SBA’s Proposed Methodology May Be as Important as the New Size Thresholds
Authors
Bret S. Wacker , Ronald D. Sullivan , J. Chris White , Colleen Jarrott , Gabrielle Long
Additional contributor: Law Clerk, Max Sarkissian
Summary
Contractors reviewing the U.S. Small Business Administration’s (“SBA”) proposed size-standard overhaul should examine more than the proposed dollar and employee thresholds. SBA has also proposed a revised methodology for determining how size standards are established, reviewed, and modified.
SBA has extended the comment period for both the proposed standards and the revised methodology to November 20, 2026.
Because the methodology may shape future size-standard reviews, contractors should consider commenting on SBA’s analytical framework even if they support the proposed threshold for their current industry.
Governing Framework
SBA establishes small-business size standards under the Small Business Act, including 15 U.S.C. § 632. The standards are codified principally at 13 C.F.R. Part 121.
The proposals do not directly amend the Federal Acquisition Regulation or the Defense Federal Acquisition Regulation Supplement. Nevertheless, SBA’s standards are incorporated into the federal procurement system and affect size representations, set-aside eligibility, socioeconomic programs, and agency acquisition planning.
The current rulemaking includes:
- A proposal to revise standards for 338 industry groups and industries
- A companion proposal revising the methodology used to calculate and review those standards
SBA used the proposed methodology to develop the proposed standards. Stakeholders, therefore, should consider addressing both dockets.
Key Methodology Issues
Broader NAICS Groupings
SBA proposes to consolidate many standards at broader NAICS levels. This could simplify the system but may also combine industry segments with materially different:
- Labor and capital requirements
- Average contract values
- Customer bases
- Barriers to entry
- Profit margins
- Levels of market concentration
- Competitive conditions
A broader industry classification may produce a standard that is appropriate for some segments but not others.
Receipts Versus Employees
The proposed changes would shift certain industries from receipts-based standards to employee-based standards.
The selected measure can produce different results depending on a company’s business model. Labor-intensive contractors, resellers, manufacturers, and firms relying heavily on subcontractors may be affected differently even when they compete in related markets.
Companies should analyze how the proposed measure interacts with SBA’s rules governing affiliates, annual receipts, employee counts, and size determinations.
Timing and Rulemaking Process
Some stakeholders have questioned SBA’s decision to issue the proposed methodology and the resulting proposed thresholds at the same time. Their concern is that public comments on the methodology cannot influence the initial calculations already reflected in the proposed standards.
The extended deadline provides additional time to address this concern, but it does not eliminate the need to determine whether SBA’s assumptions and data accurately describe each affected market.
Broader Business Consequences
The methodology could affect more than eligibility for an individual procurement. It may influence:
- Long-term growth planning
- Timing of graduation from small-business programs
- Merger and acquisition structures
- Post-closing size status
- Joint ventures and mentor-protégé relationships
- Small-business subcontracting strategies
- Contract-vehicle eligibility
- Agency decisions concerning set-aside opportunities
A company that retains or regains small-business status may become more attractive to investors or strategic buyers. Conversely, transaction structures, affiliation, and post-acquisition status must still be evaluated under SBA’s separate rules.
Recommended Actions
Before November 20, 2026, affected parties should:
- Review the proposed threshold and methodology for every material NAICS code.
- Determine whether the broader industry grouping accurately reflects the company’s market.
- Evaluate whether receipts or employee count is the more appropriate measure.
- Identify any data that may distort the proposed standard.
- Analyze the effect on teaming, affiliation, transactions, and growth planning.
- Submit separate comments to the appropriate dockets when addressing both proposals.
- Offer specific alternatives, including narrower groupings, industry exceptions, phased implementation, or periodic review.
Bottom Line
The proposed thresholds will determine immediate eligibility, but the methodology may influence SBA size standards for years to come. Contractors should treat the methodology proceeding as a separate and significant opportunity to shape the regulatory framework.
Comments on both proposals are due November 20, 2026. Current standards remain in effect unless and until SBA publishes a final rule with an effective date.
Clark Hill’s Government Contracting team can assist companies in analyzing SBA’s methodology, identifying industry-specific concerns, preparing public comments, and evaluating related procurement and transactional consequences.
Contact Clark Hill
If you have questions about how the final rule may affect your business, contact one of these Clark Hill Government Contracts and Regulations Team attorneys:
- Bret S. Wacker (bwacker@clarkhill.com 202.772.0906)
- Chris White (jcwhite@clarkhill.com 517.318.3011)
- Ronald D. Sullivan (rsullivan@clarkhill.com 202.809.2235)
- Colleen C. Jarrott (cjarrott@clarkhill.com 202.640.6668)
- Gabrielle Long (glong@clarkhill.com 312.701.6852)
- Contributors: Max Sarkissian, Law Clerk
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