The Small Business Administration’s (SBA) size and recertification rules have always been central to government contracting. But recent regulatory changes, and where we now stand in mid-January 2026, mark a meaningful shift in the GovCon M&A landscape, particularly for private equity firms and other investors. The “grandfathering” era is over. Successful GovCon M&A transactions now require buyers and sellers to identify, price, and actively manage size-status risk early in the deal process. Those that treat recertification as a post-close compliance exercise risk inheriting unexpected eligibility, revenue, and valuation exposure.
Recertification Basics: Why Size Still Matters After Award
Under SBA regulations, contractors must recertify their size status when certain events occur, including:
- a merger, acquisition, or sale resulting in a change of control;
- certain anniversaries on long-term contracts; and
- when specifically required by a contracting officer in connection with a task order or agreement.
If a contractor experiences a disqualifying recertification—meaning it is no longer small or no longer qualifies under a particular socioeconomic program—the consequences can be significant. This is especially true for multiple-award contracts (MACs), where future growth often depends on continued eligibility for set-aside task orders rather than the ability to merely complete existing work.
Where We Are Now: No More Strategic Timing
As of January 17, 2026, buyers and sellers must operate under the new recertification regime. In practical terms, that means:
- A post-acquisition recertification as “other than small” will generally allow the contractor to complete existing orders.
- However, the contractor will be ineligible for future small business set-aside task orders under MACs (unless the entities involved in the transaction were themselves small businesses).
- For certain vehicles, such as GSA Schedules and set-aside Blanket Purchase Agreements (BPAs), the loss of eligibility can be immediate.
For private equity firms and other investors, these rules directly affect valuation models, growth assumptions, earn-out structures, and exit strategies.
Key Issues Investors Should be Evaluating in Diligence
Investors evaluating small business government contractors should be asking targeted, deal-critical questions early in diligence, including:
- How much of the target’s revenue depends on future set-aside task orders, as opposed to funded backlog?
- Which contracts are single-award versus multiple-award, and how does that distinction affect post-close eligibility?
- Are there pending recompetes or option exercises predicated on continued small business status?
- How will recertification affect the company’s competitive position relative to incumbents and similarly situated firms?
In many cases, the value of a “small business” may shift dramatically once recertification is triggered.
Deal Structuring and Post-Close Strategy Matter More Than Ever
With grandfathering no longer available as a fallback, deal planning must become more sophisticated. That includes:
- thoughtful timing and presentation of recertification notices;
- a clear understanding of when size status affects eligibility versus when it affects only small business credit; and
- evaluating growth strategies that do not rely exclusively on set-aside work.
Importantly, the new rules are not entirely black and white. There remains meaningful nuance in how they apply across different contract vehicles, transaction structures, and post-closing operating models. For some companies, recertification will be manageable with proper planning. For others, it may fundamentally alter the business case for continuing to compete.
Why Contractors Should Be Paying Attention, Too
This is not just an investor issue. Small businesses considering a sale, minority investment, or other strategic transaction need to understand:
- how recertification will affect their pipeline and future competitiveness;
- how buyers will assess and price size-status risk; and
- whether proactive planning can preserve value and avoid late-stage surprises.
Failing to address these issues early can derail transactions or significantly reduce purchase price.
The Bottom Line
SBA recertification is no longer a theoretical concern or a timing exercise. It is now a core diligence and compliance issue for contractors and private equity firms alike.
Whether you are a contractor evaluating strategic options or an investor assessing a GovCon acquisition, understanding how size status affects eligibility, revenue, and long-term growth is essential. Getting it wrong can mean losing access to future work. Getting it right can preserve value, and, in some cases, create opportunities that are not immediately obvious.
If you have questions about how SBA recertification rules may affect a pending transaction, portfolio company, or growth strategy, please contact Sam Finnerty (sfinnerty@pilieromazza.com) to discuss how these rules apply to your specific circumstances.
