On August 20, 2026, the U.S. Small Business Administration (SBA) proposed major changes to the size standards businesses use to determine whether they qualify as “small” for federal programs and contracting opportunities. At the same time, SBA proposed changes to the methodology it uses to set those standards. One proposal would change the size standards themselves; the other would change how SBA determines them going forward. Comments on the proposed rules were originally due September 21, 2026, but SBA recently extended the comment period, with a new deadline to submit comments by November 20, 2026.
The Proposed Rule on Small Business Size Standards proposes new limits for 338 industry groups and industries. SBA also released a Notice of Availability of Revised Size Standards Methodology which details how SBA wishes to establish, review, and modify size standards. This proposed methodology was applied to develop the new standards that are proposed in the concurrent rule on small business size standards. SBA considers these two rules to be a “comprehensive overhaul of its small business size standards.”
Although federal law requires SBA to review size standards every five years, these actions are more than a routine inflation adjustment. Together, these proposals could affect eligibility for small-business set-asides, SBA programs, subcontracting plans, certifications, joint ventures, mentor-protégé arrangements, and acquisition strategies. Fluet’s experienced Government Contracts team is closely tracking SBA developments and can help your organization identify opportunities and risks in this evolving regulatory environment. Below are five things government contractors should analyze now.
- The size-standards table would be substantially consolidated.
The current rule defining size standards at 13 C.F.R. § 121.201 uses a highly granular North American Industry Classification System (NAICS)-based table, generally organized around six-digit NAICS industries, with numerous special rules and exceptions for particular industries and procurement contexts. The proposed rule would replace much of that structure with only 338 size standards covering broader industry groupings and industries by reducing the total number of similar industry categories by approximately 65%. SBA would move from nearly 1,000 current standards to 338 proposed standards, consisting of 276 standards at the four-digit NAICS industry-group level and 62 standards at the five-digit NAICS industry level.
NAICS codes are hierarchical, with each additional digit identifying a more specific type of business activity. A four-digit code identifies an “industry group,” a five-digit code identifies a narrower “NAICS industry,” and a six-digit code identifies the most specific “U.S. industry.” For example, NAICS 5415 covers Computer Systems Design and Related Services, while the six-digit codes beneath it distinguish among familiar types of federal IT contractors: 541511 covers custom computer programming contractors, 541512 covers computer systems design and integration contractors, 541513 covers contractors that manage and operate customers’ computer systems or data-processing facilities, and 541519 covers other computer-related service providers.
That distinction matters because SBA currently sets separate size standards for these six-digit industries. Under the proposal, all four would instead be subject to the broader four-digit NAICS 5415 size standard of $531 million in annual receipts. The businesses would still use different six-digit NAICS codes based on the work they perform, but a custom programming contractor, a systems integrator, and a computer-facilities management contractor would all be measured against the same broader size threshold when determining whether they qualify as small.While the intention is to remove regulatory complexities, businesses that currently analyze small business eligibility at a six-digit NAICS level may need to reassess size status at a broader four- or five-digit level. This could simplify the table but may also produce major changes for companies using a six-digit NAICS code with a unique threshold. Importantly, six-digit NAICS codes are not disappearing, and contractors will still need to pay attention to them in contracting pursuits. SBA is just changing how it views the applicable markets for its programs.
- Higher thresholds would expand small-business eligibility.
SBA estimates that the proposed rule would increase the number of eligible small businesses from 6,344,967 firms to 6,459,508 firms, a net increase of 114,541 firms, or about 1.8%. Of those 114,541 firms, the SBA estimates 37,002 already participate in the federal marketplace. In addition to expanding small business eligibility, the proposed rule is designed to avoid widespread reductions. Although SBA’s methodology produced some lower standards, SBA stated that it intentionally chose to deviate from the methodology to keep standards from decreasing where the same size measure continues to apply. However, some companies may still lose small business size status where the size standard was switched from receipts-based to employee-based.
The effect will be more firms qualifying as “small” for SBA programs, federal small-business set-asides, subcontracting plans, and other regulatory benefits. For example, under the current rule, the size standard for NAICS code 336611 Ship Building and Repairing is 1,300 employees. Under the proposed rule, the size standard will be 2,300 employees. So, a business operating in that NAICS code with 1,800 employees would fall below the proposed threshold and qualify as “small.” Companies that may be approaching the size standard thresholds may continue to qualify as small business longer than expected under the proposed rule. SBA’s goal is to reward the growth of small businesses, rather than force successful companies out of small business eligibility prematurely. However, incumbent small businesses may face increased competition from larger newly eligible firms.
