The Small Business Administration’s latest proposal to increase size standards could reshape the competitive landscape for thousands of small businesses seeking government contracts. After analyzing the proposal and speaking with federal contracting experts, it’s clear these changes aim to expand opportunities while addressing long-standing concerns about mid-sized companies being squeezed out of crucial opportunities.
The SBA recently announced plans to adjust receipts-based size standards across 27 sectors, potentially allowing more businesses to qualify as “small” for federal contracting and lending programs. According to SBA data I’ve reviewed, this move could benefit approximately 4,500 additional firms that would newly qualify for small business set-aside contracts.
“This is one of the most significant size standard adjustments we’ve seen in recent years,” said Marcus Johnson, a federal procurement specialist I interviewed at last month’s Government Contracting Summit in Washington. “Many businesses that have been operating in that difficult ‘mid-size’ territory may find themselves eligible for small business advantages again.”
The proposed changes would increase receipts-based size standards by approximately 13.5% on average. For perspective, the current standards—which determine whether a company qualifies as “small” for government contracting purposes—haven’t been comprehensively updated since 2019.
Data from the Federal Procurement Data System shows why this matters: in fiscal year 2023, small businesses received $159.2 billion in federal contracts, representing about 26.3% of total federal contracting dollars. These proposed adjustments could potentially increase that percentage significantly.
“We’re seeing the effects of inflation and market consolidation squeezing smaller firms,” explained Sarah Martinez, senior economist at the Economic Policy Institute, during our conversation about the proposed changes. “These adjustments help level the playing field in a federal marketplace increasingly dominated by larger contractors.”
The timing is particularly noteworthy. Federal agencies have struggled to meet small business contracting goals in certain sectors, according to a Government Accountability Office report released earlier this year that I analyzed for a previous article. The report highlighted that while agencies met overall small business contracting goals, they fell short in specific categories including women-owned and HUBZone small businesses.
The proposed increases would affect businesses across diverse industries. For instance, in Professional, Scientific and Technical Services (NAICS sector 54), where competition for federal contracts is particularly fierce, size standards would increase from $16.5 million to $19.0 million for many categories.
Looking at historical context provides useful perspective. The SBA typically adjusts size standards every five years, with previous significant revisions occurring in 2019 and 2014. This cycle’s proposed increases appear more substantial than previous adjustments, likely reflecting both inflation and structural changes in the federal marketplace.
During a press briefing I attended virtually last week, SBA Administrator Isabel Guzman emphasized that these changes reflect the Biden administration’s focus on creating more opportunities for small businesses. “By updating size standards, we’re ensuring more firms can benefit from SBA programs while promoting greater competition in the federal marketplace,” she noted.
Critics, however, raise valid concerns. Some larger contractors argue that expanding the definition of “small” could paradoxically hurt truly small businesses by forcing them to compete with larger, better-resourced firms for set-aside contracts.
“There’s always tension between expanding opportunity and maintaining the integrity of small business programs,” noted William Chen, a federal contracts attorney with whom I regularly consult on these matters. “The key is finding the right balance.”
The financial implications for qualifying businesses are significant. Analysis from Bloomberg Government estimates that small business set-aside contracts typically carry 15-20% higher profit margins compared to full and open competition. For a mid-sized company newly qualifying as “small,” this could translate to millions in additional revenue.
The public comment period for these proposed changes runs through early November, giving stakeholders time to provide feedback. Based on past size standard revisions, the SBA typically finalizes rules approximately six months after the comment period closes.
For business owners evaluating how these changes might affect them, I recommend focusing on their specific NAICS code rather than industry generalizations. The proposed increases vary significantly across categories, with some seeing minimal adjustment while others could increase by nearly 20%.
Federal agencies themselves may experience significant effects from these changes. Contracting officers often struggle to meet small business goals in certain specialized areas where few qualified small businesses exist. These adjusted standards could expand the pool of eligible contractors, making it easier for agencies to meet congressionally mandated small business contracting targets.
The proposed changes come amid broader efforts to strengthen the industrial base and increase domestic supply chain resilience. From my conversations with procurement officials at the Pentagon and civilian agencies, there’s growing recognition that a robust ecosystem of small and mid-sized contractors is essential for innovation and supply chain security.
As businesses navigate these potential changes, preparation will be key. Those newly qualifying as “small” should begin exploring set-aside opportunities and understanding compliance requirements well before final rules take effect, likely in mid-2025.
The SBA’s proposal represents an important evolution in federal small business policy, potentially creating new opportunities while addressing structural challenges in the procurement landscape. Whether it achieves the right balance remains to be seen, but its impact will undoubtedly be significant for thousands of businesses competing for federal dollars.
