Federal contractors subject to the U.S. Small Business Administration’s receipts-based size standards will get a temporary choice of calculation under a rule published December 5, 2019. Starting January 6, 2020, affected firms may use either a three-year or five-year receipts average for certifications submitted through January 6, 2022. The rule moves those size standards toward a five-year average, but leaves SBA Business Loan and Disaster Loan programs on their existing three-year method. [S1]
The Small Business Runway Extension Act, approved December 17, 2018, replaced three years with five in a specified provision of the Small Business Act. SBA’s final rule does not make that change retroactive for its size calculations. The agency says an offer submitted before January 6, 2020 remains subject to the three-year calculation even if a related size determination or appeal arrives after the new rule takes effect. [S1][S2]
For a firm with five completed fiscal years, the new calculation totals receipts from the most recently completed five fiscal years and divides by five. The transition allows the alternative of the most recent three completed fiscal years divided by three; the election also covers affiliate receipts. Younger businesses do not fill missing years with zeroes. Under the five-year method, a firm with fewer than five complete fiscal years divides its receipts since starting business by the number of weeks in business, then multiplies by 52. A short fiscal year within an otherwise five-year record also requires annualization. [S1]
SBA explains that a five-year average will generally be lower when annual receipts are rising, potentially allowing a growing business to retain or regain small-business status. Falling receipts can produce the opposite result: older, higher-revenue years can push the five-year average above the three-year figure. The temporary choice lets affected firms avoid that disadvantage during the transition. For a firm near its size threshold, the useful comparison is between its two calculations—not simply between a shorter and longer reporting period. [S1]
Loan eligibility follows a different path in this rule. SBA retains the three-year receipts period for its 7(a), Microloan, Intermediary Lending Pilot and 504 programs, as well as the specified Disaster Loan programs. Businesses in those programs with fewer than three complete fiscal years use receipts divided by weeks in business, multiplied by 52. A contractor should therefore not carry its chosen procurement average straight into a loan application. The rule also leaves the calculation period for employee-based size standards unchanged. [S1]
SBA acknowledges that keeping larger businesses eligible for small-business set-asides could make competition harder for smaller firms. It expects agencies to set aside more contracts as the eligible pool grows, but cannot quantify the resulting redistribution of awards. The choice of calculation will expire: SBA says that after the transition, a new certification or recertification must use the five-year method even if the contract was originally certified under the three-year method. [S1]
Source documents
- Small Business Size Standards: Calculation of Annual Average Receiptshttps://www.govinfo.gov/content/pkg/FR-2019-12-05/html/2019-26041.htm
- Public Law 115-324 — Small Business Runway Extension Act of 2018https://www.govinfo.gov/content/pkg/PLAW-115publ324/html/PLAW-115publ324.htm