The Small Business Administration published a gargantuan new rule Tuesday that will significantly change small business contracting for years to come.
The rule was styled “HUBZone Program Updates and Clarifications, and Clarifications to Other Small Business Programs,” and while a large swath of the rule is directed at the HUBZone program, the most consequential changes affecting the largest number of contractors are the “Other Small Business Programs” updates. These changes affect how small businesses calculate their size, permit minority investment, leverage past performance in joint ventures, participate in M&A transactions and more.
There are so many important changes in this rulemaking that we cannot discuss everything in one blog post. So, we’ll start by addressing the M&A and long-term recertification rule updates.
MAC IDIQ Ineligibility for Size/Status Recertifications starts Jan. 17, 2026.
With the creation of 13 CFR 125.12, SBA seeks to harmonize the process of recertification across the small business programs.
As a refresher, the SBA’s recertification rules have been the subject of debate since their inception. The most recent turmoil, however, started with the 2018 SBA Office of Hearings and Appeals (OHA) decision in Analytic Strategies, SBA No. VET-268, 2018 (Jan. 29, 2018), which held that while the SBA regulations require a contractor to recertify its size within 30 days of undergoing a merger, sale or acquisition, such recertification had the effect only of prohibiting the contracting officer from counting future options and orders toward the awarding agency’s small business goals.
SBA, as a matter of policy, disagreed with this being the sole outcome of a recertification; the agency preferred that recertification as a large business, for example, on a set-aside multiple-award indefinite-delivery, indefinite-quantity contract (“MAC IDIQ”) made the contractor ineligible for future set-aside task orders — in order to keep small businesses on the vehicle from having to compete with well-heeled large businesses for set-aside awards. And so, shortly after the Analytic Strategies holding, the agency issued a series of technical and semantic amendments to its recertification rule, all with the seeming intent of codifying this preferred policy outcome — i.e., ineligibility for set-aside task order competitions. However, these SBA rulemakings were met with significant case law resistance, eventually culminating with the 2024 OHA decision in Lintech Global, SBA No. SIZ-6287, 2024 (May 29, 2024), where OHA held that despite numerous regulatory changes over the past six years, the regulations still did not make recertified entities ineligible for set-aside task order competitions.
In response, SBA has decided to cease tinkering with its existing recertification rules — and has instead rewritten them whole cloth.
SBA’s new approach gets the job done — well, eventually. The new recertification rules are not without their areas of ambiguity, but as compared to the former rules at 13 CFR 121.404(g), they are much simpler and cleaner. The rules clarify that for MAC IDIQ contracts, if a small business contract holder recertifies after being acquired by a large business, the contractor loses eligibility for future set-aside task orders and options under that MAC IDIQ. SBA calls this a “disqualifying recertification.”
However — and this is crucial — disqualifying recertifications will not be “disqualifying” if they are triggered by transactions occurring prior to Jan. 17, 2026.
“2026” is not a typo. SBA explained that commentators raised concern about the possible retroactive application of the rule. It was feared that the rule would apply to recertifications rendered immediately after, or even prior to, the rule’s publication. This would have had the effect of undermining valuation judgments made in prior transactions where it was assumed that contractors would continue to enjoy set-aside task order eligibility, even after closing. To avoid this possibility, SBA has decided to make the rule inapplicable until one year after the effective date of the new rule — hence Jan. 17, 2026.
The delay provision reads, at the new 13 C.F.R. 125.12(g)(i): “A firm that has a disqualifying size or status recertification due to a merger, acquisition or sale that occurs prior to January 17, 2026, remains eligible for orders issued under an underlying small business multiple award contract.” And in the narrative explanation for the changes, SBA explains, “Firms that have made or will continue to make disqualifying recertifications prior to one year after the effective date of this rule will continue to be eligible to receive orders and options after the effective date of this rule.” 89 Fed. Reg. 102465.
It appears, then, that not only do transactions entered prior to Jan. 17, 2026, not cause task order and option ineligibility, but that task order and option eligibility will persist even after the effective date of the rule on Jan. 17, 2026. Such eligibility appears almost unbounded — operating until the end of the vehicle or until a disqualifying recertification after that effective date.
The effect of this timing trigger cannot be overstated. Small businesses with set-aside MAC IDIQs could be very popular acquisition targets in 2025, since eligibility for set-aside task orders will continue even after acquisition by a large business. Conversely, those small business contractors who wait to close a transaction with a large business until Jan. 17, 2026, or later may see their buyer pool shrink or their valuations suffer. While acquired concerns are typically able to run out existing task orders, entities acquired after Jan. 17, 2026, will not be able to bid on new set-aside task orders or receive new small business MAC IDIQ options.
Other Nuances
While the above is the real market-making headline for this new rule, there are a few other nuances worth summarizing here as well.
First, a transaction occurring on or after Jan. 17, 2026, leads to set-aside task order and option ineligibility only if the recertifying small business is acquired by a large business. If the contractor is acquired by a business that, on its own, qualifies as small under the MAC IDIQ, the recertified entity retains task order and option eligibility even if the contractor, after being affiliated with the small business buyer, is now large. This is a significant deviation from prior SBA policy — previously, the question has always been “Are you small or large?” not “Why are you small or large?” The result of this rule that is, especially as of January 17, 2026, small businesses acquiring other small business will become an attractive growth strategy.
Second, the new rule attempts to solve the ambiguity around the application of the 180-day rule. This rule says that if a contractor is acquired within 180 days of bidding on a set-aside contract but prior to award of such contract, and if the transaction caused the contractor to become large or otherwise lose the status required for proposal submission, the contractor becomes ineligible for the award. But if the transaction (or agreement in principle) occurs more than 180 days after proposal submission, the contractor continues to be eligible. This rule, like the recertification rule covered above, underwent a great deal of scrutiny at OHA and the Government Accountability Office. Cases like Odyssey Systems, B-419731, et al, July 15, 2021, 2021 CPD ¶ 260, and Washington Business Dynamics, B-421953, B-421953.2, Dec. 18, 2023, 2023 CPD ¶ 286 have whittled down the rule’s application, sometimes with the support of SBA, sometimes not. Regardless, the new 180-day rule is stated simply, seemingly without as many exceptions and conditions for its application. And the new rule appears to apply to all set-aside and reserve awards, whether a contract, BPA, order or otherwise.
One caveat is it appears SBA has entirely excepted set-aside or reserved MAC IDIQs from the 180-day rule. If a contractor who undergoes a disqualifying transaction has a pending set-aside or reserve MAC IDIQ award, that contractor will lose eligibility for the MAC IDIQ, even if the transaction occurs more than 180 days after proposal submission. SBA’s logic is that the concern would not be eligible for set-aside task orders anyways, so why give them the MAC IDIQ award? And moreover, the new 180-day rule does not appear to be subject to the one-year delay provision summarized above — meaning that as of January 17, 2025, the rule could be used to deem offerors ineligible for pending MAC IDIQ awards! It is not clear from the rule’s narrative explanation whether SBA intended this result or not.
Finally, SBA has amended its size protest regulations to permit MAC IDIQ contract holders to challenge recertifications submitted by other MAC IDIQ holders. Previously, private contractors had no authority to challenge recertifications made by other MAC IDIQ holders. This new right, if the implementing regulations are interpreted as SBA appears to intend, will give SBA and small contractors another way to enforce the regulations.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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