Public Comment Wanted: SBA is Revising Small Business Size Standard Calculations

In case you missed it, back on December 11, 2023, the U.S. Small Business Administration (SBA) issued a proposed rule in the Federal Register that would change the methodology used to determine small business size standards. Titled “Small Business Size Standards: Revised Size Standards Methodology,” the notice was intended to make the public aware that a white paper on the subject was now available for public comment. The most recent revision of the SBA’s methodology took place in 2019. However, notes the SBA, a requirement in the Small Business Jobs Act of 2010 tasks the agency with reviewing the size standard methodology every five years. This motivated the review and revisions announced by the SBA in December.

As noted in the Federal Register, “The goal of SBA’s size standards review is to determine whether its existing small business size standards reflect the current industry structure and federal market conditions and revise them if the latest available data suggests that revisions are warranted.” For the December 2023 review, the SBA decided to maintain its “percentile” approach as the “basis for evaluating industry factors and deriving size standards for each industry factor for each industry.”

Click here to download a copy of the 2019 white paper, the methodology of which the SBA retained for 2023. Factors used for figuring size standards include the following, in addition to several others listed in the 2019 white paper.

• The average size of firms in a given industry based on receipts, derived from dividing the total receipts in that industry by the total number of firms in that industry.
• The average number of employees in firms in that industry, derived from dividing the total number of employees in the industry by the total number of firms in that industry.
• An evaluation of small business participation in federal contracting in terms of the share of total federal contract dollars awarded to small businesses relative to the small business share of industry’s total receipts.

December 2023 Changes

For 2023, the SBA proposed making two changes to its methodology for calculating small business size standards.

First, to use what the SBA calls its “disparity ratio approach” to account for the federal contracting factor. The SBA’s 2019 methodology calculates the federal contracting factor as “the difference between the small business share of total contract obligations and the small business share of receipts in that industry. If the small business share of an industry total receipts exceeds the small business share of total contract obligations by ten percentage points or more … the SBA would increase that industry’s current size standard  … depending on the amount of that difference. If that difference is less than ten percentage points, SBA would consider that the current size standard is sufficient with respect to the federal contracting factor.”

Second, the SBA would replace its “percentile values of industry factors for evaluating size standards at the sub-industry levels … from those calculated based on the economic census data with those calculated using the Federal Procurement Data System—Next Generation (FPDS-NG) and System for Award Management (SAM) data.” The goal of the SBA is “to refine and improve its analysis of federal contracting data used in the evaluation of industry size standards.”

Implications

Leveraging contract spending data instead of economic census data is a change that industry has long asked the SBA to implement. That said, the full implications of these changing calculations must be worked out by those in their respective industries. It likely goes without saying that changes to the existing size standards will alter the competitive landscape. Public comments on the 2023 Revised Methodology are due here on or before February 9, 2024.