr, who’s now the chairman of the Federal Communications Commission. He was a commissioner at the time that the Heritage Foundation published this document. And the FCC has something they call ownership caps. There’s limits on how many broadcast stations, television stations, radio stations a particular company can own.
And he makes the point in his chapter. Brendan Carr makes the point in his chapter on Project 2025 that the Commission should loosen some of those ownership caps. Here, he writes: “Many of the FCC’s media ownership rules have the effect of restricting investment and competition, because those regulations assume a far more limited set of competitors for advertising dollars than exist today, as well as its universal service requirements.” So the idea that Chairman Carr is putting out there is the FCC has these rules that are restricting the growth of broadcast companies. There’s also a point in there about newspapers that he makes later. And if FCC takes out that cap, then that will allow for more investment and more competition.
He also makes the point that the reason that the FCC has those caps is that they have artificially, in his view, limited consideration of the market. So he’s saying that there’s a lot more competition from online services, from social media than there was when the FCC first made these caps. And actually, this turned out to be an important policy initiative just a couple of years after he became chairman. And this is Brendan Carr’s statement from the FCC that I’m putting on screen. For those of you watching or on YouTube, he as the chairman of the commission and in a 2-to-1 vote, repeals the FCC’s multiple ownership rule. That’s a rule that said you can’t have more than 39% of a market and becomes a case-by-case rule.
So he takes this ownership cap theory that the FCC’s ownership cap is restricting competition and turns it into practice. This is just a couple of months ago. August 6th, 2026 the FCC repeals the 39% cap. There was a court case that led to this and turns it into a case-by-case analysis. So you can see a link there, I think, between what Brendan Carr wrote in Project 2025 and then actually implemented on behalf of the FCC, and what SBA is trying to do for size standards, SBA is trying to say that we have these artificial caps right now, these size standards that are limiting companies from growing from getting investment, and we need to raise them to increased competition to allow for more investment.
There’s even a methodology point that Brendan Carr makes that I think you can link to SBA as well, where he says previously the FCC’s just been looking at broadcast markets. But you have to expand. You have to open the aperture and look at online and social media as well. And you can make an analogy there to what SBA is doing in not just considering government contracting, in fact, not even considering government contracting at all, and instead looking at the whole national economy within its methodology.
Why SBA Uses Four-Digit NAICS Codes
A lot of people have noted that when SBA came up with these numbers, there’s no consideration of any data from SAM.gov, any data from government contracting. It’s only looking at the census data about the whole economy. And that’s actually part of the reason, if you’ve been tracking the use of four-digit NAICS codes that SBA relies upon, rather than going to six-digit NAICS codes in some cases, 5415, for example, is a four-digit NAICS analysis rather than six-digit. The reason for that is SBA using Census Bureau data that, from my understanding, is only reported on four-digit NAICS codes. So you’re not even able to go to the six-digit level if you go to SAM.gov, of course, that’s on a six-digit NAICS level.
But at the Census Bureau, on a national-economy basis, there’s not that six-digit NAICS level. So SBA has to go to the four-digit NAICS and they say it’s simplification and all that. But part of it is just limitations on data. So where does this take us now with this Project 2025-related effort from SBA with the medium-sized businesses? Well, I’ve come out and said that this has always been a problem for SBA.
The Mid-Size Business Problem Since the 1980s
If you go back to the Reagan era in the 1980s, they were trying to figure out what to do about medium-sized businesses. The solution there was just to tell the medium-sized businesses, at some point, you’re going to have to prepare for ending small business status and not getting those benefits anymore. You have to plan ahead. They said there’s no ability to get small business benefits from cradle to grave.
And it looks like now SBA is trying to allow for more of this runway. There was an effort by Congress in the 2010s, through the Small Business Runway Extension Act, to change the criteria for calculating size, go from three years to five years for an average, and that would allow companies to stay small for longer.
37,000 or 4,200 Mid-Size Firms?
The Mentor-Protégé program allows midsize businesses to stay small for longer. But you know, based on SBA’s effort here, there’s more of a desire to benefit midsize businesses. Well, at that public forum, Ryan Lambert said, a lot of the data that people are using to support their comments is wrong, he said. There’s a rumor going around that there’s 37,000 midsize firms that will become small in these size standards, and that’s wrong; the actual number, based on the Office of Advocacy, is 4,200 firms. Now, I’ll note that if you read closely, that 37,000 number is actually in the SBA proposed rule. The 4,200 number, I think, is from a press release that the SBA Office of Advocacy put out.
