The U.S. Small Business Administration (SBA) recently issued a Proposed Rule implementing the Small Business Runway Extension Act (the Act). The proposal changes the calculation of a firm’s average annual receipts for purposes of determining eligibility for contracts set aside for small businesses. Under the current rule, the SBA averages a company’s annual receipts for the preceding three years in order judge whether the company qualifies as a small business or has exceeded the applicable size standard. If implemented, the Proposed Rule will expand the look-back period to five years. Companies wishing to comment on the Proposal have until August 23, 2019.
This article examines the effect of the Rule on transactional work involving government contractors.
Summary of the Proposed Rule’s Impacts
The SBA’s size standards establish eligibility for a variety of federal small business assistance programs such as the SBA’s 8(a) Business Development (BD) program, the Historically Underutilized Business Zones (HUBZone) program, the Service Disabled Veteran-Owned Small Business (SDVOSB) program, the Woman-Owned Small Business (WOSB) program and the Economically Disadvantaged Woman-Owned Small Business (EDWOSB) program. The size standards use annual receipts to determine eligibility for some industries, and use number of employees for others. The Proposed Rule does not change the calculation method for employee-based standards.
By changing the calculation period from average annual receipts from three to five years, the SBA seeks to allow mid-sized businesses who have just exceeded size standards to regain their small business status, and for advanced small businesses close to exceeding the size standard to retain their small business status for a longer period.
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