By Government Contracts & Construction

Change in Small Business Size Calculation—Not So Fast

On December 17, 2018, President Trump signed the Small Business Runway Extension Act.  Currently, the Small Business Administration (“SBA”), when determining a firm’s receipts-based size, looks to three years of average annual receipts.  The new law extends that period to five years.  Under the three year calculation some firms were penalized for experiencing quick growth as their inflated average rendered them “other than small” because of one or two years of high annual receipts.  The extension to five years should remedy that situation.

One important question is whether or not the change is currently effective.  On December 21, 2018, the SBA issued an information notice definitively saying “No.”  The SBA’s position is that the new five-year time period is not yet effective and “not applicable to present contracts, offerors, or bids until implemented through the standard rulemaking process.”  There is currently no timeline for the rulemaking process, which includes proposed regulations, an opportunity for comments and issuance of a final rule.  Some existing legal authority suggests the new time period could be effective immediately, which could be an argument a firm might use if faced with an adverse size determination in which the five year period would be more helpful.  For now, small business contractors should continue to operate as-is under the three year standard and await the (sometimes lengthy) rulemaking process.

This Client Alert has been provided by Terence Murphy and Paul D. Hawkins of the Government Contracts & Construction Practice Group who can be reached at (757) 624.3139 or tmurphy@kaufcan.com and (757) 624.3008 or pdhawkins@kaufcan.com.

The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.