But what that says to me is that midsize problem, this issue, that Project 2025 put up, that SBA notes in the proposed rule of companies outgrowing the size standard and having to stop their growth. It’s a lot smaller than what SBA had thought. You go in thinking that you’re going to be affecting 37,000 small business contractors. There’s only 60,000 small business prime vendors, so 37,000, more than 50% of that, I think 60% of that number. So that’s a big number. That’s a lot of medium-sized companies that are out there. That’s a big segment of federal contracting. If SBA now lowers that number to 4,000 or 4,200, or they said maybe a cap of 6,000, that’s a much smaller population of companies that would benefit from this rule.
So I think some of the reasoning behind this rule, the motivation behind this rule lessens because of the new data that Ryan Lambert cited, that Office of Advocacy is put out there. I mean, 4,200 to me does not seem like a huge number of companies as compared to the 60,000 from what SBA initially cited. In looking at this medium-size debate, it strikes me that, say, in the FCC, you put a number out there, 39%. Now it’s case-by-case, companies will merge up to that limit. You’re already seeing that.
Companies Grow Up to the Cap
Just in August 2026, the FCC issued this loosening of the national ownership cap. You already see mergers, Tegna, Nexstar, Sinclair that are merging to take advantage of that new limit. Same thing is going to happen in government contracting. There’s research from Brian Feinstein at UPenn saying companies grow up to this number. Whatever number you give them, they grow up to, and there’s not much you can do about it. There’s going to be a number. That’s where companies go to.
And it’s not like IRS thresholds where it’s multi-tiered. Here you have a single number that you can target. And if you go over that number, all your benefits stop. If you’re under that number, you still get the benefits. What that says to me is if you get to $500 million as a common size standard, as the most common size standard, companies are going to grow up to $500 million.
The Math: 60,000 Small Businesses or 360?
And if you have companies grow up to $500 million, you’re going to have a lot fewer companies. You’re going to have a lot fewer small businesses. So let me bring up some math here to show you how this works. There’s only going to be about $180 billion in federal contracting or a small business contracting. That’s about where we are, right? So that’s $180 billion. And right now that’s shared among 60,000 small businesses. And you get about $3 million per small business. And that seems about right. The SBA size standards tend to be around $9 million to $47 million. But you have a lot of newer companies or you have companies that are related to one another.
So you get about $3 million per company. But now let’s say that you have $180 billion, and you split that by companies that are now the size of $500 million, because these size standards are now going up ten, 15 times. So I can get all the zeros right here, $500 million. How many companies do you have at the end of the day? Nope. I did that wrong. Did I? Did I do that right? $180 million. Can that possibly be right? I’m going to do this one more time because if that’s the case, then we’re really in bad shape. Okay. $180 billion divided by $500 million. $180 billion divided by $500 million is only 360 small businesses that remain. When SBA hypothetically puts the higher size standards in place, this assumes that companies will grow up to the size standard merge.
They’ll go through M&A activity. But that’s been shown by scientific research by Brian Feinstein at UPenn. And let’s say it’s not 360. Maybe it’s ten times more. Then you still only get 3,600 small businesses, even if it’s 100 times more. Okay. So you get 36,000 small businesses. There’s 60,000 small business prime contractors right now. Do you want to see 60,000 go to 360, even 3,600 if it’s ten times more than that. And at the end of the virtual public forum, the Associate Administrator, Ryan Lambert, said the current system has allowed the federal contracting and small businesses to be less reliant or less resilient, less innovative and left us less able to protect ourselves.
I think if you get to, let’s do that again, if you get to $180 billion shared among 360 firms, you’re putting a lot of trust on a very small number of firms to support that resiliency, that innovation and military defense, that the effort from SBA, at least when I was there to try to encourage new entrants, get more companies and maybe even try to turn around that trend, that being a smaller number of small businesses. But if you’re looking at the data and you just kind of do this simple math, I don’t see how you can think that raising the size standards to the level that SBA wants to raise them would actually grow the industrial base or support military resilience.
360 firms is not a lot of small businesses. That is talking about getting rid of 50,000 plus small businesses at the end of the day. So there may be good reasons to do this. I don’t disagree with the Project 2025 statement that there should be some support for medium-sized businesses, that they do reach a cliff, but Congress has tried to address that through the Runway Extension Act. They passed the Mentor-Protégé program in 2016, the All Small Mentor-Protégé Program. So there have been efforts to address that. And I’d like to see what the effect of those efforts is. Is there still a problem for midsize businesses once you account for the Runway Extension Act and the new Mentor-Protégé program? And if there is still a problem, then we should address that directly. Rather than having this really large increase to the size standards that, again, 87% of the companies oppose.
