On August 22, 2025, the Small Business Administration (SBA) issued a proposed rule entitled “Small Business Size Standards: Monetary-Based Industry Size Standard,” which proposes to increase the size standard for 263 industries and retain the receipts-based size standards for 237 industries and sub-industries. A proposed rule for employee-based size standard will be published in the near future. SBA’s proposed changes may allow some GovCons to stay small longer—or even regain small business status. Knowing the correct size standard and calculation is critical before contractors start bidding on their next contract.
As relevant background, each federal government procurement is assigned a North American Industry Classification System (NAICS) code. Certain procurements may be set-aside for small businesses or other socioeconomic designations, such as 8(a), service-disabled veteran-owned small business, women-owned small business, or historically underutilized business zone, all of which require the offeror to be small under the applicable NAICS code and corresponding size standard. The definition of “small” varies based on the NAICS code that is assigned to the procurement.
SBA is required to review all size standards every five years and make necessary adjustments to reflect the current industry and market conditions. As part of SBA’s review and analysis, while it found that a decrease may be appropriate for some industries, SBA is proposing to not decrease any size standards, except for excluding dominant firms from qualifying as small. SBA is specifically seeking comments on this proposed policy.
Whether or not a company is eligible to bid on a set-aside procurement is driven largely by whether or not the offeror—including its proportionate share of any joint venture receipts, and together with any affiliates—qualifies as a small business. This proposed rule serves as a good reminder to make sure you are calculating your size correctly. As we previously explained here, a company’s receipts mean all revenue and are generally calculated by using a company’s tax returns, where you add the total income (or, in the case of a sole proprietorship, gross income) and cost of goods sold line items for each of the years in the period of measurement, which is now generally the previously completed five fiscal years, and divide by the applicable number of years. SBA recently clarified in its final rule that went into effect in January 2025 that it will consider and generally rely on a company’s tax return and any amendment filed on or before the date to determine size, but that it may consider other relevant information where there is a reasonable basis to believe tax filings are false. If tax returns are not yet available, then a company must use other available information, such as financial statements. You cannot wait for your tax return to be filed to update your size calculation.
As an example, assuming a company uses the calendar year as its fiscal year, if an initial proposal, including price, is submitted in September 2025, then the company must use its average annual receipts, including the receipts of any affiliates, for years 2024, 2023, 2022, 2021, and 2022. In early 2026, a company’s size would then be based on its average annual receipts for 2025, 2024, 2023, 2022, and 2021, even if the company’s 2025 tax return is not yet available.
SBA’s proposed changes may allow some companies to stay small longer, and may even return some to small business status. Knowing the applicable size standard and calculation is key before bidding. SBA is requesting comments by October 21, 2025.
