If you are an avid SmallGovCon reader and a small business government contractor, you are probably no stranger to at least the basics of SBA’s size standards and its size and affiliation regulations (if not, check out some of our other blogs on the subject and keep an eye out for our upcoming new, second edition of the “SBA Small Business Size and Affiliation Rules” handbook). Additionally, most of our readers and most small business government contractors seem to understand at least the basics of SBA’s contract-based size requirements (i.e. that a small business–regardless of socioeconomic designation(s)–must be small under the size standard assigned to any set-aside contract it wants to bid). But did you know, if you are pursuing or participating in one of SBA’s other small business socioeconomic programs (8(a) Program, HUBZone, WOSB, SDVOSB, etc.), there may actually be some additional size requirements you must meet in order to be generally eligible for such small business socioeconomic statuses?
I am not going to go too far into the general size standards set by the SBA (and if that is a huge bummer to you, again, no worries–our new, updated handbook on the “SBA Small Business Size and Affiliation Rules” is coming very soon!). But in a very condensed nutshell, each contract set aside by the federal government has an assigned North American Industry Classification System (NAICS) code–and each NAICS code carries a specific size standard with it.
So, to bid on one of those set-aside contracts as a small business (whether you are also 8(a), HUBZone, WOSB, SDVOSB, etc., and whether the contract is further set aside for one of those socioeconomic statuses or not), you have to be considered small under that contract’s NAICS code–using SBA’s rules for calculating your size (found in part 121 of SBA’s regulations). Some size standards are based on annual receipts and some are based on your number of employees–but regardless, you will need to meet the standard set by the specific contract you are bidding, period. The rules I am about to discuss are rules SBA has imposed in addition to its general size rules–so keep that in mind.
8(a) Program
The 8(a) Program, naturally, has some of the strictest rules for qualifying as a small business 8(a) Program participant. I say “naturally” because the 8(a) Program also carries with it some of the most sought after benefits of all of SBA’s programs. Amongst the plethora of other eligibility requirements, the 8(a) Program also lays out detailed rules on maintaining your small business size status. The 8(a) Program’s basic eligibility rule says:
a concern meets the basic requirements for admission to the 8(a) BD program if it is a small business which is unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of and residing in the United States, and which demonstrates potential for success.
You might be thinking at this point, great! I am totally a small business under some of the NAICS codes out there, so I am good right? Well, spoiler alert, that is simply not good enough for SBA’s golden child of socioeconomic statuses. In order to get into the 8(a) Program, you also need to “pick” a primary NAICS code for your company–and be (and remain) small under that size standard too (note: pick is in quotations, as it is not a simple selection process; you must be able to show SBA that is the accurate NAICS code for most of the work you do). The 8(a) Program size rules say:
What size business is eligible to participate in the 8(a) BD program?
(a)(1) An applicant concern must qualify as a small business concern as defined in part 121 of this title. The applicable size standard is the one for its primary industry classification . . .(2) In order to remain eligible to participate in the 8(a) BD program after certification, a firm must generally remain small for its primary industry classification, as adjusted during the program. SBA may graduate a Participant prior to the expiration of its program term where the firm exceeds the size standard corresponding to its primary NAICS code, as adjusted, for three successive program years, unless the firm demonstrates that through its growth and development its primary industry is changing, pursuant to the criteria described in 13 CFR 121.107, to a related secondary NAICS code that is contained in its most recently approved business plan. The firm’s business plan must contain specific targets, objectives, and goals for its continued growth and development under its new primary industry.
So, you not only need to be considered small under the NAICS code of any small business or 8(a) Program set-aside contract you wish to bid–but you also cannot exceed the size standard of your primary NAICS code for three years in a row, or you will get the boot. SBA calls this “early graduation” from the 8(a) Program so you don’t feel quite so bad–but it does mean you are out of the 8(a) Program for good. And if you are sitting there thinking to yourself, “so, I will just pick a higher size standard for my primary NAICS code!” That is easier said than done. To do that, you would need to demonstrate to SBA (through financial documents, taxes, contracts, etc.) that your company did in fact migrate to performing the majority of its work under a different NAICS code. In that regard, the 8(a) Program Definitions say:
A Participant may change its primary industry classification where it can demonstrate to SBA by clear evidence that the majority of its total revenues during a three-year period have evolved from one NAICS code to another.
