Georgia Tech Procurement Assistance Center

Proposed bi-partisan legislation could mean changes for small businesses

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Earlier this month, the U.S. House of Representatives passed two bills that could mean big changes for small businesses.

The first, the “Capturing All Small Businesses Act,” H.R. 5130, aims to change the way that the Small Business Administration (SBA) calculates a company’s number of employees for the purpose of determining that company’s size.  This act was authored by House Small Business Committee members Rep. Marc Veasey (D-TX) and Rep. Kevin Hern (R-OK).  Rep. Veasey’s website, describes the act as “bipartisan legislation that will protect our nation’s small businesses against being prematurely forced out of the ‘small’ business category due to sudden growth.”

Continue reading at:  GovCon Examiner

You may have a choice in how to calculate your size

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Being a small business can have its advantages.  Federal procurement rules provide that certain contracting opportunities may be set-aside for small business competition.  Small businesses also may be exempt from certain procurement provisions, such as subcontracting plan requirements and coverage under Federal Cost Accounting Standards (CAS).  Prime and higher-tier subcontractors also are incentivized to use small businesses to meet their small business subcontracting goals under their required subcontracting plans.

However, small businesses only remain small to the extent that they are considered small under applicable North American Industrial Classification Standards (NAICS).  Generally, size is calculated based on the size standard applicable to the business’s industry code – average annual gross receipts or average annual number of employees.

Continue reading at:  Government Contracting Matters blog

Runway extended: SBA issues final rule implementing five-year period of measurement for receipts-based size standards

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After a year of uncertainty, the U.S. Small Business Administration (SBA) has issued its long-awaited final rule implementing the Small Business Runway Extension Act of 2018.  The final rule, which becomes effective on January 6, 2020, amends SBA’s receipts-based size standard for its procurement programs to adopt a five-year averaging period for calculating annual revenues of firms and their affiliates in all industries that are subject to SBA’s receipts-based size standards.  In addition, to help firms with declining revenues who might be adversely impacted by five-year period of measurement, SBA’s final rule includes a transition period until January 6, 2022, allowing firms to choose either a three-year averaging period or a five-year averaging period for calculating average annual receipts for size standards purposes.  For our discussion of the proposed rule issued in July 2019, please read the article here.

As SBA explained, a five-year averaging period should “allow more small firms to benefit from SBA’s small business assistance programs by extending their small business status for a longer period.”  It also may result in more large business contracts being set aside for small businesses under the “Rule of Two” because “[w]ith an expanded pool of small businesses, the Federal Government will have more qualified small businesses to choose from.”

Continue reading at:  Holland & Knight

SBA adjusts monetary-based size standards for inflation

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Effective August 19, 2019, the Small Business Administration (“SBA”) has updated and increased the monetary-based size standards (i.e. receipts-based and assets-based size standards).  The SBA announced this change back in July, and explained that the standards were being changed solely to account for inflation.  Pursuant to the Small Business Jobs Act of 2010, the SBA reviews the size standards every five years and makes any necessary inflation-based adjustments.  The SBA also has the power to revise the size standards to account for changes in industry structure and federal market conditions.

Continue reading at:  Obermayer, Rebmann, Maxwell & Hippel LLP

SBA OHA decides 3-year receipts calculation period still applies

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Since being passed by Congress in late 2018, the Runway Extension Act has been the source of great confusion among small business contractors: would size under receipts-based NAICS codes be calculated under the 3-year calculation period set out in the SBA’s regulations, or under the new 5-year calculation period mandated by Congress?

In a decision just publicly released, the SBA Office of Hearings and Appeals has weighed in.  As of now, the SBA will still calculate size under the 3-year calculation period.

The applicability of the Runway Extension Act was debated in Cypher Analytics, Inc. dba Crown Point Systems, SBA No. SIZ-6022 (Aug. 27, 2019).  In that case, Cypher Analytics was found to be other than small under NAICS code 541611 after the SBA applied a 3-year calculation period.

