On August 22, 2025, the U.S. Small Business Administration (“SBA”) published a notice of proposed rulemaking under which the SBA proposes to increase revenue-based size standards for 263 industries (the “Proposed Rule”). The Proposed Rule is one of two rules for this series of the SBA’s size standard review, focusing exclusively on revenue-based size standards, with a second proposed rule addressing employee-based size standards expected soon.

Comments are due October 21, 2025.

Summary

The SBA is not proposing to reduce any size standards, and many size standards are remaining the same. The proposed rule, however, does seek to increase the size standards for the following industries, which are commonly used NAICS codes:

The SBA is seeking comments on its proposal to retain the current $47 million size standard for the Marine Engineering and Naval Architecture Exception to NAICS 541330, even though the data supports a lower $26 million calculated size standard.

Discussion

The Small Business Act was passed by Congress to provide federal assistance to small businesses by directing federal agencies to set aside a certain amount of federal contracting dollars and contracting opportunities for small businesses. To determine eligibility for small business assistance, including for contracts awarded under the SBA’s 8(a) and HUBZone programs, businesses must qualify as “small” under the applicable size standard set by the SBA for each code assigned by the North American Industry Classification System (NAICS) to different economic or industry types (“NAICS code”).

There are two types of size standards – revenue and number of employees – and each NAICS code is assigned only one type of size standard. For revenue-based size standards, a business concern’s size is determined by taking the average gross revenue (as reported on tax returns) of the business plus all of its affiliates for the prior five (5) years. For an employee-based size standard, a business’s size is based on the average number of employees for the business plus all of its affiliates for each of the pay periods for the preceding completed twenty-four (24) calendar months. Size standards play two roles in the federal procurement process. First, for businesses seeking certification under a specific small business program (i.e., 8(a), WOSB, SDVOSB), the SBA considers the self-selected primary NAICS code of the business, as set forth on the Sam.gov registration for the business to determine size eligibility for the applicable small business program. Second, when submitting a proposal plus price for a specific small business set-aside contract, the offeror business must also qualify as small for the NAICS Code assigned to that contract solicitation. If a business concern is not small under the applicable size standard in either case, it is not eligible to receive the contract.

As an example, NAICS code 541330, Engineering Services, currently has a revenue-based size standard of $25,500,000. As such, the average gross revenue of a business plus all affiliates for the past five years must be below $25,500,000 for the business to be eligible to receive a federal contract that has been assigned a NAICS code of 541330 and set aside for small businesses.

The SBA is required to review size standards every five years to (1) make necessary adjustments to reflect current industry and market conditions, (2) adjust revenue-based size standards for inflation, and (3) adopt the Office of Management and Budget’s (OMB) quinquennial NAICS revisions to its table of small business size standards. These reviews need not happen simultaneously.

To determine the need to revise size standards for each industry, the SBA assesses the competitiveness of an industry and of firms within the industry by (1) examining the industry structure, including average firm size, degree of competition within an industry, start-up costs and entry barriers, and distribution of firms by size; and (2) for each industry averaging at least $20 million in annual Federal contract dollars, by measuring two competition ratios: first, the ratio between the percentage of total contracts dollars of the specific industry awarded to small businesses relative to the percentage of small businesses making up the total population of businesses capable of performing those contracts; second, the ratio between the percentage of total contracts dollars across all industries awarded to small businesses relative to the percentage of total contracts dollars of the specific industry awarded to small businesses.

Based on the SBA’s review of 513 revenue-based size standards, the SBA proposes to increase 263 size standards, retain 249, and remove one exception. The SBA proposed increases for the following industries:

• • Agriculture, Forestry, Fishing, and Hunting – 29 proposed NAICS Code increases
  • Mining, Quarrying, and Oil and Gas – 1 proposed NAICS Code increase
  • Utilities – 2 proposed NAICS Code increases
  • Construction – 4 proposed NAICS Code increases
  • Retail Trade – 32 proposed NAICS Code increases
  • Transportation and Warehousing – 7 proposed NAICS Code increases
  • Information – 7 proposed NAICS Code increases
  • Finance and Insurance – 9 proposed NAICS Code increases
  • Real Estate and Rental and Leasing – 10 proposed NAICS Code increases
  • Professional, Scientific and Technical Services – 31 proposed NAICS Code increases
  • Administrative and Support and Waste Management and Remediation Services – 23 proposed NAICS Code increases
  • Education Services – 14 proposed NAICS Code increases
  • Health Care and Social Assistance – 29 proposed NAICS Code increases
  • Arts, Entertainment, and Recreation – 15 proposed NAICS Code increases
  • Accommodation and Food Services – 10 proposed NAICS Code increases
  • Other Services – 33 proposed NAICS Code increases

A full list of the proposed increases can be found here.

