On September 10, 2014, the U.S. Small Business Administration (“SBA”) issued two proposed rules to increase employee-based size standards for manufacturing and various other industries in connection with the agency’s ongoing review of existing size standards.  The SBA has the discretion to establish size standards as a threshold under which firms are eligible to participate in small business programs, including contract set-asides.  The SBA analyzes the characteristics of specific industries, such as average firm size and the small business share of revenue from federal contracts, to determine which size standard is most appropriate for a particular industry.  Based on an application of this analysis to recent data, the SBA is proposing to increase size standards for 239 industries, which would enable approximately 1,630 new firms to participate in small business programs.  In addition, the SBA is proposing to establish a new 1,250 employee size standard, allowing for a more precise classification of larger small businesses, and to remove or modify a number of unique size standards applicable to specific sub-industries.

The proposed rules are the products of a statutory mandate in 2010 requiring the SBA to review all size standards by 2015, after which the SBA must periodically review size standards every five years.  The last comprehensive review of existing employee-based size standards took place in the late 1970s and early 1980s.  Since that time, the vast majority of employee-based size standards have not been subject to review.  As the SBA itself recognizes, existing employee-based size standards are “no longer supportable” when compared to economic realities in a number of industries.


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