Additional contributor: Legal Secretary, Max Sarkissian
Summary
The U.S. Small Business Administration (“SBA”) is considering substantially increasing the size standards used to determine eligibility for federal small business contracting programs. The proposals could allow larger businesses to enter or re-enter reserve markets while helping growing contractors remain eligible for small business opportunities.
The SBA has extended the comment period on the proposed rules and related methodology to November 20, 2026.
Competitive effects are likely to vary significantly by industry. Contractors should evaluate the specific proposed standard applicable to each NAICS code they use rather than relying on aggregate SBA estimates.
Potentially significant increases
The proposed rule would revise standards applicable to 338 industry groups and industries. It would also consolidate numerous standards into broader four- or five-digit NAICS levels.
Examples identified in reports on the proposal include potentially substantial increases for:
- Design of computer systems and related services.
- Administrative management services and general management consulting.
- Advertising, public relations and related services.
- Certain financial investment activities
For example, the income threshold associated with administrative management and general management consulting services, NAICS 541611, could increase from $24.5 million to approximately $295 million.
Each reported figure must be compared to official tables proposed by the SBA before a company relies on it or includes it in public comments.
Competing opinions on the proposal
Supporters of higher standards argue that existing thresholds can force successful companies out of the small business market before they are prepared to compete against larger federal contractors. This issue may be particularly significant in technology, defense, professional services, and other markets where past performance, contractual vehicles, security requirements, and access to capital create substantial barriers to unrestricted competition.
Critics argue that some proposed rules are so strict that they would allow companies with materially greater resources to compete against emerging contractors for the same set-aside contracts. Those resources may include:
- Larger workforces
- Greater access to working capital
- Longer Past Performance
- Proposal and business development teams established.
- Multiple contract vehicles
- Greater ability to absorb supply and performance risk
The relevant question may not be whether a higher standard is appropriate in general, but whether the increase is appropriately calibrated to the competitive conditions of each market.
Who may be affected?
The proposal may affect:
- Current small business prime contractors and subcontractors
- Contractors approaching an existing size limit
- Former small businesses that could regain eligibility
- Participants in SBA Socioeconomic Contracting Programs
- Prime Contractors with Small Business Outsourcing Plans
- Mentor-Protégé Participants and Joint Ventures
- Agencies that carry out market studies for reserved acquisitions
- Investors or potential buyers of government contractors
The changes could also affect procurement planning. A larger qualified group can influence agencies’ market research, land reservation decisions, subcontracting strategies, and assessments of whether there is adequate competition among small businesses.
Questions Contractors Should Ask Now
Companies should consider:
- Would the company remain or become small under the proposed standard?
- Which existing competitors could become newly eligible?
- Would the broader NAICS groupings combine substantially different business models?
- Could the changes affect the company’s eligibility for specific contract vehicles?
- Would the proposal alter the company’s team-building or mentor-protégé strategy?
- Could it affect a planned acquisition, investment or restructuring?
- What procurement data would demonstrate the likely competitive effect?
Recommended actions
Before the Deadline of November 20, 2026Contractors should model the effect of the proposed standards on current and planned procurements. Useful information may include award history, bidder size, procurement values, market concentration, staffing requirements, and availability of qualified small businesses.
Comments may recommend maintaining the current standard, adopting a smaller increase, preserving a six-digit industry standard, creating an industry-specific exception, selecting a different size measure, or introducing major changes in stages.
Conclusion
Even if the total number of newly eligible federal contractors is comparatively limited, the impact could be concentrated in high-value, strongly competitive markets. Companies should evaluate the proposal at the NAICS code and procurement market level.
The deadline for comments is November 20, 2026. Existing size standards remain in effect while the rulemaking is pending.
Clark Hill’s Government Contracting team can help contractors evaluate competitive effects, analyze procurement data, and prepare comments by proposing appropriate industry-specific standards.
Contact Clark Hill
If you have questions about how the final rule may affect your business, please contact one of these attorneys on Clark Hill’s Government Contracts and Regulations Team:
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