The Small Business Administration (SBA) has extended the comment period to November 20, 2026, for its two concurrent August 20, 2026 Notices of Proposed Rulemaking (NPRMs). The NPRMs are intended to address how SBA determines what constitutes a “small business.” Docket SBA-2026-0265 revises the methodology SBA uses to calculate size standards, while Docket SBA-2026-0199 proposes the actual size standards.

Why Is SBA Changing Its Size Standards?

SBA considers the current framework insufficiently focused on the statutory requirement that a small business be one that is “not dominant in its field of operations.” SBA’s proposed methodology consequently focuses much more closely on the size and geographic scope of the actual market in which firms compete. Under the existing 2024 methodology, SBA considers seven factors in developing size standards, including average firm size, assets, industry concentration, distribution of firms by size, and federal-contracting disparity measures.

SBA is proposing to redefine “small” around the scale of the competitive market rather than primarily around the characteristics of firms occupying individual six-digit NAICS industries. It would consolidate NAICS standards, favor employee-based measurements, remove explicit upper caps, account for productivity in receipts-based thresholds, and prevent reductions from current size standards.

Five Key Changes in SBA's Proposed Rules

The proposed rules make five fundamental changes:

1. Broader NAICS Categories Instead of Six-Digit Standards

SBA proposes moving away from setting standards predominantly at the six-digit NAICS level. SBA would establish standards using a combination of four- and five-digit NAICS categories, resulting in 338 individual size standards rather than nearly 1,000. 

The proposal would also eliminate the existing size-standard exceptions associated with particular industries or federal contracting situations.

What this means: Companies in different six-digit NAICS industries could end up under the same, broader industry-group standard.

2. Shift toward employee-based standards.

Under SBA’s current size determination criteria, SBA generally uses receipts for industries other than manufacturing, subject to various exceptions. The proposed rules reverse that presumption and default to an employee-based standard wherever SBA has discretion to do so.

SBA’s stated rationale is that employee counts provide greater stability and reduce fluctuations in a company’s size status. A receipts-based company can move above or below the size standard because of an unusually large contract award, business volatility, inflation, or productivity growth, even though its actual competitive scale has not necessarily changed materially.

3. Replace the existing multi-factor methodology with an “average market size” analysis

SBA proposes reducing its seven-factor approach to three components:

1. National industry size: the total size of participants in the industry, including for-profit businesses, nonprofit entities, and government-owned entities.
2. Number of distinct geographic markets: an estimate of how many separate geographic markets exist within the national industry.
3. Imports/exports adjustment: an adjustment intended to account for international competition faced by domestic firms.

Those components generate what SBA calls an “average market size.” SBA then converts the average market size into a size standard using a single function. The theory is that a smaller average market should have a smaller size standard, while a larger average market should have a larger size standard. SBA reasons that a business needs less scale to become dominant in a relatively small market, whereas a company operating in a large market can grow considerably larger without becoming dominant.

4. Eliminate the explicit maximum size-standard cap

The existing methodology uses minimum and maximum parameters that constrain size standards. Under the new methodology, there would still be minimum size standards of 500 employees for employee-based standards and $30.6 million for receipts-based standards, but there would be no explicit maximum size standard. This means the lowest size standard for any industry would be at least 500 employees or $30.6 million in receipts. No industry could have a size standard below those thresholds, preventing firms from being classified as other than small at a lower threshold.

However, the proposed rules eliminate the maximum size-standard cap. As a result, a sufficiently large market could support a dramatically larger small-business threshold than exists today.

5. Adjust for increases in productivity in a market in addition to inflation adjustments

Where SBA continues to use revenues, it proposes adjusting monetary standards for both inflation and productivity growth rather than inflation alone.

SBA’s rationale is that technological improvements and increases in worker productivity can cause both business costs and receipts to grow faster than inflation. SBA therefore views a productivity adjustment as necessary to put receipts-based businesses on more comparable footing with businesses measured by employee count. This would cause receipts-based thresholds to increase faster over time than under an inflation-only approach.

How Would the Proposed Rules Impact Government Contractors?

The impact on businesses contracting with the government has two potentially opposing effects.

Companies that recently graduated or are close to graduating could benefit.

At one level, the changes are favorable to recently graduated companies and companies approaching graduation. Under the current size calculations, rapid contract growth can push a company’s average annual receipts above its applicable threshold and deprive the business of the small-business set-asides that helped drive that growth, leaving the company to compete with significantly larger businesses.

Companies that currently qualify as small could face tougher competition.

Conversely, SBA’s Office of Advocacy reports that the changes are expected to add approximately 110,000 to 114,500 businesses to the universe classified as small. Companies currently defined as small would therefore face competition from substantially larger and more established companies that currently do not qualify as small. Those companies may not have the same opportunities for growth that benefited businesses that have recently graduated but would now be reclassified as small under the proposed rules.

How Ice Miller Can Help

These proposed rules could reshape competition for federal set-aside contracts. Ice Miller's Government Contracts team can help you assess how the changes may affect your size status, NAICS codes and contracting strategy. We can also help you prepare comments before the November 20 deadline. Contact a member of our Government Contracts team to discuss your company's position.