SBA proposes small business size-standards overhaul

SBA proposes a sweeping rewrite

On August 20, 2026, the Small Business Association (SBA) issued two related rules: (1) the Revised Size Standards Methodology (91 Fed. Reg. 54096), which explains the proposed changes to SBA’s methodology for establishing size standards and (2) a proposed rulemaking (91 Fed. Reg. 53741) that applies the new methodology and revises the size standards table at 13 C.F.R. section 121.201. The methodology defaults to employee-based standards where the SBA has discretion and removes the prior cap on how high an individual size standard may be set. The implementing rule would consolidate roughly 1,000 six-digit standards into 338 standards at the four- and five-digit North American Industry Classification System (NAICS) levels; raise thresholds for most industries; shift certain industries between receipts- and employee-based measurement; and eliminate all current size-standard exceptions.

The SBA estimates the changes would result in approximately 114,541 additional businesses to qualify as small, including 37,002 firms currently holding more than $71 billion in FY 2025 federal contracts. The SBA did not propose to decrease any existing size standard. These proposals follow the SBA’s comprehensive audit of the 8(a) Business Development Program and its August 11, 2026 final rule (91 Fed. Reg. 51568), effective September 10, 2026. That rule removes the rebuttable presumption of social disadvantage for individually owned 8(a) firms but does not affect entity-owned 8(a) firms. The size-standard proposals remain subject to revision, and no effective date has been established.

Where the new standards could matter most

Although most industries retain their measurement basis and generally receive a higher threshold, the proposed changes result in dramatic increases to the applicable size thresholds for certain industries:

• Cyber and professional services: Computer systems design and related services (proposed NAICS 5415) would move to $531 million in receipts versus current standards of $34 million–$37 million. Management, scientific, and technical consulting (proposed NAICS 5416) would rise to $295 million from $19 million–$29 million. Engineering services (proposed NAICS 54133) would rise from $25.5 million to $252 million, and architectural services (proposed NAICS 54131) from $12.5 million to $135 million.
• Software: Proposed NAICS 5132 – Software publishers (currently NAICS 513210) would shift from a $47 million receipts standard to the highest employee-based standard at 3,600 employees.
• Aerospace and defense: Aerospace product and parts manufacturing (proposed NAICS 3364) would become a single 2,800-employee standard versus the current standard of 1,050–1,500 employees. Similarly, navigational, measuring, electromedical, and control instruments manufacturing (proposed NACIS 3345) would become 2,000 employees.
• Shipbuilding: Proposed NAICS 3366 would consolidate shipbuilding and boat building at 2,300 employees versus current standards of 1,300 and 1,000, respectively.
• Construction: One of the most consequential changes may be the conversion of building, heavy civil, and specialty trade construction from receipts to employees. Proposed standards range from 550 employees for residential construction to 2,000 for oil and gas pipeline construction. A contractor that is small under the current $45 million receipts standard could therefore become other-than-small based on headcount – and vice versa. The measurement periods also differ: receipts are averaged over five fiscal years under section 121.104, while employees are averaged over the preceding 24 months under section 121.106.

What changes for existing contracts and joint ventures?

Size generally is determined as of the initial offer that includes price. Accordingly, an existing contract does not automatically become ineligible for small business treatment when the SBA changes a size standard. The revised standards could, however, affect recertification under 13 C.F.R. section 125.12, including the following:

• A merger, acquisition, or sale resulting in a change in controlling interest
• The five-year mark of a long-term contract and each subsequent option
• A contracting officer-required recertification
• Under FAR 19.301-2, certain novations and re-representations for set-aside orders under multiple-award contracts (with an express exception for Federal Supply Schedule orders)

A recertification does not alter the award’s existing terms, and limitations on subcontracting and similar requirements applicable at award continue to apply. But the size determination uses the size standard in effect at recertification for the NAICS code originally assigned to the award. The same analysis matters for joint ventures. The small business partner must satisfy the applicable size standard under section 125.8 (small business set-aside joint ventures); section 124.513 (8(a) (Business Development Program); section 128.402 (Veteran-Owned Small Business or Service-Disabled Veteran-Owned Small Business); section 126.616 -(Historically Underutilized Business Zone); or section 127.506 (Women-Owned Small Business or Economically Disadvantaged Women-Owned Small Business). Mentor–protégé joint ventures (JVs) remain eligible where the protégé is small under the solicitation’s size standard (FAR 19.301-1(a)(2)). At recertification, a JV may recertify as small if all parties qualify as small or, for an active mentor-protégé JV, the protégé qualifies as small.

Recertification creates new risk

The proposed changes come amid heightened SBA oversight, including the January 2026 suspension of 1,091 8(a) firms and review of small business, sole-source, and set-aside awards exceeding $20 million. Each recertification is a new representation under FAR 19.301-2, and a reckless re-representation could result in heightened False Claims Act exposure. If finalized, the new standards warrant a fresh size analysis at recertification, particularly where a contractor’s NAICS code is consolidated or its measurement basis changes.

What contractors should do now

The SBA’s proposed rules could affect virtually every federal contractor, including businesses that currently qualify as small. The proposed changes may alter eligibility for set-aside opportunities, the competitive landscape, and the structure of subcontracting and teaming arrangements. Although expanding the pool of eligible small businesses could create additional set-aside opportunities, it also may increase competition for businesses that currently fall within the applicable size standards.

Contractors should begin evaluating the proposed framework now by identifying the applicable NAICS group, recalculating size under the proposed measurement methodology, and assessing any changes to the measurement basis or elimination of existing exceptions. These steps will help contractors to determine whether, and to what extent, the proposed rules could affect their small business status, contracting eligibility, and future opportunities. Comments on the proposed rules are due September 21, 2026.

We will continue to monitor these developments and assist clients in assessing their potential impact on small business status, joint ventures, recertification obligations, subcontracting and teaming arrangements, and eligibility for federal contracting opportunities.

Client Alert 2026-182