On June 24, 2019, the Small Business Administration (SBA) published its long-awaited proposed rule changing the period of measurement for a receipts-based size calculation from three years to five years. This change was prompted by the Small Business Runway Extension Act (the Runway Act), which became law on December 17, 2018.  SBA was slow to implement this change because SBA believes that the Runway Act amended a section of the Small Business Act that does not apply to SBA.  “Nevertheless,” SBA says, “to promote consistency government-wide on small business size standards, SBA proposes to change its own size standards to provide for a 5-year averaging period for calculating annual average receipts for all receipts-based size standards.”  Smaller and larger small businesses industry wide could be impacted in terms of gaining access to government contracts.  PilieroMazza will be submitting comments to the proposed rules on behalf of our small business clients before the August 23, 2019, deadline.

The proposed rule changes the references to three fiscal years to five fiscal years in 13 C.F.R. §§ 121.104 and 121.903.  The proposed rule does not, however, address how contractors should calculate their size in the period between December 17, 2018, and when SBA’s rule becomes final.  Presumably, SBA’s position is that contractors must use a three-year calculation until SBA issues its final rule.  But this position, of course, does not address the fact that the five-year calculation became federal law in December.

SBA also does not address a transition period, for firms that are small under a three-year calculation but other-than-small under a five-year calculation.  The latest version of the House of Representatives’ National Defense Authorization Act for Fiscal Year 2020 (the NDAA) is requiring SBA to implement a transition plan that would allow firms to use a three-year calculation, if such calculation renders the firm a small business, for the period beginning on December 17, 2018, and ending on the date that is six months after the date on which SBA issues final rules implementing the Runway Act.  (The House is also making clear in the NDAA that, from Congress’ perspective, the Runway Act became effective on December 17, 2018.)

The deadline for submitting comments is August 23, 2019.  SBA specifically seeks feedback on whether SBA should calculate annual average receipts over five years for all industries subject to receipts-based size standards or on whether it should use a five-year annual receipts average for businesses in services industries only and continue using a three-year annual average for other businesses. SBA also invites input on how the use of annual average receipts over five years instead of three years would impact both smaller small businesses and more advanced, larger small businesses in terms of getting access to federal opportunities for small businesses.

Members of PilieroMazza’s Government Contracts and Small Business Programs & Advisory Services Groups will be preparing comments to this rulemaking.  If you have feedback you want us to include in our comments, please email it to Megan Connor at mconnor@pilieromazza.com.

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