Congress Gives A Holiday Gift To Growing Small Business Contractors: Size Status Will Now Be Calculated According To Average Annual Revenue Over A Longer Five-Year Period
On December 17, 2018, President Trump signed into law H.R. 6330, the Small Business Runway Extension Act of 2018 (the “Runway Act”).1 The Runway Act extends the measurement period for determining whether a contractor qualifies as a small businesses concern under revenue-based NAICS code size standards used to determine eligibility for “set aside” contracts.2 In particular, size status will be determined based upon contractors’ average revenue over the last five completed fiscal years, rather than the current three-year measurement period. It is anticipated that many growing companies that had or would soon exceed the revenue threshold applicable to their NAICS code(s) will gain additional years of “small” business status by including (often much lower) revenue totals from four and five years ago to determine their current average annual revenue.
The Runway Act does not change the various dollar thresholds applicable to revenue-based size standards, nor does it revise the methodology for determining size-status under the employee-based size standards generally applicable to contracts for manufactured goods. However, by extending the measurement period to five years, it will afford companies that have not been able to compete for small business set asides recently due to their threeyear average revenue an opportunity to revisit their eligibility based on the new measurement period, while also extending the eligibility period for many companies which had been close to losing eligibility.
Historically, government contractors have often faced hard times after outgrowing their NAICS code(s), where they no longer qualify for set-aside contracts but lack the resources and expertise to compete successfully with very large business concerns for unrestricted contracts. Congress seeks to address this problem by affording small businesses more time to grow and develop the infrastructure, resources and expertise required to successfully compete for large, unrestricted contract requirements.
The Runway Act amends the Small Business Act without expressly requiring implementation by the Small Business Administration (SBA). Consequently, contractors may take the position that the Runway Act is immediately effective absent contrary guidance from the SBA. Contractors should be aware, however, that the SBA, which has yet to address the Runway Act, may subsequently determine that the Runway Act should not be treated as effective until SBA issues an interim or final implementing rule, which could take weeks or, more likely, months. To the extent that a small business concern certifies as small in reliance on the Runway Act’s revised measurement period prior to SBA addressing this issue, it would be welladvised to explicitly state this in the applicable proposal or certificate submitted to the contracting agency
2 Revenue-based size standards are most often applicable to services contracts. See https://www.sba.gov/sites/default/files/files/Size_Stan dards_Table.pdf