SBA Wants to Make 114,541 More Firms Small: The Size Standards Overhaul and Your September 21 Deadline

SBA published two proposed rules on August 20, 2026 that would collapse 995 size standards into 338 and raise thresholds across the board, making 114,541 more firms small and pulling 37,002 current federal contractors holding $71 billion in FY 2025 work into the set-aside pool. Comments close September 21. If you win set-aside work today, the competitive math on every one of those bids is about to change.

Category: GovCon News · 10 min read · Published 2026-09-03

Every small business set-aside you compete for is priced, staffed, and won against an assumption about who else is allowed in the room. On August 20, 2026, the Small Business Administration proposed to rewrite that assumption for essentially every industry in the federal market at once. Two interrelated Federal Register documents, a proposed rule on small business size standards at 91 Fed. Reg. 53741 and a revised size standards methodology notice at 91 Fed. Reg. 54096, would raise thresholds across the board, collapse the size standard table by roughly two thirds, and shift most industries from measuring revenue to counting employees.

SBA's own estimate is that 114,541 businesses that are large today would become small. Comments on both documents close September 21, 2026. That is a 30 day window on the most consequential small business contracting rulemaking in over a decade, and it closes in a matter of days.

What SBA Actually Proposed

The current size standard table at 13 CFR 121.201 uses 102 distinct size standard levels applied across 978 six-digit NAICS industries plus 18 subindustry exceptions, for a total of about 995 line items. The proposed rule would replace that with 338 size standards set at broader levels of the classification system, 276 of them at the four-digit industry group level and 62 at the five-digit industry level. That is roughly a 65 percent reduction in the number of standards a contractor or a contracting officer has to navigate.

Every exception disappears. SBA proposes to eliminate all 18 existing size standard exceptions for federal contracting. If your competitive position today depends on a subindustry exception carved out of a six-digit code, that carve out goes away and you fall under the broader group standard.

Thresholds go up, and none go down. SBA explicitly proposes not to reduce any industry size standard, even in the 45 industries where its own revised analytics would support a decrease. The only exceptions the agency contemplates are cases where a nationally dominant firm would otherwise be classified as small.

New floors, no ceilings. The proposed methodology eliminates all explicit maximum size standards and installs minimums instead: every industry gets a standard of at least 500 employees or $30.6 million in average annual receipts. A high anchor point sets a $500 million standard where average market size reaches $20 billion, but nothing caps the result.

The Methodology Behind the Numbers

The companion methodology notice is where the arithmetic changed, and it is the piece most contractors will skip. SBA's prior framework used seven factors to derive a size standard, including simple and weighted average firm size, average assets per firm, a four firm concentration ratio, a Gini coefficient, and two federal contract disparity measures. The revised methodology uses three: national industry size, number of geographic markets, and an adjustment for net imports, combined into a single average market size measure.

SBA also proposes, for the first time, to adjust receipts-based standards for productivity growth in addition to inflation, and to do so between the statutory five year reviews when necessary. In plain terms, dollar thresholds would drift upward faster than they have historically.

There is a procedural wrinkle worth noting in any comment you file. In past cycles SBA published the methodology first, collected comments, revised it, and only then published proposed size standards derived from the settled framework. Here both landed the same day with a single 30 day window, which means the public is being asked to comment on outputs before the inputs have been tested. Practitioners have flagged that sequencing as the weakest point in the record, and it is a legitimate procedural objection to raise on its own terms.

What the New Thresholds Look Like in Practice

The scale of the increases is easier to grasp through specific codes. In NAICS 541511 Custom Computer Programming Services, one of the most heavily used codes in federal services contracting, the receipts standard would move from $34 million to $531 million at the 5415 industry group level. NAICS 541611 Management Consulting would go from $24.5 million to $295 million. NAICS 541330 Engineering Services would go from $25.5 million to $252 million.

Employee-based standards rise too. Ship building and repairing under NAICS 336611 would move from 1,300 employees to 2,300. Oil and gas drilling under NAICS 213111 would go from 1,000 employees to 2,650. Semiconductor manufacturing would move from 1,250 employees to 2,800.

Some of the largest increases are outside the usual federal services lanes but illustrate the direction of travel. Other financial investment activities under NAICS 5239 would go from $47 million to $1.011 billion. Media streaming and social networks under NAICS 5162 would go from $47 million to $970 million.

Receipts to Employees Is the Change Most Firms Will Feel

Under the current framework, 496 industry standards are receipts-based. Under the proposal, only 129 would be. SBA's stated rationale is that revenue-based measurement forces firms to bounce between small and other than small status for reasons that have nothing to do with capability: a single large award, an inflationary year, a productivity gain.

For a growing contractor, this removes what the industry has long called the benefit cliff. Winning a $20 million task order under a $34 million receipts standard can end your eligibility on the next recompete. If headcount is the measuring stick instead, revenue growth from contract performance stops threatening your status. Firms that graduated out of small business status on receipts while holding headcount flat may find themselves eligible again.

The flip side is that the change is not uniformly favorable. Construction is the most visible example of an industry moving from receipts-based to employee-based measurement, and a labor intensive construction firm with modest revenue and a large field crew could find the employee count less forgiving than the dollar figure it replaced. Do not assume the switch helps you. Run both calculations against your own numbers before you decide.

What a Higher Ceiling Does Not Give You

Eligibility is not a win, and three constraints survive this proposal untouched.

Affiliation still counts everything. Under 13 CFR 121.103, SBA counts the receipts or employees of your firm and all domestic and foreign affiliates, and it finds affiliation based on the totality of the circumstances even when no single factor controls. Control is measured by the power to control, whether or not it is exercised. A larger ceiling does nothing for you if your investor's portfolio rolls up through affiliation.

