Type: Law Bulletins
Date: 01/07/2019

Small Business Runway Extension Act of 2018 Amends Size Standard Calculation Period

On Dec. 17, 2018, the president signed the Small Business Runway Extension Act of 2018 (the Act) into law. This two-sentence Act accomplishes a very large goal: changing the calculation period for revenue-based size standards from a three-year period to a five-year period.

The SBA designates size standards for industries under the North American Industry Classification System (NAICS) based upon two primary factors: a firm’s number of employees over the past twelve months or a firm’s average annual receipts over a specified period. Prior to the Act, a firm’s three most recently completed fiscal years was the period used to calculate its average annual receipts.

Based upon the new size standard calculation, all federal contractors bidding on small business set-aside procurements should reevaluate their size under the new five-year average calculation. Firms that are on the cusp of eclipsing the small business status based on the previous three-year average revenue calculation may once again be eligible to certify as small. Overall, this change should allow more firms to qualify as a small business for federal contract procurement purposes, for a longer period of time.

The Act does not contain an effective date. The absence of an express effective date has been interpreted by federal courts to mean the legislation takes effect on its enactment date. However, based on an SBA Information Notice issued on Dec. 21, 2018, the SBA believes the Act is not effective until the implementing regulations in 13 CFR Part 121 have been revised. The SBA Information Notice states in part:

The change made by the Runway Extension Act is not presently effective and is therefore not applicable to present contracts, offers, or bids until implemented through the standard rulemaking process. The Office of Government Contracting and Business Development (GCBD) is drafting revisions to SBA’s regulations and forms to implement the Runway Extension Act. Until SBA changes its regulations, businesses still must report their receipts based on a three-year average.

As a result, the SBA will continue to apply the three-year average standard for size eligibility until its regulations are revised. So while Congress had hoped to immediately lengthen the amount of time a firm could qualify as a small business for federal contract procurements, the SBA has now delayed that opportunity for many firms for an unknown period of time while it makes changes to its regulations.

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