For construction industry NAICS Codes, the SBA calculated the size standard to be above the current size standard for four of the Construction industry NAICS codes, all of which the SBA proposed to increase (221310, 221330, 238120, 238290). Specifically, for NAICS code 238120, Structural Steel and Precast Concrete Contractors, the SBA proposed a relatively nominal increase of $500,000, proposing an increase to the current size standard of $19 million to $19.5 million. By contrast, out of the 33 Construction industry NAICS codes reviewed, the SBA calculated the size standard to be below the current size standard attributable to that NAICS code, yet none were proposed for decrease. For example, the SBA calculated the size standard for NAICS Code 237990, Other Heavy and Civil Engineering Construction, to be $30 million, but chose to retain the current size standard of $45 million for that NAICS Code.

For Engineering Services—NAICS 541330—the SBA calculated an increase in the current size standard of $25.5 million to $29 million, and proposes to adopt the increased size standard of $29.9 million. However, NAICS 541330 has three exceptions for (1) Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992 (the “CSES-NEPA Exception”), (2) Military and Aerospace Equipment and Military Weapons (he “MAEMW Exception”), and Marine Engineering and Naval Architecture (the “MENA Exception”). The SBA calculated the size standards for both the CSES-NEPA Exception and the MAEWA Exception as $41 million and the size standard for the MENA Exception as $26 million. The current size standards for all three NAICS 541330 exceptions are currently $47 million, which the SBA proposes to retain despite the lower size standard calculations. The SBA specifically requests comments on its proposal to retain the current $47 million size standard for the MENA Exception, even though the data supported a lower $26 million calculated size standard, as compared to a $29 million calculated/proposed size standard for overall NAICS 541330.

In total, the SBA calculated a decreased size standard for 213 industries. However, rather than addressing industry- or NAICS code-specific justification for not decreasing size standards in accordance with the SBA’s calculations, the SBA offered general justifications applicable to the full proposed rule related to the downstream effects caused by businesses losing their small business status. Specifically, the SBA stated that decreasing size standards for 213 industries/subindustries based on their decreased size standard calculations would force approximately 7,900 businesses to lose their small business designation in industries covered by this proposed rule. The SBA further stated that the loss of small business designations for so many businesses could have the following effects:

(1) negatively impact government contracting as a whole, particularly in terms of access, competition, contract fulfillment, and the Federal Government’s ability to meet its Congressionally mandated small business procurement goals;

(2) disrupt subcontracting and supply chains by reducing the number of viable small business subcontractors for large Government contracts and creating difficulties for large prime contractors to meet their small business subcontracting goals;

(3) harm businesses that lose their small business status by creating difficulties in accessing capital through SBA-backed loans and benefits from other support programs;

(4) harm businesses that lose their small business status by forcing them to compete at a disadvantage against larger corporations for unrestricted government contracts;

(5) harm employees and job creation by forcing businesses that lose their small business status to reduce hiring, downsize, reduce workforce, and cease new hiring initiatives;

(6) negatively impact the broader economy by forcing small businesses to downsize or shut down due to the loss of small business status;

(7) stifling competition and innovation by impeding the government’s access to cutting-edge technologies and approaches that larger small businesses often have due to access to and use of resources to invest in research and development (R&D); and

(8) harm the defense industrial base and national security by shrinking the pool of eligible and qualified defense contractors and exacerbating the ongoing contraction of the DoD small business vendor base, weakening the defense supply chain, create loss of highly capable, and strategically important firms and limit the DoD’s access to critical technologies and reduce the overall competitiveness of U.S. defense capabilities; and

(9) decrease the overall small business industrial base.

The SBA did not identify how its January 2025 announcement, reducing the prime contracting goal for Small Disadvantaged Businesses (SDBs) from 15% to the statutory 5% had any mitigating impact on the aforementioned justifications.

‎Comments are due in response to the Proposed Rule on or before October 21, 2025.

The opinions expressed herein are solely those of the author. This article does not constitute legal advice. For legal advice for your situation, you should contact an attorney.