The Short Answer on Why
All right. So that’s the why. The short story is this isn’t something that just came up in 2026. This is a long-stated effort that originates from the medium-sized business problem that was spelled out in the Heritage Foundation’s Project 2025.
As for other agencies, the FCC has put this theory into place, has acted on it, and I think SBA is just in that same line of trying to carry out some of the efforts that were described in that Heritage Foundation document.
When Will SBA Finalize? Rachel Potter’s Three Tools
All right. Now to the when of the size standard. So it’s not going to be before November 20th. Now that SBA has extended the comment period. When I was trying to think about what is SBA doing now that they’ve extended the comment period, it occurred to me that there is actual research on this. There’s a professor out of University of Virginia, Rachel Augustine Potter. I have her book here called Bending the Rules, that goes through the strategies that agencies use when they have a really controversial rulemaking, like this size standards proposal. And I went back and looked at the book again this weekend. And SBA has used two of the three levers that Professor Rachel Potter describes in her book.
So the number one lever that agencies can use when they have a controversial rulemaking is she calls it writing as a tool. And that’s the idea that if you have something controversial, you don’t write it in a simple way. You don’t say, this is exactly what we’re going to do. Instead, you try to make it when you publish it as complicated as you can. And so she looks at the preamble of rules and says, oh, when it gets to the 20- or 30-page level of preamble in Federal Register text, which, by the way, is three columns. So that’s like three times you have to multiply by three to figure out how many numbers of pages. So 20 to 30 is almost 100 pages worth.
The preamble says that’s what you know, agencies get in trouble because it’s trying to make its proposed rule very complicated. Well, here, between the methodology and the size standard, SBA published 140 Federal Register pages. So they certainly have been making this complicated. There were a lot of people in the comments that mentioned that SBA put the actual numbers out in just scanned PDF rather than machine-readable numbers. You know, putting yet another step on people to try to comprehend and understand what their size standards are. Fortunately, there have been good Samaritans that have put that information out there. I saw the Wolverine Group’s size standard impact tool where you can just look up your size standard.
I put out a Google doc with all the size standards, but SBA did not make it easy to figure out what your size is because they just put it in a scan PDF rather than in machine-readable text where we could just look it up. So I think that’s one. SBA used the writing as a tool under Rachel Potter’s theory.
The second is consultation as a tool. And so this is the idea that if you have a controversial proposal, you try to give people as little time as possible to oppose it. And so you can see this with the initial 30-day comment period. There were going to be people that would come out against this, and they were going to try to get it done in 30 days.
Now why did they extend it? I think part of it is because they got over 2,700 comments. I think a big part of it was all the people that showed up to the virtual public forum and spoke out against it. 40 or 46 people spoke out against the proposal at the virtual public forum. So at some point, SBA looks like it’s being non-responsive to the public if it doesn’t extend the comment period. But initially, I think they were using under Rachel Potter’s theory, this consultation as a tool to try to blunt the opposition by having a very short comment period, she says. The normal comment period is 60 days, so if you see something that’s under 60 days, you know the agency is trying to push it through. But it’s the timing as a tool chapter in this theory that in part answers the question of when.
Timing as a Tool and the Midterm Elections
So three part theory is the writing as a tool, consultation as a tool, and timing as a tool, and timing as a tool is the idea that agencies publish controversial rulemaking, i.e. those that face a lot of opposition when it is most opportune to do so based on the party that is in power, and that includes both the executive and Congress. So Rachel Potter found that when the rule would be supported by both the executive, the president, and the party in control of Congress, the agency is more likely to publish it. And they kind of manipulate when they publish it based on waiting or not waiting.
And we have midterms coming up. So that’s a big signal based on this theory, as to when SBA might be trying to wrap this up, you’re going to have a period between the November elections and when the new Congress gets seated in January, that would be an opportune time for SBA to publish a final rule under a supportive Congress.
Once the new Congress gets seated, you have more difficult time. The Congress could put in a budget rider. I believe there’s some problems with using the Congressional Review Act here, but it certainly could hold hearings about the size standards and make it much more difficult for SBA to take action. This is, by the way, all on the theory that the party that is in control of Congress now will not be the party that is in control of Congress in January.
