SBA Releases Semi-Annual Regulatory Agenda: The Economic Impact on Small Business Government Contractors

On July 27, 2023, the Small Business Administration (SBA) released its Semi-Annual Regulatory Agenda (Agenda) summarizing nine current and projected rulemakings. Notably, the SBA identified these rules as likely to have a significant economic impact on a large number of small businesses in the government contracting community. According to the Agenda, three rules are in the Proposed Rule Stage, three rules are in the Final Rule Stage, and three rules have been updated as Completed Actions. Below, PilieroMazza briefly describes each rule and its potential impact.

1. Proposed Rule Stage

1. 1. 203. Small Business Development Center Program Revisions

This proposed rule was open for comments during the Advance Notice of Proposed Rulemaking (ANPRM) period in 2015. According to the Agenda, the SBA plans to reopen the rule for comment in September of this year during the Notice of Proposed Rulemaking (NPRM) period.

The rule also proposes to update the Small Business Development Center (SBDC) programs by amending the following:

• procedures for approving when a new Lead SBDC Center Director is selected;
• procedures and requirements regarding findings and disputes resulting from financial exams, programmatic reviews, accreditation reviews, and other SBA oversight activities;
• procedures regarding the determination to affect suspension, termination, or non-renewal of an SBDC’s cooperative agreement; and
• provisions regarding the collection and use of the individual SBDC client data.

1. 1. 204. Small Business Size Standards: Adjustment of Alternative Size Standard for SBA’s 7(a) and CDC/504 Loan Programs for Inflation; and Surety Bond Limits: Adjustment for Inflation

This proposed rule was open for comments during the ANPRM period in 2018. On July 28, 2023, the SBA reopened this proposed rule for comment with comments closing on September 26, 2023. SBA is proposing amendments to the size eligibility criteria for Business Loans, Certified Development Company (CDC) loans under Title V of the Small Business Investment Act (504) and Economic Injury Disaster Loans (EIDL).

For the SBA 7(a) Business Loan Program and the 504 program, the amendments provide an alternative size standard for loan applicants that do not meet the small business size standards for their industries. The Small Business Jobs Act of 2010 (Jobs Act) established alternative size standards that apply to both programs until SBA’s Administrator establishes other alternative size standards.

For the EIDL program, the amendments provide an alternative size standard for loan applicants that do not meet the small business size standard for their industries.

SBA loan program alternative size standards do not affect other federal government programs, including federal procurement.

1. 1. 205. Affiliation in Small Business Procurement Programs; Women-Owned Small Business Program

According to the Agenda, the SBA plans to open this proposed rule for public comment in September during the NPRM.

Following revisions to the requirements in SBA’s 8(a) Business Development and Service-Disabled Veteran-Owned Small Business programs, SBA is issuing conforming revisions to its affiliation rules that govern all small business procurement programs and to the Women-Owned Small Business program. These revisions will ensure consistent requirements for ownership and control across SBA’s procurement programs.

2. Final Rule Stage

1. 1. 206. Small Business Timber Set-Aside Program

According to the Agenda, the final rule is expected to be issued in November of this year and amends the Small Business Timber Set-Aside program regulations.  Currently, timber sale appraisals consider haul costs to the nearest mill regardless of the mill’s size. The SBA proposed that small business set-aside timber sales be appraised to the nearest small business mill.

1. 1. 207. National Defense Authorization Act of 2020 (NDAA), Credit for Lower-Tier Subcontracting and Other Amendments

According to the Agenda, this final rule is expected to be issued in September of this year and, pursuant to Section 870 of the NDAA (Section 870), alters the method and means of accounting for lower-tier small business subcontracting. Specifically, Section 870 made three changes to the subcontracting plan requirements:

• a prime contractor may elect, in some instances, to receive credit towards its subcontracting plan for lower-tier subcontracts to small businesses;
• agencies are prohibited from setting tier-specific goals for prime contractors that use lower-tier credit; and
• subcontracting plans are required to recite the records that contractors will maintain to substantiate lower-tier credit.

The final rule would permit a prime contractor to take credit for lower-tier subcontractors but only when the subcontracting plan applies to a single contract with one federal agency.

As such, prime contractors are prohibited from receiving credit for lower-tier subcontracting where the subcontracting plan applies to more than one contract or to a single contract with more than one agency. Therefore, commercial plans and comprehensive subcontracting plans are not eligible to use lower-tier subcontracting credit and instead, must rely solely on first-tier subcontracts. Additionally, governmentwide contracts and multi-agency contracts are not permitted to use lower-tier subcontracting credit.

