In early to mid-December 2018, the House and the Senate proposed a bill that was quickly signed by the President. The Small Business Runway Extension Act of 2018 became law on December 17, 2018, amending The Small Business Act. The principle change brought about by this new law is that it modifies the period the U.S. Small Business Administration (SBA) uses to measure a business’s size for Small Business (SB) status qualification in revenue-based size standards, from three years to five years. The intent of the law is to assist growing businesses by helping them stay small—with accompanying benefits such as inclusion in GWACS and small business (SB) partnering opportunities. But Congress and SBA quickly learned that it also has an unintended effect. It turns out that some businesses that were small before the law are now considered large after its signing.
Although there was no stated implementation period for this modification and it was presumed that it went into immediate effect, the SBA later opened a “comment period” for its proposed rule. The comment submission period closed on August 23, 2019. To be clear, SBA’s rule-change would modify the calculus of annual average receipts for all receipts-based SBA size standards for service-industry companies, from a 3-year averaging period to a 5-year averaging period. It is unclear why SBA opened the comment period, as the change had already been codified in law—but quite possibly, it was due to the significant outcry from large and small businesses alike.
Practical Effects of This Law
This is about defining how companies, small and large, win Federal contracts fairly and within a set of comprehensible guidelines. If you are a large business, the new modification of SB qualification doesn’t impact you directly. However, the change could affect which SB you collaborate with on Federal contracts. Your established SB Federal contracts partner whose average revenues were about to qualify it as a large business under old rules, may have just been dealt a rule-change reprieve with this new law and you can work together large and small for at least the next two years. No doubt there are many in this circumstance. However, a company whose revenues have been declining over the past five-year period and may have recently qualified as a SB prior to the new law under the three-year qualification measure, may now be considered a large firm under the new 5-year measure due to the inclusion of past higher receipts—the unintended impact, ouch! Arguably, Business Development professionals should consider establishing collaborations with small businesses whose status and qualifications will weather the storm as we await the final SBA rule language, regardless of the outcome.
Partner with Next Phase Solutions, LLC
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