SBA Information Notice Provides Guidance on SBA's Interpretation of the Small Business Runway Extension Act of 2018

January 4, 2019

By Jacqueline K. Unger

We recently wrote about the Small Business Runway Extension Act (Runway Extension Act), which President Trump signed into law on December 17, 2018. Under the Runway Extension Act, for industries with receipts-based size standards, the size of a firm is to be measured based on its average annual gross receipts over the previous five years (extended from the previously used three-year period). Missing from the Runway Extension Act is any explicit directive as to when the new five-year calculation takes effect, leaving open the question of whether agencies will interpret the law as effective immediately or only upon the issuance of revised regulations. This has led to significant confusion among contractors as to whether a firm’s size status could immediately be impacted by the new law, i.e., whether a firm should report its size today based on average annual receipts over the past five years instead of three years.

SBA’s Associate Administrator for the Office of Government Contracting and Business Development (GCBD) issued an internal Information Notice to all GCBD employees, effective as of December 21, 2018, to provide clarity as to how it will interpret the effectiveness of the law pending revised regulations. In its guidance, SBA notes that the Runway Extension Act does not include an effective date and that the modification to the Small Business Act does not explicitly make the five-year average effective immediately. SBA goes on to conclude that “[t]he change made by the Runway Extension Act is not presently effective and is therefore not applicable to present contracts, offers, or bids until implemented through the standard rulemaking process.” In light of that position, SBA is requiring that businesses report their receipts based on a three-year average until SBA changes its regulations to implement the Runway Extension Act.

Importantly, however, where legislation does not expressly include an effective date, federal courts have held that the legislation generally takes effect immediately upon enactment, leaving SBA’s interpretation open to challenge. Despite the apparent inconsistency, SBA’s guidance helps to limit the uncertainty by making it clear that SBA (and any federal agencies relying on SBA’s interpretation) will continue using the three-year period for measuring size until SBA’s regulations are revised, which likely will take a number of months. Any contractors choosing to use the five-year period under the argument that the Runway Extension Act is effective immediately should be aware that SBA will not agree with that position and that they may potentially face proposal rejection (depending on the agency’s interpretation) and size protests down the road.

If you have any questions about how to handle size representations based on the Runway Extension Act and SBA’s guidance, we are here to help.

About the Author: Jackie Unger is an associate with PilieroMazza in the Government Contracts Group. She may be reached at junger@pilieromazza.com.
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