Cypher Analytics appealed to the OHA, arguing that the SBA erred by not applying the 5-year calculation period required under the Runway Extension Act.  Despite several arguments raised on appeal, OHA was unpersuaded that the 5-year calculation period should apply.

To understand the reasoning behind OHA’s decision, visit:  SmallGovCon

Five-year annual receipts: Don’t start until SBA says “go!”

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Absent further action by the Small Business Administration (“SBA”) Office of Hearings and Appeals or a Federal Court, the GAO has effectively ended the argument as to whether the Small Business Runway Extension Act of 2018 (“Runway Extension Act”) immediately changed the annual receipt average for revenue-based small business size standards from three years to five.  In short, firms should continue to apply the three-year standard until SBA’s regulatory process runs its course.

Continue reading at:  Morrison & Foerster

SBA to adjust small business size standards for inflation

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The interim rule increases all small business revenue-based size standards, allowing many businesses to regain small business status or to remain a small business for longer.

TAKEAWAYS

  • SBA is increasing the revenue-based size standards to account for inflation.
  • This will allow many advanced small businesses to remain small longer and may allow other businesses that recently lost their small business status to qualify again as small.
  • The interim rule will go into effect on August 19, 2019, prior to the close of the comment period on September 16, 2019.

On July 18, 2019, the U.S. Small Business Administration (SBA) issued an interim final rule adjusting the revenue-based size standards for small business to account for inflation.  The rule affects all small businesses, and will take effect on August 19, 2019.

Continue reading at:  Pillsbury

Impacts of SBA’s proposed rule changing size status calculation

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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.  

Continue reading at:  Holland & Knight

SBA OHA: for calculating receipts, look to tax returns

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To calculate a company’s size under a receipts-based NAICS code, the SBA will add the company’s total income to its costs of goods sold, as those amounts are reported on its tax returns.  In fact, the SBA’s regulations are clear that it must use these reported amounts to determine a company’s size status.

What happens, then, when a company’s taxes show “income” that might not really reflect money in the company’s accounts?  The SBA’s Office of Hearings and Appeals recently considered this question, and affirmed a company’s ineligibility based on the income reported in its tax returns.

Continue reading at:  SmallGovCon Blog

 

SBA issues proposed rule implementing Small Business Runway Extension Act

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The U.S. Small Business Administration (SBA) just issued its long-anticipated Proposed Rule implementing the Small Business Runway Extension Act (the Act).  In a previous Holland & Knight blog post, they discussed the SBA’s position that the Act would not be effective until the rulemaking process was completed.  If implemented, the Proposed Rule will modify the SBA’s method for calculating annual average receipts used to prescribe size standards for small businesses.  Specifically, the SBA proposes to change its regulations so that a five-year averaging period (instead of three years) is used when calculating the annual average receipts for all SBA receipts-based size standards and other agencies’ proposed size standards for service-industry firms.

Notably, however, the SBA is proposing to restrict the benefit of this change.

First, SBA takes the position in the commentary to the Proposed Rule (consistent with its previous positions and described more fully below) that the change does not go into effect until its rulemaking is completed. Second, the SBA states that the change will not be applied retroactively when it considers size appeals so that SBA will review a size challenge in accordance with the size standard in effect at the time of the challenged company’s certification. Third, the SBA is not changing non-SBA size standards and leaves such changes to the individual agencies. Further, the SBA has not abandoned its position that the Act does not mandate this change. The SBA states that it is only proposing these rules in the interests of economy and because the new rules do not conflict with the SBA’s existing statutory authority and is consistent with Congress’ intent.

The SBA also points out that while this change will benefit growing small businesses, it could detrimentally impact large businesses that are losing revenue. For those businesses, the longer look-back period may cause them to take longer to regain small business size status.

Finally, SBA’s commentary reiterates its position that receipts of a former division count when determining size status while the receipts from a concern’s former subsidiary do not. There was no additional language in the proposed rule to reflect this sentiment, but contractors and practitioners should take notice.

Continue reading at:  Holland & Knight

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