Late last week, on July 18, 2019, the U.S. Small Business Administration (SBA) issued an Interim Final Rule that adjusts small business size standards, effective August 19, 2019. Small business size standards, which are typically expressed as either the number of employees in a business or the average annual receipts of a business, represent the largest size that a business may be in order to be classified as a small business for SBA and federal contracting programs and preferences.
The SBA periodically conducts a review of small business size standards and makes adjustments for two reasons: because of changes in industry structure and federal market conditions and because of inflation. The SBA’s last inflation adjustment was in 2014, and in the preamble to its Interim Final Rule, the SBA indicated that with this latest inflation adjustment behind it, the SBA intended to turn its attention in the near future to industry and federal market conditions to determine if further adjustments are needed.
As for the latest inflation adjustments, the SBA explained that a number of businesses may have lost their small business eligibility solely because of inflation-related revenue growth since the 2014 inflation adjustment. Consequently, the SBA’s Interim Final Rule raises the receipts-based size standards for 518 industries and 9 subindustries, as well as the asset-based size standards for 5 industries.
The SBA’s methodology, which is explained in the Interim Final Rule’s preamble, culminates in the following inflation adjustments:
- All receipts-based size standards (excluding the $750,000 agricultural size standard) are increased by multiplying their current levels by 1.0837 and rounding to the nearest $500,000.
- The current size standard of $750,000 for 46 agricultural industries is multiplied by 1.4026 to arrive at a non-rounded size standard of $1.05 million, which is rounded down to $1.0 million.
- The asset-based size standard for 5 finance and insurance industries of $550 million is multiplied by 1.0837 to arrive at $596 million, which is rounded to $600 million.
The full list of new small business size standards can be found in the Interm Final Rule. For example, the size standard for industries under NAICS code 541511 (Custom Computer Programming Services) and 541512 (Computer Systems Design Services) is now $30.0 million. And the new small business size standard for each of the industries under NAICS Subsector 236 (Construction of Buildings) is now $39.5 million.
In publishing the latest inflation adjustment as an Interim Final Rule, the SBA chose to forgo the typical process of publishing a proposed rule for public comment before issuing a final rule. In the SBA’s view, a number of businesses have lost small business eligibility since the last inflation adjustment and any delay in implementation of the inflation-adjusted size standard could cause significant harm to those businesses as well as the businesses that are expected to exceed the current size standards because of inflation-driven revenue growth. Comments to the Interim Final Rule must be received on or before September 16, 2019.