SBA Proposes Significant Changes to the Small Business Regulations

January 22, 2015

The Small Business Administration has proposed the most sweeping changes to the small business regulation in years.  As reported in the December 29th Federal Register the SBA is proposing changes in the Limitation on Subcontracting, affiliation, joint venture and recertification rules.  The most significant proposed changes are summarized below.

  1. Limitation on Subcontracting

Currently, recipients of a small business set-aside service contract must perform at least 50% of the costs incurred for personnel with their own employees.   (The requirement is 15% for construction and 25% for specialty construction) When the new rule is adopted, the small business primes will be required to perform at least 50% of a set aside services contract as measured by total contract value.  That means small business primes will be able to count money spent on travel or on purchasing ODCs toward meeting their required 50% of the work.  Construction and specialty construction will also be measured against total contract value instead the cost incurred for personnel.  In addition, small business prime will be able to count “similarly situated subcontractors” towards their 50% requirement.  For instance, a Woman-Owned Small Business (WOSB) can meet the 50% requirement by combining the costs of their performance as prime with the costs of any WOSB subcontractors.

Lastly the SBA is proposing a fine for violation of the Limitation of Subcontracting Rule consisting of the greater of $500,000 or the dollar amount over spent on subcontracting.

  1. Affiliation

The SBA intends to add a “presumption of affiliation” when firms that conduct business with each other are owned by married couples, parents, children and siblings.  There would also be a presumption of affiliation when one firm derives more than 70% of its annual revenue from another firm.

  1. Joint Ventures

Currently the revenue / number of employees for each Joint Venture partner is combined to determine if the joint venture meets the size standard for a given procurement.  The SBA will change this rule so that Joint Ventures can bid set aside contracts as long as both parties to the joint venture qualify as a small business under that applicable NAICS code.

  1. Re-certifications

The size recertification rule will be changed to require small business contractors to re-certify their size status when a merger or acquisition occurs while a proposal is outstanding.

Comments on the proposed rule are due February 27, 2015.  These are significant changes that affect many areas of Government contracting.  Experts predict it could take as long as a year or more for the final rule to be issued.

If you have any questions regarding this topic or other contract administration issues, please contact Tom Marcinko at 301.231.6237 or via email at