Socioeconomic programs have separate gates. The 8(a), HUBZone, WOSB, EDWOSB, VOSB, and SDVOSB programs each carry their own ownership, control, management, and location requirements. None of them changes here.

Recertification rules are unchanged. A merger, acquisition, or sale that changes controlling interest still requires recertification within 30 calendar days. Long-term contracts still trigger recertification no more than 120 days before the end of the fifth year and before each later option. Under 13 CFR 125.12, the consequences of a disqualifying recertification still turn on timing relative to your offer date and on whether the award is single or multiple award.

The Squeeze on Firms That Are Small Today

SBA is candid in the rule that the greatest competitive impact falls on businesses closest in size to the firms newly classified as small. If you are a $15 million services firm that has been winning 541511 set-asides, the proposal does not take your status away. It invites companies ten and twenty times your size into your competition, many of them with mature capture organizations, deeper past performance, and dedicated proposal staff.

The countervailing argument SBA makes is about industrial base resilience. The agency notes that small businesses make up 73 percent of companies in the United States defense industrial base even as the Department of Defense small business vendor count fell 49 percent between 2010 and 2024, and it frames higher standards as a way to keep capable suppliers from aging out of the market. Both things can be true: the pool gets healthier in aggregate while individual incumbents get squeezed.

One second order effect worth watching is size protests. SBA reports that annual size protests fell from roughly 500 to 600 during 2011 through 2016 to about 300 during 2020 through 2024, a decline the agency attributes partly to prior threshold increases. Fewer, broader codes should reduce disputes over NAICS assignment over time, but the transition itself is likely to produce a spike as incumbents challenge newly eligible competitors.

What to Do Right Now

Map every NAICS code in your SAM.gov registration and your capability statement to the proposed four-digit or five-digit group that would replace it. Write down two things for each: the proposed threshold, and whether the measure switches from receipts to employees. That single table is the input for everything else on this list.

Run your size calculation twice, once on five year average annual receipts and once on the 24 month average employee count, including all affiliates. If you have investors, joint venture partners, or common management relationships, calculate the affiliated totals rather than your standalone numbers.

Check whether you currently rely on a federal contracting size standard exception. All 18 are proposed for elimination, and firms sitting inside one of those carve outs are the small group with real downside exposure in this rule.

File a comment before September 21, 2026. Use regulations.gov Docket No. SBA-2026-0199 for the size standards and Docket No. SBA-2026-0265 for the methodology. Comments that name a specific NAICS code, state the proposed threshold, and quantify the effect on a real portfolio of awards carry far more weight than general opposition. If the simultaneous publication of methodology and standards concerns you, say so on the record.

Do not change your SAM.gov size certification. Current standards remain in force until a final rule publishes, and self-certifying against a proposed threshold is a false certification.

Finally, adjust your pipeline strategy for a wider field even before the rule finalizes. Opportunities where you were one of four or five credible bidders may draw fifteen. That changes which pursuits are worth your proposal hours.

How ProposalApp Helps

The practical work this rule creates is portfolio analysis, and that is exactly what ProposalApp is built to do. Your NAICS codes drive opportunity matching, so when the proposed groupings redraw the boundaries of your industry, updating your company profile updates which solicitations reach you in the same step. Running searches across the codes that would merge into your new four-digit group is the fastest way to see the real size of the market you would be competing in, and to pull the award counts and dollar values a substantive public comment needs.

ProposalApp's bid and no-bid analysis evaluates each opportunity against your company profile, including set-aside type and size eligibility, which becomes materially more useful in a market where the competitive field on a given set-aside can change without the solicitation changing at all. In a wider field, the discipline of a structured go or no-go decision is what protects your proposal capacity. And because ProposalApp keeps your capability statements and past performance in one place, the response time you need to compete against larger newly eligible firms does not depend on rebuilding the same content for every bid.

Sources

- [Federal Register: Small Business Size Standards, proposed rule, 91 Fed. Reg. 53741 (Aug. 20, 2026)](https://www.federalregister.gov/documents/2026/08/20/2026-17042/small-business-size-standards)
- [Federal Register: Small Business Size Standards, Revised Size Standards Methodology, 91 Fed. Reg. 54096 (Aug. 20, 2026)](https://www.federalregister.gov/documents/2026/08/20/2026-17039/small-business-size-standards-revised-size-standards-methodology)
- [Regulations.gov Docket No. SBA-2026-0199, Small Business Size Standards](https://www.regulations.gov/docket/SBA-2026-0199)
- [Regulations.gov Docket No. SBA-2026-0265, Revised Size Standards Methodology](https://www.regulations.gov/docket/SBA-2026-0265)
- [Federal News Network: SBA wants to give 114,000 more companies access to small business contracts](https://federalnewsnetwork.com/acquisition-policy/2026/08/sba-wants-to-give-114000-more-companies-access-to-small-business-contracts/)
- [Holland & Knight: SBA Proposes Sweeping Overhaul of Small Business Size Standards](https://www.hklaw.com/en/insights/publications/2026/08/sba-proposes-sweeping-overhaul-of-small-business-size-standards)
- [Maynard Nexsen: SBA's August 20 Size Standards Proposal, Higher Thresholds, Fewer Industry Buckets, and a 30-Day Clock](https://www.maynardnexsen.com/publication-sbas-august-20-size-standards-proposal-higher-thresholds-fewer-industry-buckets-and-a-30-day-clock)
- [eCFR: 13 CFR 121.201, What size standards has SBA identified by NAICS codes?](https://www.ecfr.gov/current/title-13/chapter-I/part-121/subpart-A/subject-group-ECFRf12a11421b08a31/section-121.201)
- [eCFR: 13 CFR 125.12, When is recertification of size and socioeconomic status required?](https://www.ecfr.gov/current/title-13/chapter-I/part-125/section-125.12)