A proposed rule would cut over 1,000 size standards to about 335 and raise the computer design ceiling from $34 million to $531 million.
The Small Business Administration has proposed a rule that redrafts the methodology defining which companies count as small, and released a new set of proposed size standards on the same day. Emily Murphy, a senior fellow at the George Mason University Baroni Center for Government Contracting and a former SBA and General Services Administration official, said the combined effect would be sweeping. “I think 114,000-plus companies are going to now be considered small that weren’t previously,” she said in an interview with Terry Gerton, host of The Federal Drive on Federal News Network (opens in a new tab).
For an owner whose revenue includes federal set-aside contracts or subcontracts under a prime contractor’s small-business plan, size standards are the gate on that channel. They determine who may bid on reserved work and who counts toward a prime’s small-business goals. Raising the thresholds admits much larger firms into the same competitive pool. Collapsing the number of standards can erase the category a company currently occupies.
From Over 1,000 Standards to 335
Murphy said SBA would cut the number of size standards to about 335, down from over 1,000, by attaching them to four- or five-digit North American Industry Classification System codes rather than the six-digit codes used now. NAICS codes are the federal classification numbers that tie each contract to an industry; the fewer digits, the broader the group of businesses swept into a single threshold.
That broadening drives the reclassification. A six-digit code describing a narrow service line disappears into a wider category whose ceiling is set by the largest activities inside it. Murphy said the agency has framed the effort as simplification, an aim she said predates this administration. “I think there’s a legitimate desire to simplify this, and we’ve seen this across administrations,” she said.
Where the Receipts Ceilings Jump
Some thresholds move by orders of magnitude rather than the routine inflation adjustments of $5 million or $10 million, Murphy said. The computer design size standard would rise from $34 million in average annual receipts to $531 million. Administrative management and general consulting firms would go from $24.5 million to $295 million. Certain industries would see increases of roughly half a billion dollars.
The result puts firms at opposite ends of a very wide band in direct competition for the same reserved awards. “Those two companies don’t look a lot alike,” Murphy said.
The reclassification runs one way. A consulting firm that had grown past the old $24.5 million ceiling would re-enter the set-aside pool under a $295 million standard. Firms at the low end of that same category would bid against it.
Congress Blocked This Once Before
Size standard reviews began under the 2010 Jobs Act, with the first reviews appearing in 2011, Murphy said. When SBA consolidated size standards that year, Congress objected and amended the Small Business Act to prohibit the consolidation. The Bush administration had attempted a similar simplification in 2004, and the Obama administration moved to reduce the number of standards in 2011.
Murphy also pointed to 15 U.S.C. 644, which permits SBA to split a NAICS code into more size standards when the code does not adequately describe what the government buys, an authority the agency has never used. The proposal has also drawn client guidance from law firm Mayer Brown (opens in a new tab).
What the Rule Leaves in Place
Recertification requirements are unchanged and have tightened over time, Murphy said. A company must recertify its size upon acquisition, at the time of an option exercise, and at intervals of no more than five years. A firm that outgrows a standard mid-contract does not keep small status indefinitely.
Small-dollar research programs sit outside the proposal. Murphy said Small Business Innovation Research phase one and phase two awards arrive in tranches of $50,000 or $100,000, and cited a Center for Strategic and International Studies paper by her former colleague Jerry McGinn finding that companies submitting many SBIR proposals commercialize and patent technologies at higher rates in some cases.
Murphy did not endorse the redraft. “But I think you’re also going to have a problem where the companies that were your traditional smalls are going to feel that they don’t have place to compete anymore,” she said. “It’s a really tough balance.” Her verdict on the proposal: “I’m not sure that this gets it right.”
The Comment Window and What Follows
SBA has not disclosed a closing date for public comment in the material released so far. Owners with federal revenue face a defined task in the interim: identify every NAICS code under which they hold or pursue work, then determine whether that six-digit code survives as its own standard or folds into a broader category with a far higher ceiling.
Two adjacent moves land in the same period. The Pentagon and SBA plan to increase aid to smaller defense companies, and U.S. Special Operations Command is soliciting companies that have never sold to it before. Whether those channels offset a wider small-business pool depends on where SBA sets the final thresholds, a decision that follows the comment record rather than the proposal.
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