New Law Extends the Benefits of Being a Small Business

Earlier this week, President Trump signed a bill (H.R. 6330, the Small Business Runway Extension Act of 2018) that could expand the ability of small businesses to get U.S. Government contracts.

Many Government procurements are set aside for small businesses. Also, unrestricted procurements, i.e., those that are not set aside, often require large businesses to set aside a percentage of subcontract dollars for small businesses. These types of contracts and subcontracts are a good way for small businesses to break into the Government contracts market.

Depending on the procurement, a contractor's size status is determined in one of two ways: either by the average number of employees it had over the previous twelve months, or by its average revenues over the previous three years. Under the latter method, a company that has an uncharacteristically big year that pushes the company’s average revenues above the applicable threshold can lose the benefits of being a small business. This can be very harmful to a contractor that is not ready to compete against larger companies in unrestricted procurements.

The Small Business Runway Extension Act of 2018 amends the Small Business Act to allow companies to use their average revenue from the last five fiscal years for the purposes of determining whether they qualify as a small business, rather than the previous standard of three years. That means that one exceptionally good year will have less of an impact on a company whose revenues are usually below the applicable size threshold.

That is all the very short bill does. It does not make any changes to the size standards themselves. Thus, both small businesses and the large concerns that subcontract with them will still have to be familiar with those standards and with the rules regarding size status determination and affiliation. Those rules can be complicated, and contractors that don't understand them risk losing their hard-won contracts as a result of a competitor's size protest.