So, to be a small business 8(a) Program participant, you will need to meet these size rules. And to be a small business 8(a) Program participant that can actually bid on a contract–you will need to meet SBA’s size standard for that contract as well. I will quickly note, there are some affiliation exceptions for Tribal-Owned, ANC, and NHO entities–so keep that in mind if you qualify as one of those and are calculating your size.
SDVOSB/VOSB Program
For the SBA’s SDVOSB and VOSB Program, there are also some additional rules for maintaining small business size. But they are not quite as strict as the 8(a) Program. SBA’s SDVOSB/VOSB Eligibility rules state:
What are the requirements a concern must meet to qualify as a VOSB or SDVOSB?
(a) Qualification as a VOSB. To qualify as a VOSB, a business entity must be:
(1) A small business concern as defined in part 121 of this chapter under the size standard corresponding to any NAICS code listed in its SAM profile;
(2) Not less than 51 percent owned and controlled by one or more veterans.
(b) Qualification as an SDVOSB. To qualify as an SDVOSB, a business entity must be:
(1) A small business concern as defined in part 121 of this chapter under the size standard corresponding to any NAICS code listed in its SAM profile;
(2) Not less than 51 percent owned and controlled by one or more service-disabled veterans or, in the case of a veteran with a disability that is rated by the Secretary of Veterans Affairs as a permanent and total disability who are unable to manage the daily business operations of such concern, the spouse or permanent caregiver of such veteran.
Additionally, in the SDVOSB/VOSB Definitions, it says the following:
“Small business concern (SBC)” means, a concern that, with its affiliates, meets the size standard corresponding to any North American Industry Classification System (NAICS) code listed in its SAM profile, pursuant to part 121 of this chapter. At the time of contract offer, a VOSB or SDVOSB must be small within the size standard corresponding to the NAICS code assigned to the contract.
Unlike the 8(a) Program rules, which focus solely on your size under your primary NAICS code (as demonstrated by your work history), the SDVOSB/VOSB rules allow you to consider yourself a small business for purposes of inclusion in SBA’s SDVOSB/VOSB Program as long as you are small under at least one of the NAICS codes you have listed in SAM. But don’t forget, that does not automatically qualify you for small business, SDVOSB, or VOSB set-asides–you still need to be small under the NAICS code for the set-aside contract you want to bid.
WOSB/EDWOSB Program
SBA’s WOSB Program and EDWOSB Program also contain additional size requirements for their participants–but again, not quite as intense as the 8(a) Program requirements. In fact, these size standards closely resemble those set for SDVOSB/VOSB Program participation. Indeed, SBA’s WOSB/EDWOSB regulations state:
(a) Qualification as an EDWOSB. To qualify as an EDWOSB, a concern must be:
(1) A small business concern as defined in part 121 of this chapter under the size standard corresponding to any NAICS code listed in its SAM profile; and
(2) Not less than 51 percent unconditionally and directly owned and controlled by one or more women who are United States citizens and are economically disadvantaged.
(b) Qualification as a WOSB. To qualify as a WOSB, a concern must be:
(1) A small business as defined in part 121 of this chapter for the size standard corresponding to any NAICS code listed in its SAM profile; and
(2) Not less than 51 percent unconditionally and directly owned and controlled by one or more women who are United States citizens.
So, similar to the SDVOSB/VOSB Programs, one can participate in the WOSB/EDWOSB Programs so long as they are small under at least one NAICS code listed on their SAM profile. But again, keep in mind, these WOSB/EDWOSB Program participants still cannot bid any small business, WOSB, or EDWOSB set-asides unless they also qualify as small for that contract’s assigned NAICS code.
