On August 20, 2026, the U.S. Small Business Administration (SBA) published two interrelated notices of proposed rulemaking (NPRM) that, if adopted, would drastically increase the number of companies eligible for small business status as relates to federal procurements. SBA regularly publishes size standards for determining when business entities may qualify for “small business status,” which enables those entities to compete for, among other public procurements, particular procurements set aside solely for small businesses. These standards are based on either an entity’s annual gross receipts or its employee base and categorized by the North American Industrial Code System (NAICS). The current SBA methodology was last issued in 2024, and the NPRMs just released would be the most significant overhaul of the SBA’s size standard process in years.

The first NPRM released by the SBA proposes to consolidate 995 size standards into 338 industry groups and industries. The SBA states these changes have been made to better reflect the nature of markets in which small businesses compete; however, it remains unclear how federal agencies will implement this consolidated approach moving forward for public procurements, and how these changes may impact the competitive environment.

The second NPRM addresses SBA’s Revised Methodology Whitepaper for the development of the size standards set forth in the first NPRM. The revised methodology would default to employee-based size standards for all industry groups or industries where SBA has discretion, with 64 industries transitioning from a receipt-based size standard to an employee-based one, and six industries transitioning from a mix of receipt-based and employee-based standards to an employee-based standard. For industries remaining with a receipt-based standard, the NPRM implements significant upward adjustment to the relevant threshold, at times 10 times higher or even greater.

When combined, the SBA estimates the two NPRMs would make 114,541 additional firms eligible as small businesses, including about 37,002 FY 2025 federal contractors holding 105,655 contracts worth more than $71 billion.

Public comments can be filed by any interested parties until September 21, 2026, with significant participation anticipated due to the shift in SBA methodologies and the increase in potential small business entities for public procurements.

Key points from the NPRMs follow below:

• SBA’s revised methodology eliminates the prior model used by SBA in evaluating size standards. Importantly, the revised methodology largely evaluates size standards at the 4- and 5-digit NAICS level whereas the existing methodology focused on the 6-digit, more granular, NAICS level. Notably, SBA’s methodology also seeks to align its market definition calculations to the Federal Trade Commission and Department of Justice’s Horizontal Merger Guidelines, which SBA states hews closer to its statutory mandate.
• SBA has signaled its intention to shift to a preference for employee-based standards rather than receipt-based standards in areas in which SBA has the discretion to make such determination, which SBA states will stabilize analysis of small business size rather than requiring inclusion/exclusion on a year-over-year basis depending on gross receipts. At present, many categories remain subject to (altered) receipts-based standards in the NPRMs.
• Federal contractors of all sizes would be well served in examining the updated SBA size standards and methodology to evaluate their current size certifications, revised consolidated size standard categories, and whether they may be able to take advantage of an increased size threshold.
• While the SBA is not proposing to make any changes to its affiliation rules, the new size standards could also have significant implications for mergers and acquisitions involving government contractors.
• The NPRMs also specify that SBA chose not to reduce any size standard where analytical results suggest a reduction should occur, in part to ensure that small businesses can obtain small business “[a]t a time of resurgent American manufacturing.” As a result, despite SBA identifying 45 industries for which a decrease in size standard may be warranted, SBA retained existing standards. This included industries such as:

On the whole, the SBA NPRMs reflect a continually changing environment for federal contractors across the compliance landscape. The size standards, if finalized, represent a dramatic change in how small business standards are calculated and could greatly expand the ability of larger firms to access small business set-aside opportunities in the future. Cozen O’Connor’s Government Contracts team will continue to monitor the NPRMs and their potential implementation.

Please contact the authors of this alert with any questions.