The final rule would eliminate the requirement that a prime contractor submit two sets of subcontracting goals—one for the first tier and one for lower tiers, and instead, permit a prime contractor to submit only one subcontracting plan that incorporates the subcontracting-plan goals of its lower-tier subcontractors.

The rule will also require prime contractors to maintain records of the procedures used to substantiate the credit they elect to receive for lower-tier subcontracting.

1. 1. 208. Small Business Size Standards: Adjustment of Monetary Based Size Standards, Disadvantage Thresholds, and 8(a) Eligibility Thresholds for Inflation

This rule was issued as an Interim Final Rule (IFR) in November of 2022 and was effective as an IFR in December of 2022. The final rule was published on July 19, 2023, and was effective the same day.[1]

The final rule finalizes, without change, the SBA’s November 2022 IFR adjusting the SBA’s monetary-based industry size standards (i.e., receipts-based and assets-based) for inflation.

Specifically, this rule finalized an additional 13.65 percent inflation increase to the industry-based monetary small business size standards to account for the inflation that occurred since the last adjustment to size standards for inflation in 2019.

Additionally, this rule finalized inflation adjustments to three program-specific receipts-based size standards:

• the size standards for sales or leases of government property (increased from $8,000,000 to $9,000,000 in average annual receipts);
• the size standards for stockpile purchases property (increased from $67,500,000 to $76,500,000 in average annual receipts); and
• the alternative size standard based on tangible net worth and net income for the Small Business Investment Company (SBIC) program (increased tangible net worth from $19,500,000 to $24,000,000 and net income from $6,500,000 to $8,000,000).

This rule also finalized inflation adjustments to the economic disadvantage thresholds applicable to the 8(a) Business Development and Economically Disadvantaged Women-Owned Small Business (EDWOSB) programs, and the dollar limit for a combined total of 8(a) contracts.

The 8(a) Business Development and EDWOSB programs were adjusted in the following ways:

• the net worth threshold increased from $750,000 to $850,000;
• the income (adjusted gross income or AGI) was increased from $350,000 to $400,000;
• the total assets threshold increased from $6,000,000 to $6,500,000; and
• the dollar limit for the combined total of 8(a) contracts increased from $100,000,000 to $168,500,000.

3. Completed Actions

1. 1. 209. Small Business Size Standards: Manufacturing and Industries with Employee-Based Size Standards in Other Sectors Except Wholesale Trade and Retail Trade

The final rule went into effect March 17, 2023, and revises the employee-based small business size definitions (commonly referred to as “size standards”) for North American Industry Classification System (NAICS) Sectors 31-33 (Manufacturing) and industries with employee-based size standards in other sectors, not to include Wholesale and Retail Trade.[2]

1. 1. 210. Small Business Size Standards: Adjustment of Monetary-Based Size Standards for Inflation

This rule went into effect December 19, 2022, and adjusts all monetary-based industry size standards (i.e., receipts-based and assets-based) for inflation since the last adjustment in 2014, while concurrently proposing, as an IFR, an additional adjustment to account for inflation since 2019 which is discussed above in 208.

1. 1. 211. Small Business Lending Company (SBLC) Moratorium Rescission and Removal of the Requirement for a Loan Authorization

This rule went into effect May 12, 2023. To bridge the financing gap in certain markets where businesses struggle to obtain financing on non-predatory terms, the SBA’s final rule lifts the moratorium on licensing new SBLC which has been in place since January of 1982, and adds a new type of lending entity referred to as a Community Advantage SBLC. The rule also removes the requirement for a Loan Authorization in the 7(a) and 504 Loan programs.

As discussed above, certain rules are expected to open for public comment later this year or are currently open for public comment. Please direct general comments or inquiries to Lindsey McCready, Small Business Administration, at 202.401.2996 or at  [email protected].

Attorneys in PilieroMazza’s Government Contracts Group will continue to monitor developments related to these rules. If you have questions, please contact the authors of this blog, Katie Burrows or Cy Alba, or another member of the Firm’s Government Contracts Group.

Looking for practical insights on gaining a competitive advantage through a deeper understanding of the government’s compliance requirements? Check out PilieroMazza’s podcasts “GovCon Live!” and  “Clocking in with PilieroMazza.”

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[1] While the SBA’s agenda provided that final action would be taken in June 2023, the final rule was published on July 19, 2023.

[2] To find out more about which sectors were impacted by this rule, it is published in the Federal Register and is available here.