And I’m just basing that on the betting markets. I had Kalshi open on my tabs just to see where is it right now. And last time I looked, it was like a 60% chance of at least under the betting markets of Democrats taking control of both houses of Congress.
So if SBA waits until January, and if the betting markets are right, that makes it much more difficult to finalize a proposal that basically, so far, every Democrat that has been paying attention has been out against you.
Senator Ed Markey made scathing comments about it on X. Representative Nydia Velazquez, the ranking member in the House, has sent letters to SBA wanting them to account for their methodology and some of the procedural actions they’ve taken. The members of the Virginia delegation from the House also came out against the proposal. So Democrats seem to be unified in their opposition to the size standards proposal.
Roadblocks: Opposition and Organization
So if SBA waits until January and Democrats take control of both houses of Congress, they’re going to be in for quite the fight. There is that opportunity between the end of the comment period in November and January for when SBA could potentially finalize this. There are going to be a couple of roadblocks for SBA.
First is the overwhelming opposition in the comments. Right now we have 2,700 comments. Almost 90% are against if that continues to grow or continues at its pace, that makes it much more difficult for SBA to finalize the proposal before that new Congress takes hold in January.
I think it’s especially difficult if there’s some sort of organized opposition, and I get some of that out of this book that Rachel Potter wrote looking at EPA proposals that were opposed by Sierra Club and other organized opposition.
A lot of these comments are from individual small businesses or a few from trade groups, about 100 or so from trade groups. And if there’s a way to organize all of these thousands of people that are in opposition, I think that would be really effective. And then also legal pressure on the agency. I think it’s particularly acute here with the changing of this data.
Legal Challenges
If the original idea was to boost the prospects for 37,000 midsize businesses, then, okay, you have an explanation for why you’re changing the rule. But if now that’s almost 90% less, down to 4,200 or so, then that does not make the rule nearly as compelling as it was under the 37,000 number. So I think that would be one avenue for a legal challenge, just this changing of data from SBA.
And then I think there are some legal aspects raised in the comments. American Bar Association filed a comment about the particular statutory requirements that SBA has to go through to issue size standards, things like looking at special government contracting industries, things like dredging, environmental remediation, and then as well as making sure that they identify all the relevant 6-digit codes.
So I think that legal challenge is another avenue that could delay what SBA is trying to do. And as we look at the potential of going from 60,000 small businesses to 360 small businesses, for those of you who were on when I did the math, I also want to make the point about new entrants.
The Scorecard and New Entrants
I think this comes up in the new SBA scorecard metrics. SBA introduced some new metrics for the SBA scorecard. Maybe I can bring it up on the screen here. Here they are. This is where there’s a new emphasis on veterans, 15% to veterans. And changing the definition of small disadvantaged business to economically disadvantaged individuals. And that includes veterans.
If you read page one that includes veterans. But now there’s also this element providing value to the taxpayer, including increasing new entrants, first-time primaries or subcontractors at the awarding agency, trying to get more companies into government contracting.
What the Research Says About Raising Size Standards
The research on new entrants, and particularly young companies, is not particularly supportive of what SBA is doing. So here’s the study: How Big Is Small? The Economic Effects of Access to Small Business Government Support, last revised in March of this year. And I think I have the whole paper here. And this paper looks at this exact issue.
What happens when SBA raises the size standards? SBA has done this before. SBA has raised the size standards. They have not been 1,000%. They’ve been 10%, 25% maybe. But SBA has done it. So you can go back and look at what happens to new entrants and to exits when SBA raises size standards. The researchers here show that the amount of new entry stays about the same when SBA raises size standards.
And you could think maybe there are new companies that come in, but that’s balanced by companies that are dissuaded from coming in because of the possibility of having to compete against larger companies. But the big point that they find, let me see if I can find it here, is that following a size standard increase, the number of firm exits at the industry level rises by 9.1%, while new firm creation is unchanged, exits among the smallest firms increased by 12%, highlighting that the rise in firm exits is driven by an industry’s smallest firms. So this is under much smaller small-business size standard increases, things like 10% or 15%, not 1,000% or 1,500%.
But even then, you see that small businesses start to leave the industry. Up to 12% of the smallest businesses leave, or rather a 12% increase in exits among small firms. And I would think that if you would extend this to much larger size increases, you might potentially see more exits, whereas the amount of entry into the industry stays roughly the same, because you do have more companies that come in because they want to take advantage of the new size, but that’s balanced by companies that are dissuaded from coming in because of the additional competition.
