The U.S. Small Business Administration (“SBA”) has proposed a rule that would reshape how the federal government defines a “small business” across 338 industry groups and industries, dramatically increasing the number and size (by average annual revenue or number of employees) of companies that would qualify as small businesses for government contracts and SBA purposes. The proposed changes touch nearly every sector of the economy—from agriculture and manufacturing to construction, IT, and professional services—and carry significant implications for government contractors, subcontractors, and any business that relies on SBA-backed programs by significantly increasing size standards for hundreds of thousands of businesses.
The chart below provides a few examples of the significant changes in size standards:
| NAICS | Description | Current Size Standard | Proposed Size Standard |
|---|---|---|---|
| 541330 | Engineering Services | $25.5 million | $252 million |
| 541519 | Other Computer Related Services | $34 million | $531 million |
| 541618 | Other Management Consulting Services | $19 million | $295 million |
| 561210 | Facilities Support Services | $47 million | $156 million |
| 336412 | Manufacturing Guided Missile and Space | 1,250 employees | 2,800 employees |
| 336611 | Ship Building and Repairing | 1,300 employees | 2,300 employees |
If put into effect as a final rule, large numbers of current small business government contractors will face not just more competition for small business set-aside opportunities but competition against much larger businesses. On the other hand, successful small businesses could be spared what has often been called the “valley of death”—the period of time after graduation from eligibility for small business set-aside contracts but before they are large and sophisticated enough to compete with big businesses bidding on full-and-open contracts.
The rule change would also likely trigger an explosion of corporate transactions in the government contracts space, as small and currently mid-size businesses could combine and retain eligibility for set-aside contracts.
The rule does more than just increase size standards on a one-time basis. SBA is proposing a fundamentally revised methodology for calculating size standards, including:
- consolidating North American Industry Classification System (“NAICS”) codes to reduce the number of size standards from roughly 1,000 to 338;
- shifting towards employee-based size standards where SBA has the discretion to do so;
- reducing the factors SBA relies on to determine appropriate size standards;
- eliminating size standard caps to permit substantially higher size standards than the existing methodology; and
- adjusting not just for inflation but also for general productivity growth in the U.S. economy.
This proposed rule is just that—proposed. No new size standards are in effect or would go into effect unless and until SBA issues a final rule. In the meantime, for the next 30 days, SBA will be accepting public comments on the proposed rule. Comments can be submitted through the Federal eRulemaking Portal at www.regulations.gov under RIN 3245-AI67 or Docket No. SBA-2026-0199.
We will continue to monitor developments as the rulemaking process unfolds. If you have questions about how the proposed size standards could affect your business or your government contracting strategy, please reach out.