Everyone in my feed is talking about it: the proposed changes to the SBA size standards.
On August 20, SBA published a proposed rule that rewrites small business size standards across the entire economy (91 FR 53741, RIN 3245-AI67). Comments close September 21. This is the third five-year review required under the Small Business Jobs Act, and SBA did not tinker at the margins. The agency collapsed 978 industry standards and 18 subindustry exceptions into 338 standards set at the 4- and 5-digit NAICS level. They shifted 208 industry groups onto employee-based measures and deleted the maximum size standard entirely (the old ceilings were $47 million in receipts and 1,500 employees). And they added a productivity adjustment on top of inflation for the first time in the program’s history. It also declined to lower any of the standards, including in the 45 industries where SBA’s own analysis said the number should come down.
The proposal moves the small business population from 6,344,967 firms to 6,459,508, a net increase of 114,541. For an administration that claims to want more small businesses, some might see that as a win. But almost nobody is sharing this number 37,002. That’s the number of firms that held contracts in FY2025, that would become newly eligible small businesses. Those firms accounted for 105,655 contracts worth more than $71 billion.
Those are not startups. Those are not new entrants. That is not even new competition, it’s seasoned contractors that get reclassified in a set-aside status.
Looking at where a lot of those companies land is helpful (to me anyway). There are 5,314 Engineering Services firms (541330) with current contracts that become small. 2,247 in Other Computer Related Services (541519). 2,171 firms in Custom Computer Programming (541511), 1,818 firms in Administrative Management and General Management Consulting (541611), and 1,663 firms in Computer Systems Design (541512) are also becoming small. These companies have active CPARS ratings, DCAA-compliant accounting systems, cleared staff, standing GWAC seats, and proposal shops that don’t have to ask what a Section L is. Many of them spent the last decade graduating out of small business status and building the infrastructure to survive without it. Now they walk back through the door carrying it all. Talk about punching above your weight!
SBA’s rule states that growing small businesses closest to the current thresholds will face the greatest competition from newly eligible firms. Those are the companies chasing the same work. If your firm sits at eighty percent of your current standard and your pipeline runs on set-asides, SBA just told you that you to plan on absorbing the impact.
But don’t worry! SBA also offered some reassurance. In one sentence across all 44 pages, SBA says the number of small businesses receiving federal contracts will not be reduced. In other words, the number of small business set-asides isn’t expected to be reduced. The competition for them is just going to go straight up!
Federal agencies obligated more than $883 billion in FY2025 and awarded a record $179 billion in small business prime dollars in FY2024. Unfortunately, widening eligibility does not create new requirements; there are no new appropriated funding dollars, and probably no additional awards. There won’t be additional funds to go to small businesses, just more “small businesses” for existing funds to go to. The requirement counts stay flat while the qualified bidder pool grows by roughly two percent nationally and far more than that inside the professional services codes where most of us live.
But fear not (kind of): The SBA highlighted the upside for contracting officers. The agency calculated that a shorter, simplified rule saves five hours and fifty minutes of reading time. That’s worth a whopping $219.57 per reader at June 2026 average hourly earnings, across roughly 37,600 contracting officers. That level of precision on reading time, in a rule that reshapes the entire small business industrial base, tells you something about which impacts got modeled and which ones got effectively ignored.
What about the defense?
For years, the size protest functioned as a competitive instrument. So did NAICS assignment arguments, and so did the exceptions that were carved out under specific six-digit codes. All three shrink under this proposal. Consolidating to 338 standards eliminates most of the gray area between adjacent codes (SBA uses shipbuilding versus boat building as its own example), and the rule removes every subindustry exception, including the information technology value-added reseller exception that many resellers have built their entire capture posture around. Size protests have already dropped from 500-600 per year in the 2011 to 2016 window down to roughly 300 annually between 2020 and 2024. Fewer standards and no exceptions mean fewer arguments left to make after award.
The conversions cut in both directions, too. If your standard moves from receipts to employees, a lean, high-revenue firm gains room. A staffing-heavy, field-services, or seasonally scaled firm can gain revenue headroom and still trip an employee count it never had to track before. Companies in these situations need to do some modeling of what these impacts would be, now, not during the holiday hiring surge.
This is why, if this rule passes, capture will be even more critical than it has been in the past.
Set-aside eligibility has never been a win strategy. It’s just a filter that determined whose proposal got evaluated. When that filter widens by 114,541 firms and 37,000 of them arrive with real past performance, that filter stops doing any meaningful work for you. What separates winners from participants is everything that happens before the solicitation posts.
Here is what I tell every client. Capture is the discipline of being known, credible, and specifically relevant to a named program office before that office writes the requirement. It’s reading the budget justification and the posture hearing testimony to find out what that customer is actually being held accountable for, then building your value statement against those mission achievement factors instead of your capability list. It’s knowing the incumbent’s weakest CPARS narrative. And it’s having your teaming decisions made before the sources sought hits, not scrambled together in the four days after.
Here are some things you can do in the next 90 days to posture:
- Model your size status under both the current and proposed standards.Pull your consolidated four-digit code, run your trailing five-year receipts and your trailing 24-month average headcount, and find out whether you gain headroom, gain competitors, or both.
- Rebuild your competitive set from SAM.gov and USASpending, not from memory. Filter FY2025 awards in your primary NAICS for firms that were other-than-small and will not be. That list is your new bid board reality.
- Move your effort left of the RFP. Reallocate proposal hours into pre-solicitation engagement, RFI responses that shape language, and industry day conversations where you learn the evaluation logic before it is written down.
- File a comment before September 21.SBA is asking, the docket is open, and the agency responds to specific operational details far better than to general objection. Silence here is a choice.
The set-aside is not going away. It is getting crowded, and crowded markets reward the firms that showed up early and knew the customer by name. If your growth plan for FY2027 depends on being eligible, you do not have a growth plan. You have a registration.