Small Businesses and Innovation
So I’d say this to respond to the point that Ryan Lambert made at the end of the public forum about how this current structure has made us less innovative, less resilient, less able to defend ourselves. The evidence is that small businesses really are the more innovative of companies. And if you go back this is SBA data. See if I can do this here.
This is actually from the SBA Office of Advocacy. This is the number of patents received and the number of applications based on the size of the firm. And you’ll see the smallest companies are the ones with the most patents received per thousand employees. So the smallest companies have the highest rate of patents received.
And then among applications are also the highest number of applications. And the largest companies do have also a relatively high number of patent applications. It’s actually when you get to the mid-size area where you see a smaller amount of patent applications and a smaller amount of patents receive.
It seems like a U. You’d call that a U, where you have a higher number of patents received and applications on the small side, a higher number on the large side, but kind of a dip in the middle with the midsize companies.
And this is also reflected in the DoD small business strategy. Speaking of, do you want more military resiliency? Well, Department of Defense, when it was still called Department of Defense, had a small business strategy and also acknowledged.
They said, we want higher size standards. They said some small businesses outgrow the SBA size standards forced to compete as mid-tier companies as much larger firms.
“The department will work with SBA to advocate for size standards that are driven by analysis of market intelligence and market trends.” But they also say in here, toward the beginning, okay, here it is: Small businesses generate 16 times more patents than large firms. So there is an acknowledgment there that small businesses are the more innovative.
And in fact, if you look at the advocacy data, it seems like the midsize firms are actually behind the small businesses in terms of innovation. Okay. We have some comments in the chat. I’ll go through those.
Audience Questions
Thank you very much for joining the live stream for the people that are on. Kevin Cooley asks, based on your experience with SBA, when do you predict that the agency is likely to implement the new standards as final? So I try to answer three things here the why, the when, and then the how: do you get to 60,000, or do you get to 360? And I did the math on 360. But my answer to the when was SBA has an opportunity between the end of comments, November 20th and a new Congress getting seated in January to finalize this. A lot can happen between now and November 20th. Of course, you have a midterm election to see which way Congress goes, and then you also have the opportunity for more comments to come in.
So people who are either for this, against this whatever position you are, I would still encourage you to comment. It’s now on a new docket, but I encourage you to comment because SBA needs to take those comments into account to determine whether to finalize this in that short time period. And then MPP Guru asked, do you see the small business certification programs and the Mentor-Protégé program diminishing or being eliminated? I think those are going to stay. Those are statutory programs in terms of size standards. I’ve seen some arguments where they’re going to be more important because it allows for agencies to limit competition. I’m talking about the certification program.
It’ll be more important because if you have now more mid-sized firms in, maybe you have too much robust competition on a small business set aside. And if you want less competition, which sometimes agencies want for expediency reasons, then they may want to go to the certification program. So you could see the certification programs become more important. And then the Mentor-Protégé program has a double effect. Some of the existing mentors, if the proposal were passed, would be small. So they don’t really have a good reason to stay in the Mentor-Protégé program. But then you could also have protégés that are much larger. So the really large companies might want to get into the Mentor-Protégé program, use all of their three protégés so that they can take advantage of larger protégé firms.
So you might see companies switch from being mentors to protégés. Thank you to Don Smith for the acknowledgment there. And then Phil asks, shouldn’t Congress also consider raising the federal contracting goals? Do you anticipate goal achievement by federal agencies to increase? There really should be fewer excuses for not meeting the rule of two. Yeah, SBA said there’s going to be $71 billion in more small business spend just by switching these companies from large to small. So that’s $71 billion on top of 180. That’s 250. That’s like 38, 39% of federal contracting. So if that’s happened, then the 23% statutory goal is really meaningless. You really do need to raise that small business goal.
I want to make a note about the $71 billion. The rumor that was cited at the public forum was that there are 37,000 companies that account for $71 billion for services, 37,000 companies has been reduced to 4,000. There’s been no new data about the $71 billion. I think that’s $71 billion is still correct. I never thought that 37,000 was correct. I said that in my last video. I think the $71 billion is still correct. If you divide $71 billion (I’m taking my calculator here again; it’s a lot of zeros) by 4,200 companies, you get about $17 million per company. That’s very reasonable for these mid-size companies to make $17 million in federal contracting a year.
These are companies that, as stated at the public forum, make about $47 million a year. If you multiply $47 million by 4,200, you get a much larger number than $71 billion. So I don’t see any reason why the $71 billion is wrong. But my understanding of how they got from 37,000 to 4,000 is they just filtered out companies that made zero or less than $1 in federal contracting. So that’s not going to change the aggregate amount of contracts that go to those firms. I think the $71 billion is still right. And then Mr. Pozzo says that they agree, Phil, it would be almost impossible to have an unrestricted or full-and-open contract, because there should always be two small businesses at these new sizes.