The revised methodology could also produce size standards substantially above today’s ceilings. SBA’s current methodology generally uses a maximum of 1,500 employees for employee-based standards and $47 million for receipts-based standards. The proposed methodology would eliminate an explicit maximum and instead allow the calculated size standard to continue increasing as the relevant market grows. For some industries, this could mean that companies substantially larger than businesses that are currently small would become eligible.
- Many industries would shift from receipts-based to employee-based standards.
The current table at 13 C.F.R. § 121.201 uses a mix of annual receipts, number of employees, and some special measures, depending on NAICS code. The proposed rule would convert many currently receipts-based industries to employee-based size standards. Under the proposed rule, the number of receipts-based industry standards would drop significantly, from 496 current receipts-based industry standards to 129.
The difference can be significant for contractors. A company with relatively high revenue but a lean workforce may fare better under an employee-based standard. In contrast, a labor-intensive company with lower revenue but a large workforce may experience the opposite result. SBA believes that using employee-based standards can help account for anomalies in big awards, even when the composition of the company stays the same.
This is one of the most consequential changes. A company that currently measures size by average annual receipts may instead need to calculate size based on average number of employees. Using a new standard can change eligibility outcomes dramatically, especially for companies with high revenues but relatively lean headcount, or companies with lower revenues but labor-intensive operations.
Of note, how employees are counted will also matter. SBA generally counts full-time, part-time, and temporary employees, including certain workers provided through staffing or employee-leasing arrangements, and includes employees of affiliates. Businesses that rely heavily on contractors or contingent workers should not assume those workers are excluded based solely on how they are classified or paid. Companies affected by a switch from receipts to employees should therefore recalculate their size rather than assume the change will be favorable.
- SBA would eliminate special size-standard exceptions.
The current rule includes numerous footnotes and special exceptions. Examples include special rules for dredging, petroleum refining, leasing of building space to the federal government, IT value-added resellers, and others. The proposed rule would remove all size-standard exceptions. This means special subindustry or procurement-specific size standards would generally be folded into the broader new framework.
This could significantly affect contractors that currently rely on a special exception. For example, IT value-added resellers, facilities support, leasing, or other exception-heavy areas may need a careful NAICS-by-NAICS review. The proposed rule would simplify administration, but it may also eliminate tailored treatment for industries where SBA previously recognized distinctive procurement or market conditions.
Contractors that currently rely on a special size-standard exception should identify what standard would replace it under the proposal. Although SBA expects most affected businesses to remain small, eliminating these exceptions could change the eligibility analysis for companies in certain industries.
- The methodology would change—not just the numbers.
SBA published its related methodology alongside the proposed rule on size standards. The two documents are intended to be read together. This proposed rule is unique as it is not just a routine inflation adjustment. SBA is proposing a revised methodology to better reflect market structure, industry competitiveness, and current economic conditions. The proposed rule would update the factors used to calculate size standards, revise the process for translating those factors into size standards, and add a productivity-growth adjustment for receipts-based size standards. The receipts-based size standards were most recently adjusted for inflation on November 17, 2022, but for the first time SBA proposes to adjust all receipt-based standards for inflation and productivity growth in the economy.
Per SBA, using productivity growth as a factor will provide a more complete assessment of small business size than just using inflation alone. SBA measures inflation using the GDP price deflator from the Bureau of Economic Analysis. To calculate inflation plus productivity, SBA will measure using GDP divided by total employment from the Bureau of Economic Analysis and Bureau of Labor Statistics respectively.
In practice, the revised methodology could allow receipts-based size standards to rise over time not only with prices, but also with economy-wide gains in output per worker. Contractors should therefore avoid treating the proposed thresholds as one-time numerical changes and should model how future adjustments could affect their small-business eligibility, acquisition pipelines, teaming arrangements, and competitive position.
What government contractors should do now:
Government contractors and other SBA program participants should use the extended comment period to assess how the proposed rule would affect their current and anticipated work. At a minimum, companies should:
- Map every NAICS code used for current contracts and near-term pipeline opportunities to the proposed four- or five-digit grouping.
- Recalculate size under any proposed change from receipts to employees.
- Identify certifications, joint ventures, mentor-protégé relationships, and subcontracting plans that depend on current eligibility.
- Review any special exception on which the company currently relies.
- Prepare data-supported comments on the proposed threshold, measurement method, or industry grouping before November 20, 2026.
Comments will be most useful when supported by practical industry data, such as typical revenues, employee counts, contract sizes, and the size of companies that compete for the same work. The proposal may create new opportunities for some firms while increasing competition or changing eligibility for others. A targeted review now will help companies understand the business impact and decide whether to submit comments before SBA finalizes the rule.