HUBZone Program
And last, but certainly not least, is SBA’s HUBZone Program. Regarding the SBA’s size standards applicable to participants in the HUBZone Program, the rules state:
(1) In order to be eligible for HUBZone certification and remain eligible as a certified HUBZone small business concern, a concern, together with its affiliates, must qualify as a small business concern as defined in part 121 of this chapter under the size standard corresponding to any NAICS code listed in its profile in the System for Award Management (SAM.gov).
(2) In order to be eligible for a HUBZone contract, a certified HUBZone small business concern must qualify as small under the size standard corresponding to the NAICS code assigned to the HUBZone contract.
Notably, for the HUBZone Program, the size requirements used to distinguish between the small business status needed to get into the program and the small business size status needed to stay in the program. The rule used to require any HUBZone program applicants to initially be small under their primary NAICS code. Though, such applicants–once admitted–could stay in the HUBZone program by demonstrating that they were still small under at least one NAICS code listed on their SAM. Now, as detailed above, SBA’s size rules for entrance into and for maintaining eligibility for the HUBZone program are the same (requiring only that the company be small for at least one NAICS code it lists in SAM).
While this new rule is certainly easier to comply with (and to remember), I bring up the old rule here for a specific purpose. It appears that SBA failed to update its HUBZone Program definitions (13 C.F.R. § 126.103) when it updated its HUBZone size requirements (13 C.F.R. § 126.200(b)) because the HUBZone definition says that “Small Business Concern (SBC)” still “means a concern that, with its affiliates, meets the size standard for its primary industry, pursuant to part 121 of this chapter.” While I cannot make any promises here that SBA is 100% not going to require applicants to be small in their primary industry–it does seem that this was merely an oversight in the rules, given the rulemaking history here.
I will also note, regarding HUBZones, there is an exception to the size requirements for “small agricultural cooperatives” HUBZone’s, which says: “in determining size, the small agricultural cooperative is treated as a ‘business concern’ and its member shareholders are not considered affiliated with the cooperative by virtue of their membership in the cooperative.”
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I wanted to note one final thing in regard to most of the socioeconomic programs’ size requirements we discussed above. Other than the 8(a) Program (which has been consistent in its size requirements for some time now), the size requirements for all of the programs we covered have been subject to fairly recent regulatory updates–all of which have appeared to be trending toward increased eligibility (i.e., the EDWOSB Program used to require that companies also be small under their primary NAICS code, but it has recently been updated to allow companies to be small under any NAICS code they list in SAM).
That said, it appears the HUBZone definition “oversight” we discussed above is not the only place SBA has failed to make a corresponding regulatory update based on the new rules. In SBA’s current general size rules at 13 C.F.R. § 121.404(b), it still says the following:
Eligibility for SBA programs. A concern applying to be certified as a Participant in SBA’s 8(a) Business Development program (under part 124, subpart A, of this chapter), as a HUBZone small business (under part 126 of this chapter), or as a women-owned small business concern (under part 127 of this chapter) must qualify as a small business for its primary industry classification as of the date of its application and, where applicable, the date the SBA program office requests a formal size determination in connection with a concern that otherwise appears eligible for program certification.
Now, just like the presumably outdated HUBZone definition I discussed earlier, we are pretty dang certain this was merely an oversight by SBA in updating the size rules specific to each socioeconomic program. But we cannot be 100% sure that it is not SBA’s intention to impose a separate requirement for the socioeconomic programs listed in the rule–unless and until SBA tells us otherwise or updates this general size rule to match the size rules for each socioeconomic program. But don’t worry, we will keep you posted on this front!
Whelp, in a nutshell, those are SBA’s rules for participating in its socioeconomic programs for small businesses. These rules–and oh so many more–will be covered in great detail in the upcoming “SBA Small Business Size and Affiliation Rules” handbook, second edition, so keep your eye out for that one!
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