And you’re right. The rule of two will be triggered more often. And I kind of question, is there going to be as much support for the rule of two when this happens? Because remember, the rule of two is not in statute. There are efforts to put the rule of two in statute, but it is not in statute above the simplified acquisition threshold. But my concern outside of that is that agencies are going to increase the size of the contracts, which is going to further diminish the small business industrial base. If agencies can get to two small businesses with now $100 million contracts or billion dollar contracts, maybe with past-performance requirements increasing, where now you need to have performed a $50 million contract to get on this small business contract, agencies are going to want to do that.
They’re going to have fewer contracts. They have fewer contractors to deal with. That’s what category management is. So if agencies respond to the higher size standards by increasing their contracts, then you’re going to have just logically fewer small business prime vendors. You’re going to lower that 60,000 number. I already showed how it can get to 360. That’s another reason it could go as low as the hundreds. When I entered SBA, there were over 100,000 small business contractors when I started SBA under the Bush administration. Now we’re talking about tens of thousands. You’re talking about hundreds of small business contractors under this?
And then Dan asks if we look at competition with the large firms, does having these much higher size caps increase competition with the firms which are market dominant? That is true to the extent that those large firms are competing. A lot of the awards to the very largest firms are under sole source. They’re not competed. I did an article about this a while back about how, you know, this emphasis on 8(a) sole source is misleading because most of the sole-source contracts go to Boeing and Lockheed Martin. So I haven’t done that research on whether those large firms get a lot of competitive contracts and would have a hard time competing, but they’re going to be fine.
They’re going to have the sole source contracts. When this is all said and done, there is a possibility, and I think they probably recognize this, that some of their contracts that are competed now could go small business set aside because of the larger midsize businesses. And that’s why you would see the small business attainment go up to upwards of 30 plus percent. So great question on that point.
HUBZone Appeal: DT Professional Services
All right. I’m just going to do two quick cases before we wrap up on this live stream. We had a rare HUBZone appeal come out from SBA’s Office of Hearings and Appeals. It’s the HUBZone appeal of DT Professional Services that came out. It came out a few weeks ago, I guess it was released in August. And the company here acknowledged that it did not comply at the time of contract award under the HUBZone 35% rule. That’s the rule that says you have to have 35% of your employees residing in a HUBZone. But the company made a timing point. It said it used to be that SBA would look at the 35% once a year. It was. It was your anniversary date. Whenever you got in the program, you had to be 35% then and then every year on that date, you would have to get to that 35%.
But during the course of that year, you could go back and forth. In 2024, SBA published a rule that said, we’re going to change that policy. We’re now going to apply it at the time of offer on a contract, and you could then have to be qualified under the rule multiple times a year because you might be submitting multiple bids. And this company said, we’re not eligible then, but we are eligible at our anniversary date. [Audio gap.]
Size Appeal: Brice Solutions
My apologies for the technical difficulties. I’m going to wrap up with just one more case if I can find it. I wanted to talk about the Brice case out of the Office of Hearings and Appeals. This was a case about joint ventures. And the idea here is, look, you’ve got to make sure that you have the addendum to your joint venture. Let me find it here.
This is a size appeal that went up to the SBA Office of Hearings and Appeals, and the SBA joint venture rules are complicated. There are a lot of rules that are out there. This is the OHA decision in Brice Solutions, and there are five different joint venture rules. SBA is proposing to consolidate them into one common rule, but they haven’t done that yet.
So we still have five different rules. But I’ll say all of them require that the joint venture specifically address the contract that it’s going after. You can have an umbrella joint venture agreement, but to do so you have to issue amendments or addenda to the joint venture agreement in order to go after particular contracts. SBA didn’t find an addendum for this joint venture agreement in Brice, and because of that, the firms were found to be affiliated and therefore not eligible for a small business set aside.
Closing
Okay. Thanks, everybody for joining. We went through the why, the when, and the how of SBA size standards. Please subscribe if you’re watching on YouTube to GovCon Intelligence. This is a production of Sam Le Law PLLC. And any information in this video is not legal advice. This is for entertainment purposes only. Thanks so much everybody. Happy new fiscal year.
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 www.samlelaw.com.
This video is for informational purposes only and does not constitute legal advice.
